FINC 3131 CH. 1 HW questions

Newton Incorporation plans to replace its old machinery with new robotics. While the robotics are expected to produces total benefits of $605,000 (in today's dollars) over the next five years, the existing machinery would produce $394,00 (in today's dollars) over the same time period. The cost of buying and installing the new robotics is estimated to be $232,000, while the old machinery can be sold for $50,000. Calculate the net benefit from replacing the old machinery with new robotics!

$29,000 Marginal Benefit: (605,000- 394,000)= 211,000 Marginal Cost: (232,000-50,000)= 182,000 Net Benefit: (211,000-182,000)= 29,000

Which of the following statements is correct?

The intrinsic value of a company is the present value of all future cash flows.

Which one of the following is a general characteristic of a securities broker?

Trades listed securities in an auction market

A corporation:

is a legal entity separate from its owners.

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

Agency

Which one of the following statements is correct?

All stock trades between existing shareholders are secondary market transactions.

Which one of the following is most likely to align management's priorities with shareholders' interests?

Compensating managers with shares of stock that must be held for three years before the shares can be sold

Which one of the following statements related to securities dealers is correct?

Dealers buy and sell from their own inventory.

Capital budgeting includes the evaluation of which of the following?

Size, timing, and risk of future cash flows

An energy company made recently a large investment to upgrade its technology. While these improvements won't have much of an effect on performance in the short run, they are expected to increase future cash flows significantly. What effect do you expect on the firms' earnings per share this year, as well as the future stock price, assuming all other factors stay constant and the new investment is expected to be profitable?

Earnings per share in the current year will decline. Stock price will increase.

Which of the following are effective means of aligning management goals with shareholder interests? I. Employee stock options II. Threat of a takeover III. Management bonuses tied to performance goals IV. Threat of a proxy fight

I, II, III, and IV (all of the above)

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

Limited partnership

Which one of the following is most likely to create a situation where an agency conflict could arise?

Separating management from ownership