Advanced Corporate Finance
Question Bank
Course Introduction
Advanced Corporate Finance delves into complex financial management topics, focusing on the theory and practice behind major corporate financial decisions. Topics include capital structure, working capital management, mergers and acquisitions, corporate governance, risk management, and advanced valuation techniques. Through rigorous case studies and quantitative analysis, students explore how corporations make financing, investment, and payout decisions in dynamic environments, considering both domestic and international contexts. The course prepares students to solve challenging real-world problems, integrate financial theory with strategic management, and understand the implications of financial policy choices on firm value and stakeholder interests.
Recommended Textbook
Corporate Finance Asia 1st Global Edition by Stephen
Available Study Resources on Quizplus 16 Chapters
1174 Verified Questions
1174 Flashcards
Source URL: https://quizplus.com/study-set/3718
Page 2
Ross
Chapter 1: Introduction to Corporate Finance
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/74148
Sample Questions
Q1) Which one of the following statements concerning a sole proprietorship is correct?
A)The life of the firm is limited to the life span of the owner.
B)The owner can generally raise large sums of capital quite easily.
C)The ownership of the firm is easy to transfer to another individual.
D)The company must pay separate taxes from those paid by the owner.
E)The legal costs to form a sole proprietorship are quite substantial.
Answer: A
Q2) Which one of the following statements is correct concerning corporations?
A)The largest firms are usually corporations.
B)The majority of firms are corporations.
C)The stockholders are usually the managers of a corporation.
D)The ability of a corporation to raise capital is quite limited.
E)The income of a corporation is taxed as personal income of the stockholders.
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
3
Chapter 2: Financial Statements and Cash Flow
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/74147
Sample Questions
Q1) Your _____ tax rate is the total taxes you pay divided by your taxable income.
A)deductible
B)residual
C)total
D)average
E)marginal
Answer: D
Q2) Book value:
A)is equivalent to market value for firms with fixed assets.
B)is based on historical cost.
C)generally tends to exceed market value when fixed assets are included.
D)is more of a financial than an accounting valuation.
E)is adjusted to market value whenever the market value exceeds the stated book value. Answer: B
Q3) Explain why the income statement is not a good representation of cash flow.
Answer: Most income statements contain some noncash items,so these must be accounted for when calculating cash flows.More importantly,however,since GAAP is used to create income statements,revenues and expenses are booked when they accrue,not when their corresponding cash flows occur.
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Financial Statements Analysis and Long-Term Planning
Available Study Resources on Quizplus for this Chatper
117 Verified Questions
117 Flashcards
Source URL: https://quizplus.com/quiz/74146
Sample Questions
Q1) The sustainable growth rate:
A)assumes there is no external financing of any kind.
B)is normally higher than the internal growth rate.
C)assumes the debt-equity ratio is variable.
D)is based on receiving additional external debt and equity financing.
E)assumes that 100% of all income is retained by the firm.
Answer: B
Q2) The debt-equity ratio is measured as total:
A)equity minus total debt.
B)equity divided by total debt.
C)debt divided by total equity.
D)debt plus total equity.
E)debt minus total assets,divided by total equity.
Answer: C
Q3) Which is a more meaningful measure of profitability for a firm,return on assets or return on equity? Why?
Answer: Most would argue ROE since it measures returns relative to the amount of money shareholders have invested in the firm.In addition,since shareholder wealth maximization is a firm's primary goal,it makes more sense to look at this measure.
Page 5
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Net Present Value and Other Investment Rules
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/74145
Sample Questions
Q1) The Ziggy Trim and Cut Company can purchase equipment on sale for $4,300.The asset has a three-year life,will produce a cash flow of $1,200 in the first and second year,and $3,000 in the third year.The interest rate is 12%.Calculate the project's payback.Also,calculate the project's IRR.Should the project be taken? Check your answer by computing the project's NPV.
Q2) The Ziggy Trim and Cut Company can purchase equipment on sale for $4,300.The asset has a three-year life,will produce a cash flow of $1,200 in the first and second year,and $3,000 in the third year.The interest rate is 12%.Calculate the project's Discounted Payback and Profitability Index assuming end of year cash flows.Should the project be taken? If the Average Accounting Return was positive,how would this affect your decision?
