FIN 2601 Q&A MCQ.

FIN 2601 Q&A MCQ. Question 1 of 41 1.0 Points Which of the following would be best considered as a principal agent problem in the behaviour of the following managers? A. Ethan chooses to pursue a risky investment for the company’s fund because his compensation will substantially rise if it succeeds. B. Emma instructs her staff to skip safety inspections in one of the company’s factories, knowing that it will likely fail the inspection and they will have to incur significant costs to fix the problem. C. Olivia ignores an opportunity for her company to invest in a new drug to fight Alzheimer’s disease, judging the drug’s chances of succeeding as low. D. Henry chooses to enhance his firm’s reputation at some costs to shareholders by sponsoring a team of athletes for the Special Olympics. Answer Key: A Question 2 of 41 1.0 Points Which of the following should be the primary goal pursued by the financial manager of a company? A. To maximise the company’s profit B. To maximise the market value of the company’s shares C. To maximise the company’s book value D. To maximise dividends paid to ordinary shareholders Answer Key: B Question 3 of 41 1.0 Points Which of the following would not be considered a secondary market transaction? A. Sony issues new ordinary shares using its investment bank. B. An institutional investor sells some BLC shares through his broker C. Pilgrim Corporation is trading funds and issuing shares in the market. D. An individual investor purchases some existing shares of ABC Ltd through his broker Answer Key: A Question 4 of 41 1.0 Points Which one of the following statements about the company form of business organisation is incorrect? A. The shareholders of a company have limited liability. B. The company is the easiest form of business organisation to establish. C. Companies are typically larger than either partnership or sole proprietorship D. Companies generate a significantly greater percentage of total annual sales than either partnerships or sole proprietorships. Answer Key: B Question 5 of 41 1.0 Points Pepper Ltd had current assets of R950 000, current liabilities of R450 000 and costs of goods sold of R1 200 000 at the end of the year. If Pepper Ltd had a quick ratio of 1,56, what would the company’s inventory turnover be? A. 3,5 B. 3,8 C. 4,5 D. 4,8 Answer Key: D Feedback: Firstly, find the inventory value by using the quick ratio in order to solve for inventory turnover. 1.56 = (950 000-Inventory) / 450 000 (1,56 x 450 000) = 950 000 – Inventory Therefore inventory will be = Inventory = 248 000 Inventory turnover = (1200 000)/(248 000) = 4,8 Question 6 of 41 1.0 Points Huck Corporation has a return on assets of 6,0% and the total assets for the given year are R3 500 000, while ordinary shareholders equity is R1 500 000. What is the company’s return on equity? A. 1,40% B. 9,80% C. 14,00%