QUESTION 1

1. The primary goal of a corporate firm is to:
2. maximize profits.
3. lower costs.
4. a. and b.
5. none of the above

4 points

QUESTION 2

1. The total value of a firm equals stockholder equity minus liabilities
2. True
3. False

4 points

QUESTION 3

1. Using the corporate tax tables in your text, determine the following tax rate if a firm earns $400,000 gross income, of which $325,000 is taxable:
2. marginal rate:_______________
3. average rate:_______________
4. effective rate: ______________
5. For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac).

QUESTION 4

1. Historically,the average P/E ratio is approximately 15 to 16. If the S & P 500 has a current P/E ratio of approximately 25, then you would consider the stock market to be overvalued.
2. True
3. False

4 points

QUESTION 5

1. Corporations are required to submit audited financial statements to the SEC (Securities and Exchange Commission).
2. This would be a type of _______________cost:
3. accounting cost
4. business cost
5. agency costs
6. operational cost

4 points

QUESTION 6

1. Initial Public Offerings take place in:
2. the primary market
3. the secondary market
4. the registration process
5. either a. or b. depending on the type of stock being issued

4 points

QUESTION 7

1. Which of the following isNOT true concerning a corporation going public:
2. unlimited owner liability is a positive reason.
3. ease of raising capital is a positive reason.
4. relatively lower taxes is a positive reason.
5. it is easier to transferownership if a firm becomes a corporation.
6. none of the above, all are true statements and represent positive aspects of going public.

4 points

QUESTION 8

1. The value of a firm can best be determined by discounting the value of future earnings (eps).
2. True
3. False

QUESTION 9

1. ____________________is a non-cash deduction that reflects adjustments made in asset book values in accordance with the matching principle in financial accounting.(fill-in)

QUESTION 11

1. _______________________is probably the most important accounting ratio that measures the bottom-line performance of the firm with respect to the equity shareholders.
2. Profit margin
3. current ratio
4. ROE
5. ROA
6. none of the above

4 points

QUESTION 12

1. net income divided by number of outstanding stock shares equals:
2. the P/E ratio
3. earnings per share
4. profit margin
5. none of the above

4 points

QUESTION 13

1. Calculate the EAR for a 12% loan, 8 year maturity, compounded quarterly.
2. _________________ %(fill-in and use2 decimal places)SHOW WORK

QUESTION 14

1. A firm's ROE = ROA when:
2. a firm finances with debt and equity
3. a firm does not pay out dividends
4. a firm does not finance with debt
5. not of the above, it is not possible for ROE = ROA.

4 points

QUESTION 15

1. The most important, basic finance questions involving a corporate financial manager include:
2. capital budgeting(how to allocate long term funds)
3. capital structure (how to raise funds)
4. working capital (how to makeshort-term decisions)
5. all the above
6. a. and b. only

4 points

QUESTION 16

1. If your Uncle promises to set up a trust fund that will pay you $1,000 at 5% interest forever (perpetual), calculate the present value of this unlimited cash flow.SHOW WORK
2. $200,000
3. $20,000
4. $ 2 million
5. $50,000
6. $500,000
7. none of the above.

4 points

QUESTION 17

1. The stock price of a firm is ultimately determined by:
2. the supply and demand of investors in the market place.
3. the cumulative earnings per share of a firm.
4. profit margin
5. Return on equity.

QUESTION 18

1. Defineand discuss the importance of the Dupont Identity:

QUESTION 19

1. Given the following cash flows, calculate the present value using both single value discounts and the annuity (PMT) formula:
2. cash flows:
3. Year 1:20
4. Year 2:30
5. Year 3:0
6. Years 4- 35:40 per year.
7. Discount rate = 8%
8. SHOW WORK:

QUESTION 20

1. Discuss how the value of a firm is measured, and discussthe particular driving forces that increase the value of a firm in terms of executive management decision making:
2. Be specific