31. If at the beginning of the year you buy a stock for $90 and at the end of the year increases to $100, then your capital gain will be 10.00%.

True or false

32. The lower the depreciation value of an asset the higher the cash flow of the firm.

True or false

33. It is preferred to get a loan with simple interest than a loan with compounding interest, other things being equal.

True or false

34. A 10-year annual coupon bond has a coupon rate of 5%. What is the price of the bond if the market interest rate is 5.5%?

Select one:

a. $1,500

b. $1,000

c. $386.09

d. $962.31

35. A two-year investment project has an initial cost of $400 million expected after tax cash flows of $220 million and $242 million on years 1 and 2 respectively. What is the net present value of the project if the discount rate is 10%?

Select one:

a. $62 million

b. $400 million

c. None of THESE

d. $0 million

e. -$100 million

36. Two years ago, you bought a 10-year bond with semi-annual coupon payments, which currently is selling at $1,050. What is the annual coupon payment if the yield to maturity is 6%?

Select one:

a. None of THESE

b. $64.94

c. $67.96

d. $33.98

e. $60

37. The required rate of return (CAPM) is the rate that makes the NPV of a project equal to zero.

True or false

38. If a corporation goes bankrupt, then preferred shareholders will have a first claim on the company assets than common shareholders.

True or false

39. Which of the following statements is true?

Select one:

a. The lower the discount rate the higher the present value of the expected cash flows of a project.

b. The initial investment in net working capital is usually recuperated at the end of the projects useful life.

c. The higher the annual depreciation the higher the net present value of a project.

d. All of THESE

40. A machine has an initial cost of $500,000 and useful life of 10 years. The tax rate is 40% and the discount rate is 12%. The annual depreciation tax shield is $20,000 in years 1 to 10. What is the present value of the annual depreciation tax shield?

Select one:

a. None of THESE

b. $45,201.78

c. $67,802.68

d. $113,004.46

41. The market value of a firm refers to its book value.

True or false

42. Which of the following statements is true?

Select one:

a. Proxy is a legal grant of authority by a shareholder to someone else to vote his/her shares.

b. Under straight voting, shareholders with majority of votes can choose all the members to the board of directors.

c. All of THESE

d. Under cumulative voting, minority shareholders have the possibility to choose some members to the board of directors.

43. You need to decide between two mutually exclusive projects. Project A is investing in Machine A with a useful live of 3 years or investing in machine B with a useful life of 5 years. Additional information.

Machine A: Initial investment of $10 million and annual cost of $500,000 on years 1 to 3.

Machine B: Initial investment of $9 million and annual cost of $800,000 on years 1 to 5.

If the discount rate is 11%, which machine should be chosen?

Select one:

a. Choose the machine with the lowest present value of annual costs.

b. Choose machine with the lowest total cost.

c. Machine B

d. Machine A

e. Choose the machine with the lowest IRR.

44. A way to mitigate agency costs between managers and shareholders is giving performance bonus to managers.

True or false

45. The value of an investment in shares of Air Canada at the end of the second year was $115,500. The returns during the first and second year were 10% and 5%, respectively. What is the value of the initial investment?

Select one:

a. $99,945.91

b. None of the THESE

c. $107,441.86

d. $100,434.78

e. $100,000

46. A corporation compensates shareholders by paying them interest for their contribution to the capital of the firm.

True or false