Q3) A situation in which accepting one investment prevents the acceptance of another investment is called the:
A)net present value profile.
B)operational ambiguity decision.
C)mutually exclusive investment decision.
D)issues of scale problem.
E)multiple choices of operations decision.
To view all questions and flashcards with answers, click on the resource link above.
6
Chapter 8: Interest Rates and Bond Valuation
Available Study Resources on Quizplus for this Chatper
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/74144
Sample Questions
Q1) Which of the following amounts is closest to the value of a bond that pays $55 semiannually and has an effective semiannual interest rate of 5%? The face value is $1,000 and the bond matures in 3 years.There are exactly six months before the first interest payment.
A)$888
B)$1,000
C)$1,014
D)$1,025
E)$1,055
Q2) The total interest paid on a zero-coupon bond is equal to: A)zero.
B)the face value minus the issue price.
C)the face value minus the market price on the maturity date.
D)$1,000 minus the face value.
E)$1,000 minus the par value.
Q3) Explain why some bond investors are subject to liquidity risk,default risk,and/or taxability risk.How does each of these risks affect the yield of a bond?
Q4) Calculate the YTM on a bond priced at $1,036 which has 2 years to maturity,a 10% annual coupon rate,and a return of $1,000 at maturity.
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 10: Risk and Return: Lessons From Market History
Available Study Resources on Quizplus for this Chatper
81 Verified Questions
81 Flashcards
Source URL: https://quizplus.com/quiz/74143
Sample Questions
Q1) The average compound return earned per year over a multi-year period is called the _____ average return.
A)arithmetic
B)standard
C)variant
D)geometric
E)real
Q2) Based on the period of 1926 through 2012,_____ have tended to outperform other securities over the long-term.
A)U.S.Treasury bills
B)large company stocks
C)long-term corporate bonds
D)small company stocks
E)long-term government bonds
Q3) The risk premium is computed by ______ the average return for the investment.
A)subtracting the inflation rate from
B)adding the inflation rate to
C)subtracting the average return on the U.S.Treasury bill from
D)adding the average return on the U.S.Treasury bill to
E)subtracting the average return on long-term government bonds from
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 11: Return and Risk: the Capital Asset Pricing Model
Available Study Resources on Quizplus for this Chatper
125 Verified Questions
125 Flashcards
Source URL: https://quizplus.com/quiz/74142
Sample Questions
Q1) The majority of the benefits from portfolio diversification can generally be achieved with just _____ diverse securities.
A)3
B)6
C)30
D)50
E)75
Q2) Draw the SML and plot asset C such that it has less risk than the market but plots above the SML,and asset D such that it has more risk than the market and plots below the SML.(Be sure to indicate where the market portfolio is on your graph. )Explain how assets like C or D can plot as they do and explain why such pricing cannot persist in a market that is in equilibrium.
Q3) The Capital Market Line is the pricing relationship between:
A)efficient portfolios and beta.
B)the risk-free asset and standard deviation of the portfolio return.
C)the optimal portfolio and the standard deviation of portfolio return.
D)beta and the standard deviation of portfolio return.
E)None of the above.
To view all questions and flashcards with answers, click on the resource link above.
Page 9
Chapter 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory
Available Study Resources on Quizplus for this Chatper
45 Verified Questions
45 Flashcards
Source URL: https://quizplus.com/quiz/74141
Sample Questions
Q1) To estimate the cost of equity capital for a firm using the CAPM,it is necessary to have:
A)company financial leverage,beta,and the market risk premium.
B)company financial leverage,beta,and the risk-free rate.
C)beta,company financial leverage,and the industry beta.
D)beta,company financial leverage,and the market risk premium.
E)beta,the risk-free rate,and the market risk premium.
Q2) Systematic risk is defined as:
A)a risk that specifically affects an asset or small group of assets.
B)any risk that affects a large number of assets.
