FINC 600 Midterm Quiz

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Question 1 of 25
4.0/ 4.0 Points
The concept of compound interest is most appropriately described as:
A.Interest earned on an investment
B.The total amount of interest earned over the life of an investment
C.Interest earned on interest
Question 2 of 25
4.0/ 4.0 Points
Which of the following investment rules does not use the time value of the money concept?
A.Net present value
B.Internal rate of return
C.The payback period
D.All of the above use the time value concept

2. Question 3 of 25
4.0/ 4.0 Points
The unique risk is also called the:
A.Unsystematic risk
B.Diversifiable risk
C.Firm specific risk
D.All of the above
Question 4 of 25
2.0/ 4.0 Points
What are some of the important points to remember while estimating the cash flows of a project?
The most important points are
1) They are estimates. So there can be deviations

3. 2) Some huge loss may completely change the return from product.
3) Other risks like market risks, reinvestment risk etc. may affect the cash flow pattern
Question 5 of 25
4.0/ 4.0 Points
A bond with duration of 10 years has yield to maturity of 10%. This bond's volatility is:
A.9.09%
B.6.8%
C.14.6%
D.6.0%
Question 6 of 25
4.0/ 4.0 Points
Major disadvantages of the Sarbanes-Oxley Act of 2002 (SOX) are the following except:
A.good investor protection

4. B.increase in compliance costs
C.that it constrains managers' ability to run the firm
D.that it may discourage development of human capital in the firm
Question 7 of 25
4.0/ 4.0 Points
According to the net present value rule, an investment in a project should be made if the:
A.Net present value is greater than the cost of investment
B.Net present value is greater than the present value of cash flows
C.Net present value is positive
D.Net present value is negative
Question 8 of 25
0.0/ 4.0 Points
If the Wall Street Journal Quotation for a company has the following values close: 55.14; Net
chg: = + 1.04; then the closing price for the stock for the previous trading day was?
A.$56.18
B.$54.10
C.$55.66

5. D.None of the above.
Question 9 of 25
4.0/ 4.0 Points
For example, in the case of an electric car project, which of the following cash flows should be
treated as incremental flows when deciding whether to go ahead with the project?
A.The cost of research and development undertaken for developing the electric car in the past
three years
B.The annual depreciation charge
C.Tax savings resulting from the depreciation charges
D.Dividend payments
Question 10 of 25
4.0/ 4.0 Points
The following are some of the actions shareholders can take if the corporation is not performing
well:

6. A.Replace the board of directors in an election.
B.Force the board of directors to change the management team.
C.Sell their shares of stock in the corporation.
D.Any of the above
Question 11 of 25
4.0/ 4.0 Points
The mixture of debt and equity, used to finance a corporation is also known as:
A.Capital budgeting
B.Capital structure
C.Investing
D.Treasury
Question 12 of 25
3.5/ 4.0 Points

7. Discuss the general principle in the valuation of a common stock.
Question 13 of 25
4.0/ 4.0 Points
The managers of a firm can maximize stockholder wealth by:
A.Taking all projects with positive NPVs
B.Taking all projects with NPVs greater than the cost of investment
C.Taking all projects with NPVs greater than present value of cash flow
D.All of the above
Question 14 of 25
4.0/ 4.0 Points
Florida Company (FC) and Minnesota Company (MC) are both service companies. Their
historical return for the past three years are: FC: - 5%,15%, 20%; MC: 8%, 8%, 20%. If FC and
MC are combined in a portfolio with 50% of the funds invested in each, calculate the expected
return on the portfolio.
A.12%

8. B.10%
C.11%
D.None of the above.
Question 15 of 25
4.0/ 4.0 Points
The market value of XYZ Corporation's common stock is 40 million and the market value of the
risk-free debt is 60 million. The beta of the company's common stock is 0.8, and the expected
market risk premium is 10%. If the Treasury bill rate is 6%, what is the firm's cost of capital?
(Assume no taxes.)