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eng120-spring05-mt1-Yao-soln

eng120-spring05-mt1-Yao-soln - E120 Principles of...

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E120: Principles of Engineering Economics Midterm Exam 1 Solutions Part 1: Concepts. (20 points, 5 each) 1.1). Which of the following is NOT a type of agency cost? a. The cost of an audit of the firm’s financial statements. b. The cost of a corporate jet provided to the CEO as part of her compensation package. c. Loans provided to the firm’s managers at below-market interest rates. d. The costs of financing the firm. e. The cost of providing life insurance to the firm’s CFO. Answer: D 1.2) Which of the following is considered a secondary market transaction? I. You buy shares in the public offering of a start-up company in the computer industry. II. Your mother sells you the shares she purchased in your uncle’s latest business venture. III. You buy shares in General Motors from your closest friend. a. I only b. II only c. I and II only d. II and III only e. I, II, and III Answer: D 1.3) Which of the following is/are FALSE regarding the balance sheet and income statement? I. The income statement reflects a summary of activity that occurs over some period of time while the balance sheet is a snapshot taken at a single point in time.
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