FINC 341 EXAM 1 THEORY QUESTIONS & ANSWERS
If a firm's equity multiplier is 1, the firm does not have any debt in its capital structure -
Answers - TRUE
A firm's EVA is highly correlated with its stock price - Answers - TRUE
EVA is different from net income in that EVA takes out the cost of debt and the cost of
equity, NI does not take out the cost of equity - Answers - TRUE
When two projects of different size (of investment) are compared using ROE, the one
with the lower ROE might add more dollar value to the firm than the other one -
Answers - TRUE
If a manager's bonus depends on the company's ROE, and the manager wants to
maximize his/her bonus, that manager will not accept all projects with a profitable ROE -
Answers - TRUE
If a company uses more debt and less capital - Answers - ROE would increase
ROA would decrease a little
If a company uses less debt and more capital - Answers - ROE would decrease
ROA would increase a little
President Biden's most recent proposal supported changing the corporate tax rate from
a flat 21% to a flat 26.5% - Answers - TRUE
President Biden is not trying to get a 2.8 trillion stimulus bill passed - Answers - TRUE
If you buy a stock and sell it after 8 months for a gain, you will owe your ordinary tax
rate on that gain - Answers - TRUE
Corporations do not have caps on capital gains tax rates - Answers - TRUE
If an individual has 12,000 of capital gains and 19,000 of capital losses this year, that
person will pay no tax on the capital gains, will be able to keep 3,000 of his salary from
being taxed this year, and then carry 4000 of capital loss forward to the next tax year -
Answers - TRUE
Management's goal should be to take actions designed to maximize a firm's intrinsic
value - Answers - TRUE
An S corporation has single taxation - Answers - TRUE
, The way the corporate tax system was structured prior to 2018 definitely favored debt
financing over equity financing since interest expense is tax deductible and dividends
are not. Since the corporate tax rate was lowered, debt financing does not have much of
an advantage anymore. - Answers - TRUE
The corporate alternative minimum tax rule was kept, but individuals still have to abide
by the alternative minimum tax rule - Answers - TRUE
The TC&J act lowered the maximum tax rate for individuals from 39.6% to 37% -
Answers - TRUE
After the 2008 financial crisis, the fed used 3 rounds of quantitative easing to increase
the money supply, and considered using a fourth round. - Answers - TRUE
When inflation is high, the federal reserve decreases the money supply, which in turn
will raise short term interest rates. - Answers - TRUE
When the fed raises the reserve requirement, interest rates are pushed upwards -
Answers - TRUE
If expected inflation increases less within some foreign country than in the United
States, the value of that country's currency is likely to increase compared to US
currency. - Answers - TRUE
When jerome powell became chairman of the federal reserve, the fed increased the
interest rate multiple times, making US exporters have a harder time since the value of
the dollar had increased - Answers - TRUE
When I took students to france for six weeks in 2001, they benefitted from the exchange
rate fluctuation when I wired the extra money back into their TAMU accounts - Answers
- TRUE
After the financial crisis of 2008, the fed funds rate went down to the range of 0-0.25%,
and stayed at that rate until the fed finally decided to start increasing the rate in 2015 -
Answers - TRUE
The spread between yield curves of corporate bonds and treasury bonds is larger the
longer the maturity because the corporate bonds are considered to have more risk of
default if they have a long time to maturity, and because of this extra risk, they are less
liquid - Answers - TRUE
When jerome powell became the head of the federal reserve, the fed raised the interest
rate multiple times in order to "load" the gun and promote economic growth for the US -
Answers - TRUE
If a firm's equity multiplier is 1, the firm does not have any debt in its capital structure -
Answers - TRUE
A firm's EVA is highly correlated with its stock price - Answers - TRUE
EVA is different from net income in that EVA takes out the cost of debt and the cost of
equity, NI does not take out the cost of equity - Answers - TRUE
When two projects of different size (of investment) are compared using ROE, the one
with the lower ROE might add more dollar value to the firm than the other one -
Answers - TRUE
If a manager's bonus depends on the company's ROE, and the manager wants to
maximize his/her bonus, that manager will not accept all projects with a profitable ROE -
Answers - TRUE
If a company uses more debt and less capital - Answers - ROE would increase
ROA would decrease a little
If a company uses less debt and more capital - Answers - ROE would decrease
ROA would increase a little
President Biden's most recent proposal supported changing the corporate tax rate from
a flat 21% to a flat 26.5% - Answers - TRUE
President Biden is not trying to get a 2.8 trillion stimulus bill passed - Answers - TRUE
If you buy a stock and sell it after 8 months for a gain, you will owe your ordinary tax
rate on that gain - Answers - TRUE
Corporations do not have caps on capital gains tax rates - Answers - TRUE
If an individual has 12,000 of capital gains and 19,000 of capital losses this year, that
person will pay no tax on the capital gains, will be able to keep 3,000 of his salary from
being taxed this year, and then carry 4000 of capital loss forward to the next tax year -
Answers - TRUE
Management's goal should be to take actions designed to maximize a firm's intrinsic
value - Answers - TRUE
An S corporation has single taxation - Answers - TRUE
, The way the corporate tax system was structured prior to 2018 definitely favored debt
financing over equity financing since interest expense is tax deductible and dividends
are not. Since the corporate tax rate was lowered, debt financing does not have much of
an advantage anymore. - Answers - TRUE
The corporate alternative minimum tax rule was kept, but individuals still have to abide
by the alternative minimum tax rule - Answers - TRUE
The TC&J act lowered the maximum tax rate for individuals from 39.6% to 37% -
Answers - TRUE
After the 2008 financial crisis, the fed used 3 rounds of quantitative easing to increase
the money supply, and considered using a fourth round. - Answers - TRUE
When inflation is high, the federal reserve decreases the money supply, which in turn
will raise short term interest rates. - Answers - TRUE
When the fed raises the reserve requirement, interest rates are pushed upwards -
Answers - TRUE
If expected inflation increases less within some foreign country than in the United
States, the value of that country's currency is likely to increase compared to US
currency. - Answers - TRUE
When jerome powell became chairman of the federal reserve, the fed increased the
interest rate multiple times, making US exporters have a harder time since the value of
the dollar had increased - Answers - TRUE
When I took students to france for six weeks in 2001, they benefitted from the exchange
rate fluctuation when I wired the extra money back into their TAMU accounts - Answers
- TRUE
After the financial crisis of 2008, the fed funds rate went down to the range of 0-0.25%,
and stayed at that rate until the fed finally decided to start increasing the rate in 2015 -
Answers - TRUE
The spread between yield curves of corporate bonds and treasury bonds is larger the
longer the maturity because the corporate bonds are considered to have more risk of
default if they have a long time to maturity, and because of this extra risk, they are less
liquid - Answers - TRUE
When jerome powell became the head of the federal reserve, the fed raised the interest
rate multiple times in order to "load" the gun and promote economic growth for the US -
Answers - TRUE
