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Exam 4

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Question 1 (1.5 points)
Uncertainty is present when:
  1. outcomes are unknown
  2. all possibilities are unknown
  3. all probabilities are unknown
  4. all of the above
Question 2 (1.5 points)
The crossover discount rate only equates the:
  1. NPV for two or more investments
  2. IRR for two or more investments
  3. present value payback period for two or more investments
  4. all of these
Question 3 (1.5 points)
The Sarbanes-Oxley Act does not significantly tighten accountability standards for:
  1. directors and officers
  2. stockholders
  3. auditors and legal counsel
  4. securities analysts
Question 4 (1.5 points)
Expenditures necessary to overcome owner-manager conflicts are called:
  1. decision costs
  2. search costs
  3. information costs
  4. agency costs
Question 5 (1.5 points)
For two projects of differing sizes, the project that is less risky has the:
  1. highest standard deviation
  2. highest coefficient of variation
  3. lowest coefficient of variation
  4. highest expected profit
Question 6 (1.5 points)
The emergence of the virtual corporation can be explained by the:
  1. feather-bedding practices of unions
  2. low cost of capital
  3. high cost of capital
  4. Coase Theorem
Question 7 (1.5 points)
Net present value is the:
  1. current-dollar difference between marginal revenues and marginal costs
  2. change in net cash flows due to an investment project
  3. change in before-tax cash flows due to an investment project
  4. change in net after-tax cash flows due to an investment project
Question 8 (1.5 points)
The reservation wage includes a return to:
  1. risk-avoidance behavior
  2. special capabilities within the firm
  3. firm-specific human capital
  4. general human capital
Question 9 (1.5 points)
Acceptance of investment projects where IRR > MCC:
  1. will increase the value of the firm
  2. will decrease the value of the firm
  3. have no impact on the value of the firm
  4. none of these
Question 10 (1.5 points)
Capital budgeting is the process of planning investment expenditures when returns are expected to:
  1. be earned at any time in the future
  2. be earned within one year
  3. extend beyond one generation
  4. extend beyond one year
Question 11 (1.5 points)
Ownership value derived from the ability to control the type of output produced gives rise to high:
  1. debt levels
  2. ownership dispersion
  3. institutional ownership
  4. inside ownership
Question 12 (1.5 points)
The maximin criterion involves:
  1. minimization of expected opportunity costs
  2. avoidance of the worst-case scenario
  3. acceptance of the best-case scenario
  4. maximization of expected returns
Question 13 (1.5 points)
When NPV is positive, the IRR:
  1. is less than the cost of capital
  2. equals the cost of capital
  3. exceeds the cost of capital
  4. none of these
Question 14 (1.5 points)
Economic risk is the:
  1. variance of total profit
  2. standard deviation of total profit
  3. coefficient of variation for total profit
  4. chance of loss
Question 15 (1.5 points)
If the tax rate is 25% and the prevailing interest rate is 12%, the after tax cost of debt is:
  1. 3%
  2. 9%
  3. 16%
  4. 37%
Question 16 (1.5 points)
A "flat" organization design reflects a(n):
  1. "close-to-the-customer" management style
  2. U-form organization
  3. centralized decision authority
  4. "top-down" management style
Question 17 (1.5 points)
Union organizing expenses are a type of:
  1. information cost
  2. search expense
  3. enforcement cost
  4. decision cost
Question 18 (1.5 points)
A valuation model that explicitly accounts for risk can be written as:
  1. Choice A
  2. Choice B
  3. Choice C
  4. Choice D
Question 19 (1.5 points)
The risk-free rate of return is the investor reward for:
  1. risk-taking
  2. postponing consumption
  3. relative stock-price variability
  4. absolute stock-price variability
Question 20 (1.5 points)
High inside ownership at Microsoft reflects the company's:
  1. low amenity potential
  2. low quality-control potential
  3. regulatory potential
  4. high quality-control potential
Question 21 (1.5 points)
When net present value is positive:
  1. the internal rate of return equals the cost of capital
  2. the internal rate of return exceeds the cost of capital
  3. the internal rate of return is less than the cost of capital
  4. the internal rate of return equals zero
Question 22 (1.5 points)
Firms should finance a project if its:
  1. expected cash flow is positive
  2. net cash flow is positive
  3. internal rate of return is positive
  4. net present value is positive
Question 23 (1.5 points)
The quality-control potential of high-tech firms tends to result in:
  1. low institutional ownership
  2. high inside ownership
  3. high institutional ownership
  4. significant financial leverage
Question 24 (1.5 points)
The internal rate of return can be calculated by solving for ki after setting net present value equal to:
  1. zero
  2. the initial investment cost or outlay
  3. the cost of capital
  4. expected cash flows
Question 25 (1.5 points)
To justify an investment that involves an out-of-pocket cost of $100 and a 50/50 chance of payoffs of $0 or $250, the decision maker must have personal certainty equivalent adjustment factor that is:
  1. a = 0.8
  2. a ≤ 0.8
  3. a > 0.8
  4. a < 0.8
Question 26 (1.5 points)
The relationship between McDonalds and Coca-Cola is:
  1. vertical
  2. virtual
  3. conglomerate
  4. horizontal
Question 27 (1.5 points)
The inefficient preference for stable performance is called the:
  1. information asymmetry problem
  2. information sharing problem
  3. managerial myopia problem
  4. stockholder myopia problem
Question 28 (1.5 points)
The natural conflict between owners and managers is called the:
  1. end-of game problem
  2. incentive problem
  3. agency problem
  4. capture problem
Question 29 (1.5 points)
A business connection between companies at different points in the production-distribution chain is called a:
  1. market extension merger
  2. vertical relation
  3. conglomerate merger
  4. horizontal relation
Question 30 (1.5 points)
For a risk seeker the marginal utility of money is:
  1. constant
  2. increasing
  3. positive
  4. diminishing
Exam 4 Problems
Copyright 2008, by the Contributing Authors. Cite/attribute Resource. admin. (2009, January 27). Exam 4. Retrieved November 23, 2009, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/economics/managerial-economics/exam4.htm. This work is licensed under a Creative Commons License. Creative Commons License