C)any risk that has a huge impact on the return of a security.
D)the random component of return.
E)None of the above.
Q3) For a diversified portfolio including a large number of stocks,the:
A)weighted average expected return goes to zero.
B)weighted average of the betas goes to zero.
C)weighted average of the unsystematic risk goes to zero.
D)return of the portfolio goes to zero.
E)return on the portfolio equals the risk-free rate.
Page 10
To view all questions and flashcards with answers, click on the resource link above.
Chapter 14: Efficient Capital Markets and Behavioral Challenges
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/74140
Sample Questions
Q1) If the market is weak form efficient:
A)semistrong form efficiency holds.
B)strong form efficiency must hold.
C)semistrong form efficiency may hold.
D)markets are not weak form efficient.
E)None of the above.
Q2) Suppose your cousin invests in the stock market and doubles her money in a single year while the market,on average,earned a return of only about 15%.Is your cousin's performance a violation of market efficiency?
Q3) According to theory,studying historical prices in order to identify mispriced stocks will not work in markets that are _____ efficient.
I.weak form
II.semistrong form
III.strong form
A)I only
B)II only
C)I and II only
D)II and III only
E)I,II,and III
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 15: Long-Term Financing: an Introduction
Available Study Resources on Quizplus for this Chatper
43 Verified Questions
43 Flashcards
Source URL: https://quizplus.com/quiz/74139
Sample Questions
Q1) Which of the following statements is false?
A)Creditors do not have voting power.
B)Payment on interest on debt in considered an expense,while payment of dividends is a return on capital.
C)Unpaid debt is a liability of the firm,and if not paid,can result in liquidation of the firm.Unpaid common stock dividends cannot force liquidation.
D)One of the costs of issuing equity is the possibility of financial distress,while no financial distress is associated with debt.
E)None of the above.
Q2) If a long-term debt instrument is perpetual,it is called a(n):
A)secured debt issue.
B)subordinated debt issue.
C)consol.
D)capital debt issue.
E)indenture.
Q3) Preferred Stock,as a hybrid security,presents somewhat of a puzzle as to why they are issued.What elements give rise to the puzzle and how is it explained?
Q4) From this information,calculate Eaton's book value per share.
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 20: Raising Capital
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/74138
Sample
Questions
Q1) Under the _____ method,the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue,while under the _____ method,the underwriter does not purchase the shares but merely acts as an agent.
A)best efforts;firm commitment
B)firm commitment;best efforts
C)general cash offer;best efforts
D)competitive offer;negotiated offer
E)seasoned;unseasoned
Q2) Dilution refers to:
A)the increase in stock value due to wider ownership of stock.
B)the loss in existing shareholder's equity.
C)the loss in new shareholder's equity.
D)the loss in all shareholder's equity,both existing shareholders and new shareholders.
E)None of the above.
Q3) Discuss what a Dutch auction is and how it works.
Q4) If the ex-rights price were set at $7.90,would you as a potential new stockholder choose to buy shares ex-rights or buy shares at the old price and exercise your rights?
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 22: Options and Corporate Finance
Available Study Resources on Quizplus for this Chatper
93 Verified Questions
93 Flashcards
Source URL: https://quizplus.com/quiz/74137
Sample Questions
Q1) What is the value of d<sub>2</sub> given the following information on a stock?
Stock price $63
Exercise price $60
Time to expiration .50
Risk-free rate 6%
Standard deviation 20%
D<sub>1</sub> .627841
A).3133
B).4864
C).5460
D).6867
E).7349
Q2) You wrote ten call option contracts on JIG stock with a strike price of $41 and an option price of $.60.What is your net gain or loss on this investment if the price of JIG is $46.05 on the option expiration date?
A)-$5,050
B)-$4,450
C)$410
D)$4,450
E)$5,050
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 23: Options and Corporate Finance: Extensions and Applications
Available Study Resources on Quizplus for this Chatper
42 Verified Questions
42 Flashcards
Source URL: https://quizplus.com/quiz/74136
Sample Questions
Q1) The opportunity to defer investing to a later date may have value because:
A)the cost of capital may decline in the near future.
