1. Which of the followings is not true?

Common stock represents ownership and thus has voting rights.

Common stock dividends are tax-deductable.

Stockholders elect the members of the board of directors

Common stock has no maturity.

2. A typical loan arrangement requires the same monthly payment at the end of each month for a certain period. This type of cash flow stream is called _____.

a perpetuity.

an ordinary annuity.

an annuity due.

multiple uneven cash flows.

3. The value of any investment is found by

computing the net cash flows that investment generates

computing the present value of the future cash flows the investment will generate

computing the future value of all cash flows

determining the opportunity cost of the investment

4. Which one of the following statements about the payback method is not true?

The payback method is simple and easy to understand

One of its strengths is that it considers entire cash flows.

The payback method represents the number of years it takes a project to recover its initial investment.

There is no economic rational that links the payback method to shareholder wealth maximization.

5. A company estimates that its required rate of return is 12 percent. Which of the following projects should the company accept, if all these projects are independent?

Project A requires an initial investment of $2,000,000 and generates a NPV of $200.

Project B has an IRR of 11.5 percent.

Project C requires an initial investment of $1,000,000 and generates an IRR of 11 percent.

None of the above.