1. Profit maximisation does not adequately describe the goal of the firm because:

A. profit maximisation does not require the consideration of risk B. profit maximisation ignores the timing of a project's return C. maximisation of dividend payout ratio is a better description of the goal of the firm D. both a and b

2.Which of the following are not real assets?

A. Preference shares B. Inventory C. Land D. Equipment

3. Which of the following should be the prime objective of a financial manager?

A. Maximise profit each year. B. Avoid financial distress and bankruptcy. C. Maximise operating income D. Maximise current share price.

4. How much money must be put into a bank account yielding 7% (compounded annually) in order to have $5,000 at the end of 5 years (round to nearest $1)?

A. $3,483 B. $3,565 C. $3,736 D. None of the above

5. As a future gift for your 21st birthday your grandmother invests $1,000 for you on the day you are born. She expects the investment to earn 6% per annum. What will be the estimated value of the account on your 21st birthday? (Round to nearest $1)

A. 3,347 B. 3,400. C. 3,461. D. None of the above.

6. The choice of which particular asset to invest in for the firm is considered to be:

A. a capital budgeting decision. B. a capital structure decision. C. a financing decision. D. a working capital decision.

7. You plan to retire in 20 years' time and have established a self-managed superannuation fund which you budget will earn an annual investment return of 5% per annum. If you can deposit $10,000 at the end of each year between now and retirement, what will be the value of your superannuation account on the day you retire? (Round to nearest $10)

A. $333,660. B. $200,000. C. $124,620. D. $530,660.

8. The Effective Annual Rate (EAR) is:

A. the interest rate charged per period multiplied by the number of periods of compounding per year. B. the interest rate expressed as if it were compounded once per year C. always equal to the nominal interest rate. D. always more than the nominal interest rate.

9. If you must choose either Option Y or Option Z below, which would you choose?The same Effective Annual Rate (EAR) applies to both options.Option Y: single cash inflow of $10,000 in 3 years' time Option Z: single cash inflow of $10,000 in 2 years' time A. I am indifferent between the two Options because they have identical cash inflows and the same EAR. B. Option Y because it will always have a higher present value. C. Option Z because it will always have a higher present value. D. The choice depends upon the level of the specific EAR.

10. The minimum rate of return necessary to attract an investor to purchase or hold an asset is referred to as the:

A. asset's Beta. B. investor's risk premium. C. investor's required rate of return. D. risk-free rate of return.

11. Your savings investment account pays a nominal interest rate of 6.25% per annum, compounded monthly. What is the effective annual interest rate (EAR) on your investment?

A. 0.521% B. 6.250% C. 6.432% D. 6.445%

12. Which of the following best describes the Australian dividend imputation system?

A. It allows companies to achieve higher after tax returns.B. It allows double taxation of company net income. C. It removes the double taxation of company net income. D. It allows non-resident shareholders to fully utilise imputation credits.

13. The portion of risk that cannot be eliminated through diversification is referred as:

A. industry risk. B. diversifiable risk. C. systematic risk. D. all of the above.

14. You are considering investing in Gleeson Ltd shares. Which of the following are examples of diversifiable risk?I. Risk resulting from possibility of a stock market crash.II. Risk resulting from uncertainty regarding a possible strike against Gleeson Ltd.III. Risk resulting from an expensive recall of a Gleeson product.IV. Risk resulting from interest rates decreasing.

A. I only B. I and IV C. I, II, III, IV D. II, III

15. You have won a lottery prize which will pay you $20,000 at the end of every year for the next 50 years (total $1 million). If you expect to earn 5% per annum on investment, how much would you accept today as a lump sum in place of the 50 annual payments of $20,000 (round to nearest $100)?

A. $87,200 B. $365,100 C. $524,800 D. $1,000,000

16. If a nominal annual rate of 5.00% is compounded weekly, the effective annual rate is:

A. 4.872% B. 5.000% C. 5.125% D. 5.127%

17. An investment promises to double your money in 6 years. What is the appropriate rate of return on the investment?

A. 16.667% B. 14.667% C. 12.246% D. 100.00%

18. If a company developing a fast-food outlet had $20,000 worth of surplus equipment that could have been sold if the outlet had not gone ahead, this would be considered as:

A. a sunk cost to the project and therefore not included in any project evaluation B. a revenue generating benefit to the firm and therefore included in any project evaluation C. an opportunity cost of proceeding with the project and therefore included in any project evaluation D. totally unrelated to any project evaluation

19. If a firm has to raise funds by issuing new debt in order to accept a new project:

A. the interest charges associated with raising funds are not included as a cash outflow. B. the interest charges associated with raising funds are included as a cash outflow. C. the value of the debt and any interest charges are considered a relevant cash outflow as they occurred as a result of implementing the decision. D. None of the above.

20. When selecting the best project from a group of mutually exclusive projects, you should choose the project with the highest:

A. net present value B. certainty-equivalence C. accounting rate of return D. A and B

21. What is the exact nominal interest rate if inflation is running at 4% and the real rate of interest is 3%?

A. 3.88% B. 3.92 C. 7.00% D. 7.12%%

22. The Net Present Value (NPV) method of decision making in capital budgeting is superior