Multiple choice questions on time value of money.
1. The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to
a. Maximize its expected total corporate income
b. Maximize its expected EPS
c. Minimize the chances of losses
d. Maximize the stock price per share over the long run, which is the stock intrinsic value
e. Maximize the stock price on a specific target rate
2. What's the future value of $2000 after three years if the appropriate interest rate is 8%, compounded semiannually?
a. $2,854.13
b. $2,781.45
c. $2,324.89
d. $2,011.87
e. $2,530.64
3. You own an oil well that will pay you $25,000 per year for 8 years, with the first payment being made today. If you think a fair return on the well is 7%, how much should you ask for if you decide to sell it?
a. $159,732
b. $116,110
c. $217,513
d. $315,976
e. $288,349
4. Suppose you borrowed $25,000 at a rate of 8% and must repay it in 4 equal installments at the end of each of the next four years. How large your payments are?
a. $7,691.45
b. $7,548.02
c. $7,324.89
d. $7,011.87
e. $7,854.13
5. If a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT?
a. The lower the company's TIE ratio, other things held constant, the lower the interest rate the bank would charge the firm.
b. The lower the company's EBITDA coverage ratio, other things held constant, the lower the interest rate the bank would charge the firm.
c. Other things held constant, the lower the current asset ratio, the lower the interest rate the bank would charge the firm.
d. Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm.
e. Other things held constant, the higher the debt ratio, the lower the interest rate the bank would charge the firm.