Corporate Finance Test with Answers

Corporate Finance: An Introduction (Welch)
Chapter 1
Introduction

1.1 The Goal of Finance: Relative Valuation

1)
Which of the following statements is true? A)
In finance, it is important to determine an asset 's absolute value. B)
The relative value of any asset is, at best, a lucky guess. C)
The true value of an asset is unaffected by externalities such as interest rate levels, the state of the economy, etc. D)
Valuation is not an exact science. Answer:
D
Diff: 1 Topic:
Valuation

2)
The law of one price stipulates that A) identical goods must be sold to all buyers at the same price; otherwise price discrimination occurs. B) assets that are identical in all respects should sell for the same price. C) the price of an asset is independent of the market in which the asset is being offered for sale. D) the absolute value of an asset will always equal its relative value. Answer:
B
Diff: 1 Topic:
Valuation

3)
Which of the following statements about the law of one price is true? A)
It is a useful tool in determining the absolute value of an asset. B)
Empirical evidence suggests that it will provide the true value of an asset, except in those rare cases in which no comparable asset exists. C)
Although it rarely will provide an exact value for an asset, it will often provide a close approximation. D)
It is most useful in assessing the true value of identical assets that are trading in more than one country. Answer:
C
Diff: 1 Topic:
Valuation

4)
Which of the following assets would be the most difficult to value? A) a 1968 red Mustang convertible B) a Caribbean vacation C)
World War II memorabilia D) an uninhabited, privately-owned island Answer:
D
Diff: 1 Topic:
Valuation