FINC 341 Final Exam Theory Questions and Answers Already Passed
T - Answers T/F: EVA considers the cost of debt AND the cost of equity
T - Answers T/F: EVA is highly correlated with stock price
T - Answers T/F: EVA is good for measuring management performance in specific divisions
F - Answers T/F: MVA is good for measuring management performance in specific divisions
70/80/100 - Answers Old Dividend Exclusion Rules
50/65/100 - Answers New Dividend Exclusion Rules
T - Answers T/F: The higher the tax bracket an individual is in, the more attractive municipal bonds are
T - Answers T/F: Dividend income received by individuals used to be taxed as ordinary income
T - Answers T/F: You can reduce annual ordinary income by 3000 when dealing with capital losses
increases - Answers If debt ratio increases, EM _____________________
T - Answers T/F: If a firm maximizes ROE, it's quite probable it has taken on too much debt
T - Answers T/F: Firms have learned that using ROE for bonuses can be problematic, and are increasingly
turning to EVA to determine bonuses
T - Answers 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
F - Answers 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
T - Answers T/F: A firm's ROA can equal its ROE only if the firm has no debt in its capital structure
1-(1/EM) - Answers DR =
1/(1-DR) - Answers EM =
F - Answers T/F: A benefit of focusing on ROE is that it ensures that all profitable projects will be
accepted so that the average ROE of the firm will be boosted
F - Answers T/F: Since ROE is an important measure of performance, financial managers should try to
maximize the company's ROE
T - Answers T/F: EVA is different for Net Income because EVA reflects the cost of equity as well as the
cost of debt
, F - Answers T/F: When two mutually exclusive projects are being considered, the one with the higher
ROE should be chosen, regardless of the project size
F - Answers T/F: A firm's EPS is highly correlated with its stock price
F - Answers T/F: While the NASDAQ trades more dollar volume than the NYSE, the NYSE has a higher
share volume traded than the NASDAQ
T - Answers T/F: While the NASDAQ trades less dollar volume than the NYSE, the NYSE has a lower share
volume traded than the NASDAQ
F - Answers T/F: In 1972, 68 brokers created the NYSE Board under the Buttonwood Agreement
T - Answers T/F: In 1972, 24 brokers created the NYSE Board under the Buttonwood Agreement
T - Answers T/F: In a dutch auction, stocks are sold at the highest bid price that would sell all of the
shares in the offering
F - Answers T/F: When a company puts out a bond issue and then two years later puts out another bond
issue, the second bond issue is being sold on the secondary market
F - Answers T/F: A dealer's profit is the bid-ask spread, and this spread generally becomes larger when
the stock is traded more often
T - Answers T/F: The Federal Reserve typically lowers interest rates during recessions to stimulate the
economy
T - Answers T/F: When a manager's bonus compensation is determined by ROE, they may be
encouraged to not accept good projects with lower (but good) ROEs
F - Answers T/F: EVA is different from Net Income because EVA reflects the cost of equity but not the
cost of debt
F - Answers T/F: A firm's MVA is highly correlated with its stock price
F - Answers T/F: If a firm's Equity Multiplier is 1.0, the firm does not have any equity in its capital
structure
F - Answers T/F: A firm's ROE considers the risk of accepting a project
T - Answers T/F: The TC&J Act lowered the maximum marginal tax rate for individuals from 39.6% to
37%
F - Answers T/F: Management's goal should be to take actions designed to maximize a firm's net income
F - Answers T/F: The corporate alternative minimum tax rule was kept, but individuals no longer have an
alternative minimum tax rule
T - Answers T/F: EVA considers the cost of debt AND the cost of equity
T - Answers T/F: EVA is highly correlated with stock price
T - Answers T/F: EVA is good for measuring management performance in specific divisions
F - Answers T/F: MVA is good for measuring management performance in specific divisions
70/80/100 - Answers Old Dividend Exclusion Rules
50/65/100 - Answers New Dividend Exclusion Rules
T - Answers T/F: The higher the tax bracket an individual is in, the more attractive municipal bonds are
T - Answers T/F: Dividend income received by individuals used to be taxed as ordinary income
T - Answers T/F: You can reduce annual ordinary income by 3000 when dealing with capital losses
increases - Answers If debt ratio increases, EM _____________________
T - Answers T/F: If a firm maximizes ROE, it's quite probable it has taken on too much debt
T - Answers T/F: Firms have learned that using ROE for bonuses can be problematic, and are increasingly
turning to EVA to determine bonuses
T - Answers 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
F - Answers 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
T - Answers T/F: A firm's ROA can equal its ROE only if the firm has no debt in its capital structure
1-(1/EM) - Answers DR =
1/(1-DR) - Answers EM =
F - Answers T/F: A benefit of focusing on ROE is that it ensures that all profitable projects will be
accepted so that the average ROE of the firm will be boosted
F - Answers T/F: Since ROE is an important measure of performance, financial managers should try to
maximize the company's ROE
T - Answers T/F: EVA is different for Net Income because EVA reflects the cost of equity as well as the
cost of debt
, F - Answers T/F: When two mutually exclusive projects are being considered, the one with the higher
ROE should be chosen, regardless of the project size
F - Answers T/F: A firm's EPS is highly correlated with its stock price
F - Answers T/F: While the NASDAQ trades more dollar volume than the NYSE, the NYSE has a higher
share volume traded than the NASDAQ
T - Answers T/F: While the NASDAQ trades less dollar volume than the NYSE, the NYSE has a lower share
volume traded than the NASDAQ
F - Answers T/F: In 1972, 68 brokers created the NYSE Board under the Buttonwood Agreement
T - Answers T/F: In 1972, 24 brokers created the NYSE Board under the Buttonwood Agreement
T - Answers T/F: In a dutch auction, stocks are sold at the highest bid price that would sell all of the
shares in the offering
F - Answers T/F: When a company puts out a bond issue and then two years later puts out another bond
issue, the second bond issue is being sold on the secondary market
F - Answers T/F: A dealer's profit is the bid-ask spread, and this spread generally becomes larger when
the stock is traded more often
T - Answers T/F: The Federal Reserve typically lowers interest rates during recessions to stimulate the
economy
T - Answers T/F: When a manager's bonus compensation is determined by ROE, they may be
encouraged to not accept good projects with lower (but good) ROEs
F - Answers T/F: EVA is different from Net Income because EVA reflects the cost of equity but not the
cost of debt
F - Answers T/F: A firm's MVA is highly correlated with its stock price
F - Answers T/F: If a firm's Equity Multiplier is 1.0, the firm does not have any equity in its capital
structure
F - Answers T/F: A firm's ROE considers the risk of accepting a project
T - Answers T/F: The TC&J Act lowered the maximum marginal tax rate for individuals from 39.6% to
37%
F - Answers T/F: Management's goal should be to take actions designed to maximize a firm's net income
F - Answers T/F: The corporate alternative minimum tax rule was kept, but individuals no longer have an
alternative minimum tax rule
