Corporate Finance

Multiple Choice Test October 2010

On the following pages you will find 34 questions. The questions are intended to test your understanding of chapter 1 – 3, 5 – 14 and 17 in the 9th edition of the Brealey, Myers and Allen textbook including appendices but excluding quizzes, practical questions, challenge questions, and mini-cases. Therefore, the questions have been sorted according to chapters in the Brealey, Myers and Allen textbook. On the last paper you will see the following table for each question Question XX A) B) C)

D)

IMPORTANT: Answer each question by putting an X in one and only one of the boxes, e.g. Question XX A) X B) C) D) Then it is clear for you and the examiner how you have answered the question. You are not penalized for giving a wrong answer (compared to not answering at all) so it is optimal to answer all questions. Good luck. .

Chapter 1 Finance and the Financial Manager Question 1 The Chief Financial Officer (CFO) of a corporation oversees: A) The treasurer’s work only. B) The controller’s work only. C) Both the treasurer’s and the controller’s work. D) None of the above.

Chapter 2 Present Values, the Objectives of the Firm, and Corporate Governance Question 2 According to the net present value rule, an investment in a project should be made if the: A) Net present value is greater than the cost of investment B) Net present value is greater than the present value of cash flows C) Net present value is positive D) Net present value is negative

Question 3 Mr. Free has $100 dollars income this year and zero income next year. The market interest rate is 10% per year. If Mr. Free consumes $30 this year, and invests the rest in the market, what will be his consumption next year? A) $50 B) $100 C) $77 D) $55

Question 4 Mr. Dell has $100 income this year and zero income next year. The market interest rate is 10%