Midterm 1 - Fall 2008

Midterm 1 - Fall 2008 - #18: /10 #19: /9 Total: /19 VERSION...

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VERSION 1 1 M I M E 3 1 0 E N G I N E E R I N G E C O N O M Y Class Test #2 – Wednesday, 12 November, 2008 – 90 minutes PRINT your family name / initial and record your student ID number in the spaces provided below. FAMILY NAME / INITIAL STUDENT ID # S O L U T I O N S This test consists of 17 multiple-choice questions, and two problems requiring a full solution. The multiple-choice question are worth a total of 81 points. There are no penalties for incorrect answers. The problems are worth a total of 19 points. MULTIPLE-CHOICE QUESTIONS Circle the correct answers on this test paper and record them on the computer answer sheet. Multiple-choice Statements – Circle the correct answer on this test paper and record it on the computer answer sheet. (2.5 points each for a total of 15) Note : There are no penalties for incorrect answers. 1. When investment alternatives are mutually exclusive, A) they can only be accepted if capital funds are limited. B) the selection of one alternative excludes the selection of all other alternatives. C) the selection of one alternative is not affected by either the selection or rejection of another alternative. 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. 2. In which one of the following situations will a firm in a perfectly competitive market earn profits? A) Marginal revenue > average variable costs B) Marginal revenue > average cost C) Average cost > marginal cost D) Average cost > average revenue E) Average revenue > average variable cost #18: /10 #19: /9 Total: /19
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VERSION 1 2 3. Which one of the statements listed below is correct? A) Preferred shares allow the expansion of a company’s equity base without diluting the voting power of the bondholders. B) The objective of business firms that attempt to maintain a pre-determined capital structure in the long run is to maximise their weighted-average cost of capital. C) The maturity date on a bond specifies the time at which the interest becomes pay- able. D) Leverage refers to the ability of a business to increase its return on equity by including long-term debt in its capital structure. E) The periodical interest payment paid by a bond is called its yield-to-maturity. 4. Which capital investment evaluation criterion is described by the following characteristics? (1) Is a measure of investment efficiency; (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 5. The figure below represents the curves necessary for a perfectly competitive firm to make its production decision (ATC: average cost, MC: marginal cost). In the short run, if the market price of the product is $8 (horizontal line), the firm should produce ________ of output, thus incurring a ____________________. A)
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This note was uploaded on 01/22/2012 for the course MIME 310 taught by Professor Bilido during the Fall '08 term at McGill.

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Midterm 1 - Fall 2008 - #18: /10 #19: /9 Total: /19 VERSION...

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