Quiz_3_Spring_2010

Quiz_3_Spring_2010 - G roup 1 1. A. B. C. D. E. Which one...

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Group 1 1. Which one of the following factors promotes a well-functioning securities market? A. Insecure property rights B. Contracts are 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 one of the following factors promotes 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 are difficult to enforce Answer: C GROUP 2 3. 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.
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E. Invest when expected return on investment is greater than cost of capital. Answer: E 4. 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 cost of capital is less than the return on investment. Answer: E Group 3: 5. 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 6. Which of the following is a real-world example of a bad capital budgeting investment? A. Disney’s investment in The Lion King
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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 Group 4: 7. Which of the following is an ADVANTAGE of using debt financing as compared to equity financing? A. There is no cost of debt for any company B. Debt financing cannot lead to financial distress. C. With debt financing, the company does not incur a fixed financing obligation D. Interest paid on debt financings is tax deductible. E. Equity financing leads to financial distress. Answer: D 8. Which of the following is an ADVANTAGE of using equity financing as compared to debt financing? A. With equity, there are no fixed financing obligations. B.
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Quiz_3_Spring_2010 - G roup 1 1. A. B. C. D. E. Which one...

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