econ1 - Econ 435 Fall 2009 Practice First Midterm 1. Which...

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Econ 435 – Fall 2009 Practice First Midterm 1. Which of the following statements is true? A. A business entity operated and taxed like a partnership, but with limited liability for the owners is called a limited liability company. B. The primary goal of financial management is to minimize operational costs and maximize firm efficiency C. A conflict of interest between the stockholders and management of a firm is called legal liability. D. Agency costs refer to the costs that result from default and bankruptcy of a firm. E. None of the above statement 2. The goal of management should be to A. Maximize the current dividend payment for the current shareholder B. Maximize the probability that the short-term bond will be paid on time C. Maximize the share price for the current shareholders D. Maximize the current profit of the firm E. None of the above 3. Which of the following statements is true? A. Net capital spending is equal to the net income plus depreciation B. Cash flow to stockholders is defined as the cash dividends plus repurchases of equity minus new equity financing. C. Assets are listed on the balance sheet in order of decreasing size D. Fixed Assets = Liabilities + Stockholder's Equity is the basis for the balance sheet E. None of the above 4. If inventory is $30M, fixed assets are $100M, accounts receivable is $20M, cash is $10M, and notes payable is $30M, what is the value of the current assets (listed here)? A. $100M B. $80M C. $60M D. $40M E. None of the above 5. If you want to invest in the short-term bonds of a firm, which of the following will you likely care the most about? A. Cash ratio B. Debt-equity ratio C. Equity multiplier D. Current ratio E. Return on equity 6. If total assets are $100M, the debt-equity ratio is 0.2 and net income is $20M, what is the ROE? A. 24% B. 32% C. 50%
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D. 12% E. None of them 7. What is the present value of the following asset: you will get the $100 five years from today and the $100 payments will continue annually forever, assuming the annual discount rate is 10%. A. $1000 B. $683.01 C. $620.92 D. $768.67 E. None of them 8. Which of the following statement is true? A. There is no difference between the compound interest and the simple interest B. Simple interest allows for reinvestment of interest payments C. Compound interest allows for reinvestment of interest payments D. Interest payments will be higher looking at just simple interest as compared to compound interest. E. None of the above is true 9. What is the current price of a five year, zero-coupon bond paying $1000 at maturity if the yield to maturity is 10%? A. $683.01 B.$620.92 C. $564.47 D. $709.78 E. None of them 10. If the next dividend payment one year from now will be $5, after that the dividends are expected to grow at 3% forever, and the required rate of return for the stock is 8%, what is the current stock price? A. 80
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This note was uploaded on 04/13/2010 for the course ECON 330 taught by Professor Minetti during the Fall '08 term at Michigan State University.

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econ1 - Econ 435 Fall 2009 Practice First Midterm 1. Which...

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