ESSENTIALS OF CORPORATE FINANCE ROSS
COMPLETE COURSE REVIEW GUIDE
◉ the corporate officer in charge of accounting, treasury, credit
policy, capital budgeting and investor relations is:
Answer: CFO
◉ the primary goals of a financial manager of a corporation is:
a) increasing dividends
b) increasing market share
c) growing earnings
d) maximizing shareholder value.
Answer: d) maximizing shareholder value
◉ which one of the following is most apt to align management
priorities with shareholders' interest?
a) increasing the number of paid holidays that long-term employees
are entitled to receive
b) allowing employees to retire early with full retirement benefits
c) compensating managers with shares of stock that must be held
for 3 years before the shares can be sold
d) increasing employee retirement benefits
,e) allowing a manager to decorate his or her own office one he or
she has been in that office for a period of three years or more.
Answer: c) compensating managers with shares of stock that must
be held for 3 years before the shares can be sold
◉ agency costs refer to:.
Answer: costs that arise due to conflicts of interest between
shareholders and managers
◉ t or f: a company can have multiple classes of common stock that
have different voting rights.
Answer: true
◉ investors require a 3% return on risk-free investments. On a
particular risky investment, investors require an excess return of 7%
in addition to the risk-free rate of 3%. What is this excess return
called?.
Answer: risk premium
◉ Jamie earned $180 in interest on her savings account last year.
She has decided to leave the $180 in her account so that she can
earn interest on the $180 this year. The interest Jamie earns this
year on this $180 is referred to as:
a) interest on interest
,b) accrued interest
c) simple interest
d) discounted interest
e) complex interest.
Answer: a) interest on interest
◉ How much is a $16000 investment in a savings account worth
after 4 years if the bank pays an annual interest rate of 1%.
Answer: $16,649.66
◉ Exactly 2 years ago, Carols deposited $484 into a savings account
that has earned 1% annual interest, compounded quarterly. There
have been no other deposits and no withdrawals. What is the
account balance today?.
Answer: $493.76
◉ Use the rule of 72 to determine approximately how many years it
takes $50,000 to double in value when growing at an interest rate of
6% per year..
Answer: 11.9 years
◉ Pei's savings account balance is $12,000 today. Pei opened the
account exactly 7 years ago with a $10,000 deposit. Pei has made no
, other deposits or withdrawals. What annual interest rate
(compounded annually) has the account earned?.
Answer: 0.0264
◉ which of the following will increase the present value of a lump
sum future amount? Assume the interest rate is a positive value and
all interest is reinvested.
a) none of these
b) decrease in the future value
c) increase in the interest rate
d) increase in the time period
e) decrease in the interest rate.
Answer: e) decrease in the interest rate
◉ Centre Bank pays 2.5 percent interest, compounded annually, on
its savings accounts. Country Bank pays 2.5 percent simple interest
on its savings accounts. You want to deposit sufficient funds today so
that you will have $1,500 in your account 2 years from today. The
amount you must deposit today:
a) is the same regardless of which bank you choose because they
both pay compound interest
b) will be greater if you invest with Centre bank
c) will be greater if you invest with Country bank
COMPLETE COURSE REVIEW GUIDE
◉ the corporate officer in charge of accounting, treasury, credit
policy, capital budgeting and investor relations is:
Answer: CFO
◉ the primary goals of a financial manager of a corporation is:
a) increasing dividends
b) increasing market share
c) growing earnings
d) maximizing shareholder value.
Answer: d) maximizing shareholder value
◉ which one of the following is most apt to align management
priorities with shareholders' interest?
a) increasing the number of paid holidays that long-term employees
are entitled to receive
b) allowing employees to retire early with full retirement benefits
c) compensating managers with shares of stock that must be held
for 3 years before the shares can be sold
d) increasing employee retirement benefits
,e) allowing a manager to decorate his or her own office one he or
she has been in that office for a period of three years or more.
Answer: c) compensating managers with shares of stock that must
be held for 3 years before the shares can be sold
◉ agency costs refer to:.
Answer: costs that arise due to conflicts of interest between
shareholders and managers
◉ t or f: a company can have multiple classes of common stock that
have different voting rights.
Answer: true
◉ investors require a 3% return on risk-free investments. On a
particular risky investment, investors require an excess return of 7%
in addition to the risk-free rate of 3%. What is this excess return
called?.
Answer: risk premium
◉ Jamie earned $180 in interest on her savings account last year.
She has decided to leave the $180 in her account so that she can
earn interest on the $180 this year. The interest Jamie earns this
year on this $180 is referred to as:
a) interest on interest
,b) accrued interest
c) simple interest
d) discounted interest
e) complex interest.
Answer: a) interest on interest
◉ How much is a $16000 investment in a savings account worth
after 4 years if the bank pays an annual interest rate of 1%.
Answer: $16,649.66
◉ Exactly 2 years ago, Carols deposited $484 into a savings account
that has earned 1% annual interest, compounded quarterly. There
have been no other deposits and no withdrawals. What is the
account balance today?.
Answer: $493.76
◉ Use the rule of 72 to determine approximately how many years it
takes $50,000 to double in value when growing at an interest rate of
6% per year..
Answer: 11.9 years
◉ Pei's savings account balance is $12,000 today. Pei opened the
account exactly 7 years ago with a $10,000 deposit. Pei has made no
, other deposits or withdrawals. What annual interest rate
(compounded annually) has the account earned?.
Answer: 0.0264
◉ which of the following will increase the present value of a lump
sum future amount? Assume the interest rate is a positive value and
all interest is reinvested.
a) none of these
b) decrease in the future value
c) increase in the interest rate
d) increase in the time period
e) decrease in the interest rate.
Answer: e) decrease in the interest rate
◉ Centre Bank pays 2.5 percent interest, compounded annually, on
its savings accounts. Country Bank pays 2.5 percent simple interest
on its savings accounts. You want to deposit sufficient funds today so
that you will have $1,500 in your account 2 years from today. The
amount you must deposit today:
a) is the same regardless of which bank you choose because they
both pay compound interest
b) will be greater if you invest with Centre bank
c) will be greater if you invest with Country bank
