Business Finance MPQ

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1. One common reason for partnerships to convert to a corporate form of organization is that the partnership:

  • Has issued all of its allotted shares
  • Agreement expires after 10 years
  • Faces rapidly growing financing requirements
  • Wishes to avoid double taxation of profits
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2. According to the NPV rule, all projects should be accepted if NPV is positive when discounted at the

  • Accounting rate of return
  • Internal rate of return
  • Opportunity cost of capital
  • Risk-free interest rate

3. If a firm earns the WACC as an average return on its average-risk assets, then:

  • Bondholders will be satisfied, but equity holders will not
  • The firm is investing in only positive NPV projects
  • All investors will earn their minimum required rate of return
  • Equity holders will be satisfied, but bondholders will not

4. The opportunity cost of capital:

  • Is the minimum acceptable rate of return on a project
  • Is the interest rate that the firm pays on a loan from a financial institution
  • Is always less than 10%
  • Is the maximum acceptable rate of return on a project

5. Which of the following statements best distinguishes the difference between real and financial assets?

  • Financial assets appreciate in value; real assets depreciate in value
  • Financial assets represent claims to income that is generated by real assets
  • Real assets are tangible; financial assets are not
  • Real assets have less value than financial assets
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