Finance Exam Questions and Answers

1.This exam consists of 7 multiple-choice, 2 short-essay, and 6 problem-solving questions. 

2.For the problem-solving question, you need to show all the works if you were to receive partial points.  You also have to either underline or circle on your final answer.

1.The goal of corporations should be . (6 points)

a.Maximizing their shareholders wealth.
b.Minimizing their operating expenses.
c.Maximizing their net profits.
d.Maximizing their market shares.
e.Minimizing potential conflicts between employees and management teams.

2.Which of the following statements is most correct? (6 points)

a.Firms usually depreciate their assets as much as possible to minimize their operating expenses.
b.Firms should minimize their depreciation to maximize their total expenses.
c.Firms usually prefer to depreciate their assets as much as possible to maximize firm value.
d.The amount of depreciation has nothing to do with firm’s tax payment.
e.None of the above. 

3.Which of the following statement is most correct? (6 points)

a.Accrued Expenses is one of current liabilities.
b.The Board of Directors is a body that is elected by shareholders and has a fiduciary responsibility to them.  
c.Common-size income statement is the income statement in which each line item is expressed as a percentage of the value of revenues. 
d.Companies offer various incentive compensations such as stock or stock options to minimize any potential agency problem.
e.All of the above.

4.Which of the following is likely to increase the Present Value (PV) of the future cash flow? (6 points)

   
a. Decreasing the future cash flow.
b. Decreasing the interest rate.
c. Increasing the interest rate.
d. All of the above.
e. None of the above

5.As the discount rate increases, the future value of an annuity of $5,000 over the next ten years. (6 points)

a.Increases
b.Decreases.
c.Remains same.
d.Depends on the rate of inflation.
e.Not enough information to tell.

6.Suppose you have just won the lottery and must choose one of the following (guaranteed) payoffs.  The interest rate is 14%; ignore tax consequences.  Which payoff has the highest value? (6 points)

a.$118,000 paid today
b.$190,000 paid nine years from today
c.$125,000 paid one year from today.
d.$139,000 paid three years from today.
e. No difference.

7.Which of the following statement(s) is most correct? (6 points)

a.As the discount rate increases, the present value of an annuity of $1 over the next five years increases.
b.The future value of the ordinary annuity is greater as the interest rate decreases.
c.As a credit cardholder, you prefer daily compounding to monthly compounding.
d.As a lender, you prefer annual compounding to monthly compounding. 
e.None of the above.

8.What is the “Agency Problem” in finance? What are the solutions to the managerial agency problems? (6 points)

9.What is the Board of Directors? Provide at least 3 main roles of the Board of Directors? (6 points)

10.What is the Net Plant & Equipment in 1998 and 1999? (6 points)

11.Calculate the balance for Account Receivable in 1998 and 1999? (8 points)

12.What is firm’s Net Income in 1998 and 1999? (8 points)

13.What is the Quick ratio in 1998 and 1999? (6 points)

14.What is the ROE in 1998 and 1999? (6 points)

15.What is the EPS (Earnings Per Share) in 1998 and 1999? (6 points)