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Version A(1) - Answer Key FIN 256 FALL 2011 EXAM #1 SECTION...

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Page 1 FIN 256 Answer Key FALL 2011 EXAM #1 You can use pen or pencil to darken in the circle on the scan-tron form corresponding to the correct answer to each question. If you make a mistake, erase or cross out your answer completely, then darken in the correct circle. SECTION M001 VERSION A This Exam consists of 24 questions on 12 pages. You are responsible to ensure that all pages are attached to your exam. All multiple choice questions should be answered on the scan-tron form. In regards to multiple choice questions, only the scan-tron will be graded. Answers written on the exam question sheet will not be graded. A
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Name: Page 2 EXAM #1 Multiple Choice questions are worth 2 points each for a total of 40 points. 1.) Agency problems can best be characterized as: A.) dislike of firm's bondholders by its equity holders. B.) only a short term issue. C.) differing incentives between managers and owners. D.) spending corporate resources. E.) friction between the primary and secondary markets. 2.) A share of IBM stock is purchased by an individual investor for $75 and later sold to another investor for $125. Who profits from this sale? A.) IBM. B.) The first investor. C.) The second investor. D.) Profit is split between IBM and the first investor. E.) Profit is split between the first and the second investor. 3.) In general, what is changing as you read up the left hand side of a balance sheet? A.) The assets are more fully depreciated. B.) The assets are growing in value. C.) The assets are increasing in maturity. D.) The assets are becoming less liquid. E.) The assets are becoming more liquid. 4.) A company is considering an investment in raw materials that would cost and would return next year. Investors expect a return of from projects with similar risk as the project the company is investigating. What should the company do with the it has set aside for this project? A.) The company should invest in the project. B.) The company should pay in dividends to its shareholders. C.) The company should invest half in the project, and pay out the other half in a dividend. D.) The company should invest all the money in corporate bonds paying . E.) The company should not invest in the project, and leave the cash in their bank account. 9% $100,000 $100,000 $114,000 17% $100,000 A
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Name: Page 3 EXAM #1 5.) Assuming that corporate tax rates change from to at income, which of the the following statements is correct for a firm with income? A.) Its marginal tax rate is B.) Its average tax rate is C.) Its marginal tax rate is D.) Its average tax rate is E.) Its average tax rate is 6.) Given a set future value, which of the following will contribute to a lower present value? A.)
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Version A(1) - Answer Key FIN 256 FALL 2011 EXAM #1 SECTION...

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