Midterm 1 - Fall 2007

Midterm 1 - Fall 2007 - VERSION #1 M I M E 310 E N G I N E...

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VERSION #1 1 M I M E 310 E N G I N E E R I N G E C O N O M Y M I M E 310 E C O N O M Y Class Test #2 – Thursday, 15 November, 2007 – 90 minutes PRINT your family name / initial and record your student ID number in the spaces provided below. FAMILY NAME / INITIAL S O L U T I O N S STUDENT ID # This test consists of 18 multiple This test consists of 18 multiple-choice questions, and two problems requi choice questions, and two problems requiring a ing a full solution. The full solution. The multiple-choice question are worth a total of 80 points. There are no penalties for incorrect answers. The problems are worth a total of 20 points. MULTIPLE-CHOICE QUESTIONS Circle the correct answer on this test paper and record it on the computer answer sheet. Multiple-choice Statements – Circle the correct answer on this paper and record it on the computer answer sheet. (3 points each for a total of 15) Note : There are no penalties for incorrect answers. 1. Holmes Aircraft recently announced an increase in its net income, yet its cash flow declined relative to last year. Which one of the following reasons could explain this? A) The company’s interest expense increased. B) The company’s depreciation expenses decreased. C) The company’s operating income decreased. D) All of the statements above are possible reasons. E) None of the statements above are possible reasons. 2. In the micro-economic theory of the business firm, profits per period are maximised at the production rate at which: A) Marginal cost equals marginal revenue. B) Average cost is minimised. C) Marginal cost is minimised. D) Marginal cost equals unit selling price E) Both statements A and D are correct. 47% 24% Proportion of correct answers
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VERSION #1 2 3. Which capital investment evaluation technique is described by the following characteris- tics? (1) Easy to understand and communicate; (2) May result in multiple answers; (3) May lead to incorrect decisions when applied to mutually exclusive investment projects. A) Net present value B) Internal rate of return C) Accounting rate of return D) Payback period E) Discounted payback period 4. When projects are mutually exclusive, A) they can only be accepted if capital funds are limited. B) the selection of one project excludes the selection of all other projects. C) the selection of one project is not affected by either the selection or rejection of another. D) the present value ratio should be used to rank the projects. E) the firm can decide to proceed with as many projects as possible. 5. An increase in the financial leverage of a firm as a result of an increase in long-term debt __________ the potential reward to common shareholders while ___________ the risk of financial distress or bankruptcy. A) decreases; decreasing B) increases; decreasing C) increases; increasing D) decreases; increasing E) does not affect; increasing Problems with Multiple-choice Answers – Circle the correct answer on this paper and record it on the computer answer sheet. (5 points each for a total of 65) Note : There are no penalties for incorrect answers.
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Midterm 1 - Fall 2007 - VERSION #1 M I M E 310 E N G I N E...

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