FINC 341 Final Exam Theory
T/F: EVA considers the cost of debt AND the cost of equity - CORRECT ANSWER- T
T/F: EVA is highly correlated with stock price - CORRECT ANSWER- T
T/F: EVA is good for measuring management performance in specific divisions -
CORRECT ANSWER- T
T/F: MVA is good for measuring management performance in specific divisions -
CORRECT ANSWER- F
Old Dividend Exclusion Rules - CORRECT ANSWER- 70/80/100
New Dividend Exclusion Rules - CORRECT ANSWER- 50/65/100
T/F: The higher the tax bracket an individual is in, the more attractive municipal bonds
are - CORRECT ANSWER- T
T/F: Dividend income received by individuals used to be taxed as ordinary income -
CORRECT ANSWER- T
T/F: You can reduce annual ordinary income by 3000 when dealing with capital losses -
CORRECT ANSWER- T
If debt ratio increases, EM _____________________ - CORRECT ANSWER- increases
T/F: If a firm maximizes ROE, it's quite probable it has taken on too much debt -
CORRECT ANSWER- T
T/F: Firms have learned that using ROE for bonuses can be problematic, and are
increasingly turning to EVA to determine bonuses - CORRECT ANSWER- T
T/F: A number of companies use ROE to determine executives' bonuses, but it can entice
an executive to turn down a project that is profitable but brings down the average ROE for
the year - CORRECT ANSWER- T
T/F: When two projects of different size/investment are compared using ROE, the one with
the lower ROE adds less value ($) to the firm than the other one - CORRECT ANSWER- F
T/F: EVA considers the cost of debt AND the cost of equity - CORRECT ANSWER- T
T/F: EVA is highly correlated with stock price - CORRECT ANSWER- T
T/F: EVA is good for measuring management performance in specific divisions -
CORRECT ANSWER- T
T/F: MVA is good for measuring management performance in specific divisions -
CORRECT ANSWER- F
Old Dividend Exclusion Rules - CORRECT ANSWER- 70/80/100
New Dividend Exclusion Rules - CORRECT ANSWER- 50/65/100
T/F: The higher the tax bracket an individual is in, the more attractive municipal bonds
are - CORRECT ANSWER- T
T/F: Dividend income received by individuals used to be taxed as ordinary income -
CORRECT ANSWER- T
T/F: You can reduce annual ordinary income by 3000 when dealing with capital losses -
CORRECT ANSWER- T
If debt ratio increases, EM _____________________ - CORRECT ANSWER- increases
T/F: If a firm maximizes ROE, it's quite probable it has taken on too much debt -
CORRECT ANSWER- T
T/F: Firms have learned that using ROE for bonuses can be problematic, and are
increasingly turning to EVA to determine bonuses - CORRECT ANSWER- T
T/F: A number of companies use ROE to determine executives' bonuses, but it can entice
an executive to turn down a project that is profitable but brings down the average ROE for
the year - CORRECT ANSWER- T
T/F: When two projects of different size/investment are compared using ROE, the one with
the lower ROE adds less value ($) to the firm than the other one - CORRECT ANSWER- F
