Fin 4424 Quiz 1

Which of the following assets is tangible? ExxonMobil's corporate headquarters building Apple Inc.'s trademark Microsoft's technical expertise Hewlett-Packard's most recent printer patent

ExxonMobil's corporate headquarters building

A firm's total asset value belongs entirely to the shareholders.

False

Real assets of a corporation are claims on their financial assets.

False

Ms. Anderson has $60,000 income this year and $40,000 next year. The market interest rate is 10 percent per year. Suppose Ms. Anderson consumes $80,000 this year. What will be her consumption next year? $30,000 $60,000 $70,000 $18,000

$18,000 Borrow $20,000 this year to consume 60,000 + 20,000 = 80,000. Consumption next year = 40,000 - (20,000 × 1.1) = 18,000.

Mr. Smith has an income of $40,000 this year and $60,000 next year. He can invest in a project that costs $30,000 this year, which generates an income of $36,000 next year. The market interest rate is 10 percent. What will be his consumption next year if Mr. Smith invests in the project and consumes $50,000 this year? $60,000 $62,000 $52,000 $40,000

$52,000 Consumption next year = [40,000 - 30,000 - 50,000] × 1.1 + (60,000 + 36,000) = 52,000.

Mr. Free has $100 income this year and zero income next year. The market interest rate is 10 percent per year. If Mr. Free consumes $30 this year and invests the rest in the market, what will be his consumption next year?

77 (with margin: 0)

Costs associated with the conflicts of interest between the bondholders and the shareholders of a corporation are called legal costs. agency costs. bankruptcy costs. administrative costs.

agency costs.

Disadvantages of the corporate form include agency costs. all of the options. cost of managing the corporation. double taxation.

all of the options.

A firm's investment decision is also called its leasing decision. financing decision. liquidity decision. capital budgeting decision.

capital budgeting decision.

Limited liability is an important feature of partnerships. corporations. both partnerships and corporations. sole proprietorships.

corporations.

Generally, a corporation is owned by its shareholders. managers, board of directors, and shareholders. managers. board of directors and shareholders.

shareholders.