Question 1

(TCO A) Which of the following is NOT an advantage of a sole proprietorship?

Single taxation

Ease of setup

Correct!
Limited liability

No separation of ownership and control
Chapter: 1.1 The Four Types of Firms

Question 2

(TCO A) You overhear your manager saying that she plans to book an ocean-view room on her upcoming trip to Miami for a meeting. You know that the interior rooms are much less expensive, but that your manager is traveling at the company’s expense. This use of additional funds comes about as a result of:

Correct!
an agency problem.

an adverse selection problem.

a moral hazard.

a publicity problem.
Chapter: 1 Ownership Versus Control of Corporations

Question 3

(TCO A) The firm’s asset turnover measures

the value of assets held per dollar of shareholder equity.

the return the firm has earned on its past investments.

the firm’s ability to sell a product for more than the cost of producing it.

Question 4

(TCO B) When we express the value of a cash flow or series of cash flows in terms of dollars today, we call it the _ of the investment. If we express it in terms of dollars in the future, we call it the _.

Correct!
present value; future value

future value; present value

ordinary annuity; annuity due

discount factor; discount rate
Chapter 4: Time Value of Money

Question 5

(TCO D) Which of the following statements is FALSE?

The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond.

The bond certificate indicates the amounts and dates of all payments to be made.

Question 6

(TCO D) Which of the following statements is FALSE?

Estimating dividends, especially for the distant future, is difficult.

A firm can only pay out its earnings to investors or reinvest their earnings.

Successful young firms often have high initial earnings growth rates.

Question 7

(TCO B) If today you put $10,000 into an account paying 9% annually, how much will there be in the account after 6 years? Show your work.

Question 8

(TCO B) You take out a 6-year car loan for $20,000. The loan has a 4% annual interest rate. The payments are made monthly. What are the monthly payments? Show your work.

Question 9

(TCO D) A particular bond has 8 years to maturity. It has a face value of $1,000. It has a YTM of 7% and the coupons are paid semiannually at a 9% annual rate. What does the bond currently sell for? Show your work.

Question 10

(TCO D) A bond currently sells for $887 even though it has a par of $1,000. It was issued one year ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM? Show your work.

Question 11

(TCO D) A stock pays an annual dividend of $2.50 and that dividend is not expected to change. Similar stocks pay a return of 8%. What is P0? Show your work.

Question 12

(TCO D) A stock has just paid a dividend and declared an annual dividend of $20.00 to be paid one year from today. The dividend is expected to grow at a 7% annual rate. The return on equity for similar stocks is 12%. What is P0? Show your work.

Question 13

(TCO A) The DuPont Identity expresses the firm’s ROE in terms of? Explain in details.

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