B)certainty may be reduced in the future.
C)investment costs fluctuate in time.
D)All of the above.
E)None of the above.
Q2) The Nu-Tech Company has a new project available to it at a cost of $6,000,000.If the project is accepted,the company will be able to sell 13,000 personal organizers at $172 in net cash flow for each of the next five years.Nu-Tech's discount rate is 15%.What is the NPV of the investment? The executives of Nu-Tech are concerned about the potential of future competition and a subsequent drop in sales and price.If after two years you can dispose of the asset for $1,000,000 at what price would it make sense to abandon the project?
Q3) What is e<sup>-rt</sup>?
A).6087
B).7087
C).7952
D).8476
E).8869
Q4) What is the value of Mr.Maxim's options?
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 24: Warrants and Convertibles
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/74135
Sample Questions
Q1) A convertible preferred stock is similar to a convertible bond except:
A)the conversion ratio is fixed (given).
B)the conversion price is fixed (given).
C)the time to maturity is infinite.
D)All of the above.
E)None of the above.
Q2) A convertible bond has an option value which is equal to:
A)the market value of the convertible bond minus the straight bond value.
B)The market value of the convertible bond minus the conversion value.
C)the market value of the convertible bond minus the conversion premium.
D)the market value of the convertible bond minus the maximum of the straight bond value or conversion value.
E)None of the above.
Q3) Which of the following would harm the position of a warrant holder?
A)a 3 for 1 stock split
B)a large stock dividend of 20%
C)a large cash dividend
D)listing of the warrants on the NYSE
E)None of the above would harm the warrant holders.
Q4) Why are warrants and convertibles issued?
Page 16
To view all questions and flashcards with answers, click on the resource link above.
Chapter 25: Derivatives and Hedging Risk
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/74134
Sample Questions
Q1) A financial institution has equity equal to one-tenth of its assets.If its asset duration is currently equal to its liability duration,then to immunize,the firm needs to:
A)decrease the duration of its assets.
B)increase the duration of its assets.
C)decrease the duration of its liabilities.
D)do nothing,i.e. ,keep the duration of its liabilities equal to the duration of its assets.
Q2) Calculate the duration of a 4-year $1,000 face value bond,which pays 8% coupons annually throughout maturity and has a yield to maturity of 9%.
A)3.29 years
B)3.57 years
C)3.69 years
D)3.89 years
E)4.00 years
Q3) The futures markets are labeled as pure speculation and even gambling.Why is this an inaccurate portrayal of the market's function?
Q4) What new asset duration will immunize the balance sheet?
Q5) Calculate the duration of Tiger State Bank's assets and liabilities.
To view all questions and flashcards with answers, click on the resource link above.
Page 17
Chapter 31: International Corporate Finance
Available Study Resources on Quizplus for this Chatper
93 Verified Questions
93 Flashcards
Source URL: https://quizplus.com/quiz/74133
Sample Questions
Q1) Today,you can get either 140 Canadian dollars or 1,140 Mexican pesos for 100 U.S.dollars.Last year,100 U.S.dollars was worth 139 Canadian dollars and 1,160 Mexican pesos.Which one of the following statements is correct given this information?
A)$100 invested in Canadian dollars last year would now be worth 1,148.20 Mexican pesos.
B)$100 invested in Mexican pesos last year would now be worth $98.28.
C)$100 invested in Mexican pesos last year would now be worth $102.03
D)$1,200 invested in Canadian dollars last year would now be worth $1,208.63.
E)$1,200 invested in Canadian dollars last year would now be worth $1,191.43.
Q2) The idea that the exchange rate adjusts to keep buying power constant among currencies is called:
A)the unbiased forward rates condition.
B)uncovered interest rate parity.
C)the international Fisher effect.
D)purchasing power parity.
E)interest rate parity.
Q3) Describe the foreign currency and home currency approaches to capital budgeting.Which is better? Which approach would you recommend a U.S.firm use? Justify your answer.
To view all questions and flashcards with answers, click on the resource link above.
Page 18