S07Assg1solnMC

S07Assg1solnMC - FIN 2200 CORPORATION FINANCE Sum 2007...

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FIN 2200 – CORPORATION FINANCE Sum 2007 Instructors: A. Dua Assignment #1 answer key 1. Firms issue securities or financial instruments (or claims) to raise capital. These claims are classified as: a) stocks or bonds b) debt or equity c) contingent claims on the value of the firm d) all of the above e) none of the above. 2. The balance sheet is made up of what five key components: a) fixed assets, current liabilities, long term debt, tangible current assets and shareholders equity b) intangible fixed assets, current liabilities, long term debt, net income and current assets c) fixed assets, long term debt, current assets, current liabilities and shareholders equity d) current assets, fixed assets, long term debt, shareholders equity and retained earnings e) none of the above. 3. Value is created and recognized over time if: a) cash raised is invested in the investment activities of the firm. b) funds are raised in the capital markets. c) cash paid to investors, shareholders and bondholders is greater than cash raised in the financial markets. d) Management pursues activities to reduce taxes to zero. e) all of the above. 4. Finance determines the value of an investment made by the firm depends on: a) the cash flows of the firm b) the timing and risk of the cash flows c) the profits earned under GAAP d) A and C e) A and B 5. The Simple Corporation has outstanding obligations to the Complex Corporation of $250. It is year-end and the total cash flow of Simple from all sources is $325. The contingent payoff to the debt-holders and the equity-holders is: $250; $75
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FIN 2200 – CORPORATION FINANCE Sum 2007 Instructors: A. Dua Assignment #1 answer key 6. The Splitz Corporation has borrowed $5 million in debt with a promise to repay $5.5 million in one year. The corporation had 10 million shares outstanding worth $2 each at the time of the borrowing. Splitz earns $6 million during the year. In millions of dollars what is the debt-holder's contingent claim; how much do the debt-holders receive; and, how much do the equity holders receive? 5.5; 5.5; .5. 7. Shareholders attempt to control managerial behavior by: a) electing the board of directors who select management. b) the threat of a takeover by another firm. c) setting compensation contracts and tying compensation to corporate success. d) A and B e) A and C. 8. Fixed assets can be either tangible or intangible. Intangible assets are: a) property, plant and equipment b) can be converted to cash in the normal course of business c) can be very valuable, although they have no physical presence, such as trademarks or patents d) are highly liquid e) none of the above. 9. Debt is a contractual obligation that: a) requires the payout of residual flows to the holders of these instruments. b)
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This note was uploaded on 04/06/2010 for the course ECON 2342 taught by Professor James during the Three '09 term at ADFA.

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S07Assg1solnMC - FIN 2200 CORPORATION FINANCE Sum 2007...

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