Question 1

What is the market for corporate control?
A)The market for issuing and trading debt securities
B)The market for operational control over the firm's decisions
C)The market for issuing and trading equity securities
D)All of the above

Accepted Answer

The market for corporate control refers to the market in which companies compete for operational control over other companies. It is not related to the market for issuing and trading debt or equity securities, which are separate markets.

Question 2

The market section of the Australian Financial Review does not list:
A)The Buy/Sell quotes for shares
B)The weekly high/low share price
C)The last sale price of companies shares
D)Earnings per share (EPS)

Accepted Answer

B

Question 3

An asset has a market value of $105,and an intrinsic value of $100,and a present value of $113.What is the maximum amount you would want to pay now for the asset?
A)$100
B)$105
C)$113
D)Some other amount

Accepted Answer

A

Question 4

What are the three main decisions corporate managers must make to realise the corporate objective?
A)Investment decision,financing decision,and dividend decision
B)Investment decision,wealth decision,and dividend decision
C)Wealth decision,financing decision,and dividend decision
D)Investment decision,financing decision,and wealth decision

Accepted Answer

The three main decisions corporate managers must make to realize the corporate objective are investment decisions (what projects or assets to invest in), financing decisions (how to raise the capital needed for investments), and dividend decisions (how much profit to return to shareholders versus reinvesting in the company).

Question 5

Who make the major decisions on how a company carries out its business?
A)The board of directors
B)Shareholders
C)The chief executive officer
D)Creditors

Accepted Answer

The board of directors is responsible for making major decisions on how a company carries out its business. They oversee the CEO, set company policies, strategize for the company's future, and represent shareholders' interests. While shareholders and creditors have influence, they do not make direct decisions on how the company carries out its business. The CEO implements the board's decisions, but ultimately it is the board of directors who holds the most power in decision making.

Question 6

Which of the following is not an element of the Australian capital market?
A)The ASX
B)The Commonwealth Government
C)News Corporation
D)The 'big four' banks

Accepted Answer

News Corporation is not an element of the Australian capital market as it is a global media conglomerate founded and headquartered in the United States, with holdings and operations around the world. The other options - the ASX (Australian Securities Exchange), the Commonwealth Government, and the 'big four' banks (Commonwealth Bank, Westpac, ANZ, and National Australia Bank) - all have a significant presence and influence in the Australian capital market.

Question 7

Funds from the capital market flows to:
A)Investors and Corporations
B)Corporations and Real Assets
C)Investors and Real Assets
D)All of the above

Accepted Answer

The answer of Funds from the capital market flows to:
A)Investors...

Question 8

Suppose you purchase one ANZ share at $28.38 in the morning and then sell it again at $27.57 at the close of trading that day.What has been your rate of return over the holding period?
A)2.94%
B)- 2.94%
C)2.85%
D)- 2.85%

Accepted Answer

The answer of Suppose you purchase one ANZ share at...

Question 9

Cash flows generated by the firm can be ________________
A)Reinvested within the corporation
B)Paid to shareholders
C)Paid to bondholders
D)All of the above

Accepted Answer

Cash flows generated by the firm can be either reinvested within the corporation for growth or expansion, paid to shareholders in the form of dividends or share buybacks, or paid to bondholders in the form of interest payments. Hence, all of the above options are correct choices.

Question 10

What is the corporate objective?
A)To minimise shareholder wealth
B)To maximise shareholder wealth
C)To minimise capital
D)To maximise capital

Accepted Answer

The primary objective of a corporation is to maximise shareholder wealth. This means that the management team should focus on making decisions that will increase the value of the company and, therefore, the value of the shares owned by shareholders. This can be achieved by increasing profits, implementing strategies that will increase the value of the company over the long term, and making use of capital investments to fund growth opportunities.

Question 11

Which of these are cash flow/s that may emanate from shares?
A)Capital losses
B)Dividends
C)Capital gains
D)All of the above

Accepted Answer

The answer of Which of these are cash flow/s that...

Question 12

What is the total value of all shares on issue in the marketplace for a firm referred to as?
A)Rate of return
B)Net assets
C)Market capitalisation
D)Owners equity

Accepted Answer

The total value of all shares on issue in the marketplace for a firm is referred to as market capitalization. It is calculated by multiplying the total number of shares outstanding by the current market price of one share. Market capitalization is an important measure of a company's size and value in the market.

Question 13

The principal- agent problem can arise because of a manager's concerns about all of the following except:
A)Company goals
B)Personal wealth
C)Job security
D)Company- provided benefits

Accepted Answer

The principal-agent problem typically arises due to conflicts of interest between a principal (e.g., shareholders) and an agent (e.g., managers), where the agent may prioritize personal interests (like personal wealth, job security, and company-provided benefits) over the company's goals. Therefore, a manager's concerns about company goals are not a cause of the principal-agent problem but rather what the problem prevents from being the primary focus.

