Ownership and management of corporations

Question

Question 1. The following are examples of intangible assets except ______.

• building
• trade marks
• patents
• technical expertise

Question 2. The following are advantages of separation of ownership and management of corporations except ______.

• corporations can exist forever
• facilitate transfer of ownership without affecting the operations of the firm
• hire professional managers
• incur agency costs

Question 3. Conflicts of interest between shareholders and managers of a firm result in ______.

• principal-agent problem
• increased agency costs
• both A and B
• managers owning the firm

Question 4. Agency costs are incurred by a corporation because ______.

• managers may not attempt to maximize the value of the firm to shareholders
• shareholders incur monitoring cost
• separation of ownership and management
• all of the above

Question 5. An initial investment of $400,000 will produce an end of year cash flow of $480,000. What is the NPV of the project at a discount rate of 20%?

• $176,000
• $80,000
• $0 (zero)
• None of the above

Question 6. According to the net present value rule, an investment in a project should be made if the ______.

• net present value is greater than the cost of investment
• net present value is greater than the present value of cash flows
• net present value is positive
• net present value is negative

Question 7. The payoffs of an investment are dependent on the state of the economy. The economy can have two states, recession or growth, with equal probability. If the payoff in the event of growth is $140 and in the event of recession is $60, what is the expected payoff for the investment?

• $100
• $110
• $120
• None of the above

Question 8. What is the present value of the following cash flow at a discount rate of 9%?

Year 1    Year 2    Year 3
$100,000    $150,000    $200,000

• $372,431.81
• $450,000
• $405,950.68
• none of the above

Question 9. After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in the retirement to receive this income, if the interest is 9% per year (assume that the payments start on the day of retirement)?

• $736,693.47
• $802,995.88
• $2,043,750
• none of the above

Question 10. If you invest $100 at 12% APR for three years, how much would you have at the end of 3 years using compound interest?

• $136
• $140.49
• $240.18
• none of the above