N1563 Seminar 1

1)"Double taxation" refers to:

• A) all partners paying equal taxes on profits.

• B) paying taxes on profits at the corporate level and dividends at the personal level.

• C) the fact that marginal tax rates are doubled for corporations.

• D) corporations paying taxes on both dividends and retained earnings.

Which of these duties are responsibilities of the corporate treasurer?

• A) Cash management and banking relationships

• B) Financial statements and taxes

• C) Raising capital and financial statements

• D) Cash management and tax reporting

3) Which of the firm's financial managers is most likely to be involved with obtaining financing for the firm?

• A) Treasurer

• B) Board of directors

• C) Controller

• D) Chief Operating Officer

4) A firm with spare cash

• A) should always invest it in U.S. equities.

• B) should invest it in the safest projects available.

• C) should pay it out to shareholders unless the firm can earn a higher rate of return on the cash than the shareholders can earn by investing in the capital market.

• D) should always reinvest it in new equipment.

5) Ethical decision making by management has a payoff for shareholders in terms of:

• A) increased managerial benefits.

• B) higher current dividend payments.

• C) improved capital structure.

• D) enhanced firm reputation value.

6) Which one of the following can best be characterized as an agency problem?

• A) differing opinions among directors as to the merits of paying a higher dividend.

• B) persistently late delivery times by a major supplier.

• C) differing incentives between managers and owners.

• D) geological problems in the company's new gold mine.

7) When managers' compensation plans are tied in a meaningful manner to the value of the firm, agency problems:

• A) will be created.

• B) are eliminated entirely from the firm.

• C) can be reduced.

• D) are shifted to other stakeholders.

8) A firm has an average investment of $10,000 during the year. During the same time, the firm generates after tax income of $2,000.

Calculate the economic value added (EVA) for the firm. (The cost of capital is 15%.)

• A) $500

• B) $1,500

• C) $2,000

• D) $1,000

9) One calculates economic value added (EVA) as follows:

• A) EVA = income earned - (cost of debt) × (investment)

• B) EVA = income earned - (cost of equity) × (investment)

• C) EVA = income earned - (cost of capital) × (investment)

• D) EVA = income earned - (investment) × (cost of capital)

10) One calculates economic profit (EP) as follows:

• A) EP = (ROI - r) × (capital invested), where r = cost of capital

• B) EP = (ROI + r) × (capital invested), where r = cost of capital

• C) EP = (ROI) × (capital invested)

• D) EP = (ROI)/(capital invested)