11.A firm that manufactures paper is considering a project to set up a logging operation. Wood pulp generated by the project - normally an unwanted by-product of a logging operation - is an input to the paper manufacturing process. This will save the company $240,000 in wood pulp purchases, but it will cost $30,000 more to transport the wood pulp to the paper factory than it would cost to dump it as waste.

How would you describe this situation in terms of the NPV analysis for the logging operation?

a.

There is a positive externality equal to $210,000 which should be included in the NPV analysis.

b.

There is a negative externality equal to $210,000 which should be included in the NPV analysis.

c.

There is a negative externality equal to $240,000 which should be included in the NPV analysis.

d.

There is a positive externality equal to $240,000 which should be included in the NPV analysis.

12.On a given day the excess return on the Australian stock market is -2.1%. On the same day the excess return on Share ABC is -1.4%. If there were NO unsystematic risk factors affecting the share on that day, what is your estimate of the share's beta?

a.

0.67

b.

1.68

c.

0.58

d.

1.50

13.Which of the following terms is NOT a synonym for risk?

Select one:

a.

Volatility

b.

Valuability

c.

Variability

d.

None of the above. (In other words, ALL of the above ARE synonyms for risk.)

14. A company has issued a series of debentures which have a face value of $500 and pay a semi-annual coupon at a coupon rate of 8%. What is the value of each coupon payment?

a.

$19.00

b.

$10.00

c.

$20.00

d.

$40.00

15. Which of the following is a disadvantage of a partnership as a form of business organisation?

Select one:

a.

Each of the partners is liable for all of the firm's debts.

b.

Each of the partners is liable for his or her share of the firm's debts (e.g. if there are 10 partners, each partner is liable for 10% of the firm's debts).

c.

Partners have limited liability for the debts of the firm.

d.

Each of the partners is liable for the debts that he or she personally incurs on behalf of the firm.

16. A share is expected to pay a dividend of $4.51 next year, and this dividend is expected to grow at the rate of 3% in perpetuity. If the current price of the share is $33.78, what is the cost of ordinary shares for the firm?

a.

16.75%

b.

14.35%

c.

16.35%

d.

13.05%

17. How is the realised percentage return from investing in a share calculated?

Select one:

a.

The cash flows received from the share divided by the price paid for the share.

b.

Dividends received plus the difference between the selling price and the purchase price, divided by the purchase price.

c.

The price paid for the share divided by the selling price.

d.

Both (b) and (c).

18. Project Beta is a 6-year project which requires an initial outlay of $2,000. This outlay will be depreciated using straight-line depreciation over the life of the project. It will generate incremental revenue of $1000 per year and incremental costs (excluding depreciation) of $100. The tax rate is 25%.

What is the project's annual tax payable?

a.

$58

b.

$175

c.

$142

d.

$425

19. Which of the following statements is FALSE?

Select one:

a.

Systematic risk is also known as undiversifiable risk.

b.

Systematic risk is also known as common risk.

c.

Systematic risk is also known as market risk.

d.

Systematic risk is also known as independent risk.

20. In the context of capital budgeting, what is the definition of independent projects?

Select one:

a.

Projects which can be accepted or rejected without affecting the viability of other projects.

b.

Projects which can be run without any input from the management of the firm.

c.

Alternative projects where only one of them can be accepted.

d.

Alternative projects where the acceptance of one of them affects the viability of the others.