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1. What are the benefits of a multilateral netting system? (Points : 5) 2. Systematic risk is (Points : 5) A. nondiversifiable risk. B. the risk that remains even after investors fully diversify their portfolio holdings. C. both a) and b) D. none of the above 3. The current marginal U.S. income tax rate is positioned (Points : 5) A. pretty well in the middle of the rates assessed by the majority of other countries. B. towards the upper end of the rates assessed by the majority of other countries. C. towards the lower end of the rates assessed by the majority of other countries. 4. Factors of production include land, labor, capital, and entrepreneurial ability. Of all the factor markets, the MOST IMPERFECT is the (Points : 5) A. labor market. B. capital market. C. real estate market. D. market for entrepreneurial ability. 5. A liquid stock market (Points : 5) A. is one in which prices reflect all relevant information quickly.

B. is one in which prices reflect all publicly available information quickly. C. is one in which prices reflect price and volume information quickly. D. is one in which investors can buy and sell stocks quickly at close to the current quoted prices. 6. The financial manager’s responsibility involves (Points : 5) A. increasing the share price of the company’s stock by any and all means possible. B. maximizing shareholder wealth. C. which capital projects to select. D. All of the above E. Only b) and c) 7. Why do firms locate production overseas rather than exporting finished goods? (Points : 5) A. Shipping costs B. Firms seek to extend corporate control overseas C. Imperfect factor markets D. All of the above 8. The cost of capital is: (Points : 5) A. the minimum rate of return an investment project must generate in order to pay its financing costs. B. the minimum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit. C. the maximum rate of return an investment project must generate in order to pay its financing costs. D. the maximum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit. 9. In the context of investments in securities (stocks and bonds), portfolio risk diversification refers to (Points : 5) A. the time-honored adage, ―Put all your eggs in one basket — and then watch that basket!‖ B. investors’ ability to reduce portfolio risk by holding securities that are less than perfectly positively correlated. C. the fact that the more correlated the securities are in a portfolio, the lower the portfolio risk. D. all of the above 10. What are the two main objectives of taxation? (Points : 5) 11. Perhaps the most important decisions that confront the financial manager are (Points : 5) A. which capital projects to select. B. the correct capital structure for the firm. C. the correct capital structure for projects. D. none of the above 12. Capital budgeting analysis is very important, because it (Points : 5) A. involves, usually expensive, investments in capital assets. B. has to do with the productive capacity of a firm. C. will determine how competitive and profitable a firm will be. D. all of the above 13. Why are precautionary cash balances necessary? (Points : 5) 14. The cash manager of a domestic firm should source funds internationally to obtain the lowest borrowing cost and to place excess funds wherever the greatest return can be earned regardless of

currency. (Points : 5) True False 15. What is a tax haven? (Points : 5) 16. For a firm that has both debt and equity in its capital structure, its financing cost can be represented by the weighted average cost of capital that is computed by: (Points : 5) A. weighing the pre-tax borrowing cost of the firm and the cost of equity capital, using the debt as the weight. B. weighing the after-tax borrowing cost of the firm and the cost of equity capital, using the debt as the weight. C. K = (1 – d)Kl + d(1 – t)i where: K = weighted cost of capital Kl = cost of equity capital for a leveraged firm i = before-tax borrowing cost t = marginal corporate income-tax rate d = debt-to-total-market-value ratio D. b) and c) 17. A central cash manager has a restricted view of the most favorable borrowing rates and most advantageous investment rates. (Points : 5) True False 18. Good cash management boils down to (Points : 5) A. investing excess funds at the most favorable interest rate and borrowing at the lowest rate when there is a temporary cash shortage. B. investing excess funds at the lowest rate and borrowing at the highest rate when there is a temporary cash shortage. C. hedging currency exposure with judicious use of futures, forwards, and currency option contracts. D. none of the above 19. The cost of equity capital is: (Points : 5) A. the expected return on the firm’s stock that investors require. B. frequently estimated by using the Capital Asset Pricing Model (CAPM). C. generally considered to be a linear function of the systematic risk inherent in the security. D. all of the above 20. The idea that an ideal tax should be effective in raising revenue for the government but not have any negative effects on the economic decision-making process of the taxpayer is referred to as (Points : 5) A. capital-export neutrality. B. capital-import neutrality. C. national neutrality. 20. The idea that an ideal tax should be effective in raising revenue for the government but not have any negative effects on the economic decision-making process of the taxpayer is referred to as (Points : 5) A. capital-export neutrality.

B. capital-import neutrality. C. national neutrality. D. none of the above

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