Question 14

Capital budgeting is:
A)Buying real (productive)assets
B)Analysing potential projects' returns
C)Allocating cash flows generated by productive assets to shareholders,bondholders or reinvest in the business
D)All of the above

Accepted Answer

The answer of Capital budgeting is:
A)Buying real (productive)assets
B)Analysing potential projects'...

Question 15

An example of a cash flow stemming from bonds is:
A)The principal repayment on maturity
B)The bond premium payable
C)The discount to face value when issued
D)All of the above

Accepted Answer

The cash flow stemming from bonds is primarily the principal repayment on maturity. The bond premium payable and discount to face value when issued are not cash flows, but rather factors affecting the price and yield of the bond.

Question 16

What is the name given to the problem arising due to the separation of control between shareholders and the equity they contribute?
A)The equity usage problem
B)The manager remuneration problem
C)The principal- agent problem
D)The owners' interests problem

Accepted Answer

The separation of control between shareholders and their investment leads to the principal-agent problem, where managers may act in their own self-interest rather than in the interest of the shareholders. This is because managers may prioritize their goals and needs over those of shareholders, leading to a misalignment of interests between the two. Therefore, C is the correct choice as it relates directly to the separation of control between shareholders and their equity.

Question 17

$95 invested today at a rate of 10% p.a.is worth how much in one year's time?
A)$104.50
B)$106.70
C)$105.60
D)$103.40

Accepted Answer

The future value of an investment is calculated using the formula FV = PV(1 + r)^n, where PV is the present value, r is the annual interest rate, and n is the number of years. Here, PV = $95, r = 10% or 0.10, and n = 1. Thus, FV = $95(1 + 0.10)^1 = $95 * 1.10 = $104.50.

Question 18

Capital structure decisions involve interaction between _________________
A)Corporations and the capital market
B)Corporations and real assets
C)Investors and the capital market
D)Investors and real assets

Accepted Answer

Capital structure decisions involve determining the mix of debt and equity a corporation will use to finance its operations. This decision is made in the context of interactions between the corporation and the capital market, which includes a variety of investors and financial institutions. While real assets may be a factor in determining the appropriate capital structure for a corporation, they are not directly involved in the interactions related to capital structure decisions.

Question 19

The manner in which funds raised in capital markets are to be employed in productive activities is the subject of the ____________ decision.
A)Financing
B)Investment
C)Gearing
D)Capital budgeting

Accepted Answer

The decision on how to use the funds raised from capital markets is the investment decision. Financing decision focuses on deciding how to raise funds, gearing decision is about the level of debt to use in funding the business, while capital budgeting is the process of allocating resources for long-term investments.

Question 20

How does the dividend decision affect a firm's equity holders?
A)It may mean equity holders don't receive dividends every year.
B)It could alter the capital gains equity holders can expect.
C)It affects the form in which returns generated by the firm are passed on to equity holders.
D)All of the above

Accepted Answer

All of the choices (A, B, and C) are correct. The dividend decision affects a firm's equity holders in various ways, including the possibility of not receiving dividends every year (A), the alteration of capital gains (B), and the form in which returns generated by the firm are passed on to equity holders (C).

Quiz 1: Preliminary Concepts

What is the market for corporate control?

The market section of the Australian Financial Review does not list:

An asset has a market value of $105,and an intrinsic value of $100,and a present value of $113.What is the maximum amount you would want to pay now for the asset?

What are the three main decisions corporate managers must make to realise the corporate objective?

Who make the major decisions on how a company carries out its business?

Which of the following is not an element of the Australian capital market?

Funds from the capital market flows to:

Suppose you purchase one ANZ share at $28.38 in the morning and then sell it again at $27.57 at the close of trading that day.What has been your rate of return over the holding period?

Cash flows generated by the firm can be ________________

What is the corporate objective?

Which of these are cash flow/s that may emanate from shares?

What is the total value of all shares on issue in the marketplace for a firm referred to as?

The principal- agent problem can arise because of a manager's concerns about all of the following except:

Capital budgeting is:

An example of a cash flow stemming from bonds is:

What is the name given to the problem arising due to the separation of control between shareholders and the equity they contribute?

$95 invested today at a rate of 10% p.a.is worth how much in one year's time?

Capital structure decisions involve interaction between _________________

The manner in which funds raised in capital markets are to be employed in productive activities is the subject of the ____________ decision.

How does the dividend decision affect a firm's equity holders?