1. A company is considering a new investment project with an expected

return of 12%. If the risk-free rate is 4% and the market risk premium is

6%, what is the project's beta?

 - A) 0.5

 - B) 1.0

 - C) 1.5

 - D) 2.0

 Answer: C) 1.5

 Rationale: Using the Capital Asset Pricing Model (CAPM), the expected

return (12%) equals the risk-free rate (4%) plus the product of the project's

beta and the market risk premium (6%). Solving for beta gives us 1.5.

2. What is the primary goal of financial management?

 - A) Maximizing current profits

 - B) Maximizing market share

 - C) Maximizing shareholder wealth

 - D) Minimizing risk

 Answer: C) Maximizing shareholder wealth

 Rationale: The primary goal of financial management is to maximize

shareholder wealth, which is achieved by increasing the value of the

company's stock and dividends over time.

3. Which of the following is a capital budgeting decision?

 - A) Determining the optimal dividend payout ratio

 - B) Choosing between debt and equity financing

 - C) Evaluating a potential merger or acquisition

 - D) Deciding whether to invest in a new piece of machinery

 Answer: D) Deciding whether to invest in a new piece of machinery

 Rationale: Capital budgeting decisions involve the long-term investment

of a company's resources, such as the purchase of new machinery, which

will affect the firm's operations over several years.

4. What does the net present value (NPV) of an investment indicate?

 - A) The expected volatility of the investment's returns

 - B) The investment's contribution to the firm's overall risk

 - C) The total profit that will be generated by the investment

 - D) The value added to the firm by undertaking the investment