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FINANCE FINS1613
Tutorial Week2
CONTACT DETAILS
YourTutor: PeterAndersen peter.andersen@unsw.edu.au
Besuretocheckyourstudentemailaccountlotsthroughoutthe semester,asIllbesendingyoumyslidesandlotsofothermaterials.
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CONTACTING STAFF
Guidelines: AnyemailedquestionsshouldbesenttoonlyONEstaffmember. Dontspamallofus. Wehavelivesoutsideofteaching,sodontexpectinstantreplies. Thatsprettymuchit.
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ASSESSMENTS
ASSESSMENT TutorialAttendance+ Participation Tutorial Quizzes Final Exam DATE Everyweek Weeks 4,7,10and13 Exam Period HOWMUCH 10% 40% 50%
Youmustattendatleast80%ofyourtutorialsinordertobeeligibleforspecial considerationinthefinalexam.
i.e.ifyoudontmake80%ofyourclasses,andthengetsickandcantmakethefinal,itsunlikelyyoull gettositasupplementaryexam.
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CLASS PARTICIPATION
COMPONENT HOWTOGETIT HOW MUCH
Active Participation
Answering questionsandcontributingtoclass.
(doingthehomeworkandnotsayinganythinginclass DOESNOTCOUNT asparticipation)
5%
Attendance
5%
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LETS BEGIN
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TUTORIAL QUESTION 1
Q. Whichofthesecouldexplainwhysomeonewouldchoosetooperateasa soleproprietorshipratherthanasacorporation? Yourchoices: a) Soleproprietorshipshavelimitedliability b) Therearerelativelyfewrulesrelatingtotheestablishmentandrunningof asoleproprietorship c) Thefirmcanlastforever d) Itiseasytoraiselargesumofmoney e) Alloftheseanswers
A.
AnswerisB
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TUTORIAL QUESTION 2
Q. Theprimarygoalofapubliclyownedfirminterestedinservingits stockholdersshouldbeto: Yourchoices: a) Maximizeexpectedtotalcorporateprofit. b) MaximizeexpectedEPS. c) Minimizethechancesoflosses. d) Maximizethestockpricepershare. e) Maximizeexpectednetincome.
A.
AnswerisD
FINS1613 PeterKjeldAndersen(2012S2)
Investorsdontinvestinsharestominimizethechancesoflosses,likeinc).
Thegoalofthecorporationistomaximizethewealthofitsstockholders, andthisisdonethroughmaximizingtheshare/stockprice.
Thesharepricerepresentsthevalueoftheownersinvestmentinthecompany. Increasesinthesharepricereflectincreasesintheownerswealth.
AnswerisD
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TUTORIAL QUESTION 3
Q. Thevaluethatthefinancialmarketsplaceonacompanysdebtandequity securitieswilldependonthe: Yourchoices: a) Standarddeviationsofthereturnsfrominvestmentsinthosesecurities. b) Riskandexpectedreturnfrominvestmentsinthosesecurities. c) Expectedreturnfrominvestmentsinthosesecurities. d) Interestrateonthedebtsecurities. Answersc)andd)refertotheratesofreturn. Standarddeviationina)referstoameasureofrisk. Howeveritistheinteractionofthetwothatdeterminesthevalueofan investment. Allelsebeingequal,returnincreasesthevalueofaninvestment,risk decreasesit.
AnswerisB
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A.
TUTORIAL QUESTION 4
Q. A. Shareholdersinacompanyhavelimitedliability,whichmeansthat: Yourchoices: a) Shareholderscanbecalledupontocontributeonlytheamountunpaidon sharesheldinthecompany. b) Themaximumtheshareholderscanbecalledupontocontributeisthe currentmarketpriceoftheshares. c) Shareholderscanneverbecalledupontomakeanadditionalcontribution tothecompanysassets. d) Shareholdershavelittleorlimitedinterestintheactivitiesof managementofthecompany,becausethemanagementandownership ofthefirmareseparated.
AnswerisA
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b) Themaximumtheshareholderscanbecalledupontocontributeisthe currentmarketpriceoftheshares.
Thecompanyscurrent(market)sharepriceisirrelevant. Onceyouhavefullypaidforyourshares,youarenotliableforanyadditional contribution.
c)
Shareholderscanneverbecalledupontomakeanadditionalcontribution tothecompanysassets.
Thisisnotstrictlytrue,ifweconsidertheamountunpaidtalkedaboutina).
TUTORIAL QUESTION 5
Q. Whichofthefollowingdoesnotrepresentanagencycostresultingfromthe separationofownershipfromcontrolofthefirm? Yourchoices: a) Theexpenseofprovidingmanagementwithbonusesbasedon profitability. b) ThecostofacompanydirectortakingabusinesstriptoHawaiiwithno potentialbenefittothecompany. c) ThecostofastaffChristmaspartydesignedtoenhancestaffmorale. d) Thecostofmonitoringtheactivitiesofmanagementtokeeptrackofits expendituresanddecisions.
A.
AnswerisC
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b) ThecostofacompanydirectortakingabusinesstriptoHawaiiwithno potentialbenefittothecompany.
Exampleofmanagementwastingcompanymoneyontheirownpersonalsatisfaction insteadofonmaximizingshareholderwealth
d) Thecostofmonitoringtheactivitiesofmanagementtokeeptrackofits expendituresanddecisions.
Exampleofspendingcorporatemoneyonmonitoringmanagementcloselytomake suretheydontwastemoney.
c)
ThecostofastaffChristmaspartydesignedtoenhancestaffmorale.
Thisisalsoanagencycosttothecompany,justlikeanswersa),b)andd)above. Itismoneyspentinordertoencouragestafftodothejobthattheyarehiredto work,ratherthanactingintheirownselfinterest.Lowmorale=unproductivestaff. However,thistypeofagencycostwillbepresentregardlessofwhetherthereis separationofownershipandcontrol(i.e.inacoporation)ornot(i.e.inasole proprietoriship orpartnership)
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TUTORIAL QUESTION 6
Q. Partnershipsareacommonformofbusinessentityforsmallservice businessesbecause: Yourchoices: a) theyprovidelegalprotectionfortheproprietorfromthecreditorsofthe firm. b) theyareidealforwherethebusinessisownedbyoneperson. c) therearenolegalrequirementsthatneedtobemettoforma partnership. d) theyallowthecompanytobuy,ownandsellproperty.
A.
AnswerisC
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TUTORIAL QUESTION 7
Q. A. Theconceptofinvestorsbeingriskaversemeansthat: Yourchoices: a) investorswillalwayspreferaninvestmentthatcarrieslessrisk. b) investorsrequirehigherreturnstocompensateforcarryingmorerisk. c) theinvestmentsriskisthepredominantfeatureconsideredbythe investor. d) investorswillmakeallpossibleattemptstoavoidsystematicrisk. LikeinQ2,investorsdontinvesttominimizethechancesoflosses. Ariskaverseinvestorisonethatdislikesrisk.Outoftwoalternativeswith anequalreturn,ariskaverseinvestorwouldpaymorefortheinvestment oflowerrisk. However,ariskaverseinvestorwillstillinvestinariskierinvestmentifthe expectedreturnisgreatenoughtocompensatefortheadditionalrisk.
AnswerisB
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A.
A.
Difficulttotransferownership
Hardertoraisecapital
Limitedlife.
A.
Theownersarealsothemanagers
Sometimespersonaltaxratesarebetterthancorporatetaxrates
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A.
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THE END
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