Quiz_3_Fall__08 - Group 1 1.

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Group 1 1. Which of the following is a characteristic of a well-functioning securities  market?  A. Insecure property rights B. Contracts difficult to enforce C. No accountability of borrowers and investors D. Transparent financial statements E. Market players do not bear consequences of their decisions    Answer: D 2. Which of the following is a characteristic of a well-functioning securities  market?  A. Lack of transparency in financial statements B. No accountability of borrowers and investors C. Secure property rights D. Market players do not bear consequences of their decisions E. Contracts difficult to enforce Answer: C Group 2: 3. Capital budgeting decisions focus on which area of a company’s balance  sheet? A. Short-term assets B. Long-term assets C. Short-term liabilities D. Long-term liabilities E. Stockholders’ equity Answer: B 4. Working capital management decisions focus on which area of a company’s balance sheet? A. Long-term assets B. Short-term assets only
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C. Short-term liabilities only D. Short-term assets and liabilities E. Shareholder’s Equity Answer: D Group 3: 5. A general rule used by companies in determining whether or not to make an investment is: A. Invest when cost of capital is equal to expected return on investment. B. Invest when there is a positive expected return on investment. C. Invest when cost of capital is greater than return on investment. D. Invest when net present value of cash flows is negative. E. Invest when expected return on investment is greater than cost of capital. Answer: E Group 4: 6. Generally, what happens to a company’s stock price when it announces its investment  plans? A. Stock price increases. B. Stock price remains the same. C. Stock prices are not affected at all by announced investment plans. D. Stock price decreases initially, but then increases shortly thereafter. E. Stock price decreases. Answer: A Group 5: 7. Which of the following is a real-world example of a good capital budgeting investment? A. GM’s investment in the company’s infrastructure in the 1980s B. Motorola’s investment in the Iridium Project C. Disney’s investment in The Lion King D. RJR Nabisco’s investment in smokeless cigarettes E. Disney’s investment in EuroDisney Answer: C
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8. Which of the following is a real-world example of a bad capital budgeting investment? A. Disney’s investment in The Lion King B. Microsoft’s investment in Windows 2000. C. The Alaskan Pipeline D. Motorola’s investment in the Iridium Project E. Boeing’s investment in the 777. Answer: D
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This note was uploaded on 06/03/2010 for the course BA 302 taught by Professor R during the Fall '08 term at Pennsylvania State University, University Park.

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Quiz_3_Fall__08 - Group 1 1.

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