1. Which of the following factors is a disadvantage of a corporation versus either a partnership or a sole proprietorship?
a) Corporate taxes are more onerous b) The investors are liable for the firm’s debts c) Transfer of ownership is more difficult d) Attracting capital investment is more difficult
2. Which general statement regarding a $210,000 fixed rate mortgage for 20 years would apply to ignoring taxes and any transaction costs?
a) The monthly loan payments would remain constant for the life of the loan. b) One-third of the interest would be pad at the end of 5 years. c) Half way through repayment of the loan, the monthly payments towards the principle will be less for the remaining years of the loan. d) The interest payments would be greater in the first 5 years and level off after that.
3. You are analyzing the potential value of an investment by calculating the present value of expected cash flows. Which of the following circumstances would lower the calculated value of the investment?
a) Cash flow risk decreases b) Cash flows are greater in the earlier years c) The discount rate decreases d) The discount rate increases.