finance 12
sid485
finance_12.docx1. 1. Monitoring is done by: I) Shareholders; II) Board of Directors; III) Independent accountants; IV) Lenders A. I only B. I and II only C. I, II, and III only D. I, II, III and IV
Select one:
A
B
C
D
2. In the Principal-Agent framework, the ultimate principal is: I) Managers; II) Board of directors; III) Shareholders; IV) Government A. I and II only B. IV only C. III only D. I, II and IV only
Select one:
A
B
C
D
3. The following are agency problems in capital budgeting except: A. Empire building B. Entrenching investment C. Avoiding risks D. Accepting all the positive NPV projects
Select one:
A
B
C
D
4. The following capital expenditure(s) are (is) included in the capital budget: A. Investment in information technology B. Investment in research and development C. Investment in training and personal development D. Investment in a new office building
Select one:
A
B
C
D
5. When stock options are given to managers as incentives, typically the exercise price of these options is set equal to the firm's: A. stock price on the day the options are granted. B. expected stock price in one year from the day the options are granted. C. expected stock price on the expiration date of the options. D. none of the above.
Select one:
A
B
C
D
6. Which of the following capital expenditure may not appear in capital budget? I) Investment in a new plant II) Investment in a new machine III) Investment in training employees A. I only B. II only C. III only D. I and II only
Select one:
C
A
B
D
7. Managers on a fixed salary are subjected to following temptations all the time: I) reduced effort II) perks or private benefits III) empire building IV) entrenching investments V) avoiding risks A. I, II and V only B. I, II, and IV only C. I, II, III and IV only D. I, II, III, IV and V
Select one:
A
B
C
D
8. The term Economic Value Added (EVA) is copyrighted by: A. Brealey-Myers B. Brealey-Myers-Allen C. Ross-Westerfield D. Stern-Stewart
Select one:
A
B
C
D
9. Economic Value Added (EVA) is calculated as follows: A. EVA = Income Earned - (cost of debt) * (investment) B. EVA = Income Earned - (cost of equity) * (investment) C. EVA = Income Earned - (cost of capital) * (investment) D. none of the above
Select one:
A
B
C
D
10. The following are advantages of using EVA as a measure of performance except: A. EVA is a substitute for explicit monitoring by top management B. EVA makes the cost of capital visible to the operating management hence reduce capital employed C. EVA does not measure present value D. EVA highlights the parts of business that are not performing
Select one:
A
B
C
D
11. A firm has an average investment of $10,000 during the year.
During the same time the firm has an after tax income of $2,000.
If the cost of capital is 15%, what is the 'net return on the investment'?
(Find your answer in %, up to 2 decimals; but do not enter % sign in the answer box.
Eg., If your answer is 7.65%, just enter 7.65 in the answer box)
Answer:
12. A fiirm has an average investment of $10,000 during the year.
During the same period, the firm has an after tax investment of $2,000.
Calculate the economic value added (EVA) for the firm, if the Cost of capital is 15%.
(indicate the answer in round numbers, without decimals; do not indicate $)
Answer:
