Question Details

The standard deviation is appropriate to compare the risk 


Question 1 
Which of the following will increase (V0), the shareholder wealth maximization model of the firm:
        V0∙(shares outstanding) = Σ∞t=1 (π t ) / (1+ke)t   + Real Option Value.
Answer
A.	Decrease the required rate of return (ke).
B.	Decrease the stream of profits (Ï€t).
C.	Decrease the number of periods from ∞ to 10 periods.
D.	Decrease the real option value.

Question 2

To reduce Agency Problems, executive compensation should be designed to:
Answer
A.	create incentives so that managers act like owners of the firm.
B.	avoid making the executives own shares in the company.
C.	be an increasing function of the firm's expenses.
D.	be an increasing function of the sales revenue received by the firm.
Question 3

Possible goals of Not-For-Profit (NFP) enterprises include all of the following EXCEPT:
Answer
a)	maximize total costs
b)	maximize output, subject to a breakeven constraint
c)	maximize the happiness of the administrators of the NFP enterprise
d)	maximize the utility of the contributors
Question 4

Income tax payments are an example of ____.
Answer
a)	implicit costs
b)	explicit costs
c)	normal return on investment
d)	shareholder wealth

Question 5

The standard deviation is appropriate to compare the risk between two investments only if
Answer
a)	the expected returns from the investments are approximately equal
b)	the investments have similar life spans
c)	objective estimates of each possible outcome is available
d)	the coefficient of variation is equal to 1.0




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