Advanced Corporate Finance
Textbook Exam Questions
Course Introduction
Advanced Corporate Finance explores complex financial decision-making processes within modern corporations. This course delves into topics such as capital structure optimization, corporate valuation, mergers and acquisitions, risk management, and financial strategies for growth. Emphasizing both theoretical models and real-world applications, students analyze case studies and current events to understand the strategic considerations and quantitative methods involved in high-level corporate finance. The course is designed to equip students with advanced analytical tools used to assess corporate investments, financing alternatives, and value creation under conditions of uncertainty and market imperfections.
Recommended Textbook Corporate Finance The Core 4th Edition by Jonathan Berk
Available Study Resources on Quizplus
19 Chapters
1748 Verified Questions
1748 Flashcards
Source URL: https://quizplus.com/study-set/3552
Page 2
Chapter 1: The Corporation
Available Study Resources on Quizplus for this Chatper
38 Verified Questions
38 Flashcards
Source URL: https://quizplus.com/quiz/70551
Sample Questions
Q1) Which of the following are subject to double taxation?
A)Corporation
B)Partnership
C)Sole proprietorship
D)A and B
Answer: A
Q2) What strategies are available to shareholders to help ensure that managers are motivated to act in the interest of the shareholders rather than their own interest?
Answer: 1.The threat of a hostile takeover 2.Shareholder initiatives 3.Performance based compensation
Q3) How much would you have to pay to purchase 100 shares of XYZ stock on November 18th?
A)$2520
B)$2525
C)$2593
D)$2600
Answer: D
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Introduction to Financial Statement Analysis
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/70540
Sample Questions
Q1) Luther Corporation's total sales for 2009 were $610.1,and gross profit was $109.0.Inventory days for 2009 is closest to:
A)27.5
B)33.4
C)153.7
D)10.9
Answer: B
Q2) U.S.public companies are required to file their annual financial statements with the U.S.Securities and Exchange Commission on which form?
A)10-A
B)10-K
C)10-Q
D)10-SEC
Answer: B
Q3) If Luther's accounts receivable were $55.5 million in 2009,then calculate Luther's accounts receivable days for 2009.
Answer: Accounts receivable days = 11ea857d_978c_ba9f_a31f_0da7117dcbfc_TB6458_11 = 11ea857d_978c_e1b0_a31f_c91479474ab4_TB6458_11 = 33.2 days
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Financial Decision Making and the Law of One
Price
Available Study Resources on Quizplus for this Chatper
89 Verified Questions
89 Flashcards
Source URL: https://quizplus.com/quiz/70539
Sample Questions
Q1) Suppose that Bondi Inc.is a holding company that owns both Pizza Hut and Kentucky Fried Chicken Franchised Restaurants.If the value of Bondi is $130 million,and the Pizza Hut Franchises are worth $70 million,then what is the value of the Kentucky Fried Chicken Franchises?
A)$60 million
B)$70 million
C)$130 million
D)Unable to determine with the information provided
Answer: A
Q2) If the risk-free rate of interest is 7.5%,then the value of security "A" is closest to:
A)$91.00
B)$92.50
C)$93.00
D)$100.00
Answer: C
Q3) The price per share of the ETF in a normal market is:
Answer: Value
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: The Time Value of Money
Available Study Resources on Quizplus for this Chatper
91 Verified Questions
91 Flashcards
Source URL: https://quizplus.com/quiz/70538
Sample Questions
Q1) Your son is about to start kindergarten in a private school.Currently,the tuition is $12,000 per year,payable at the start of the school year.You expect annual tuition increases to average 6% per year over the next 13 years.Assuming that your son remains in this private school through high school and that your current interest rate is 6%,then the present value of your son's private school education is closest to:
A)$106,230
B)$156,000
C)$137,900
D)This problem cannot be solved.
Q2) The amount of money that your great aunt Matilda originally put in the account is closest to:
A)$600
B)$800
C)$1000
D)$1200
Q3) The future value at retirement (age 65)of your savings is:
Q4) You have been offered the following investment opportunity,if you pay $2500 today,you will receive $1000 at the end of each of the next three years.Draw a timeline detailing this investment opportunity.
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Interest Rates
Available Study Resources on Quizplus for this Chatper
68 Verified Questions
68 Flashcards
Source URL: https://quizplus.com/quiz/70537
Sample Questions
Q1) The effective annual rate for a credit card that charges a 19.9% APR compounded daily is closest to:
A)18.15%
B)19.9%
C)22.0%
D)24.2%
Q2) You are purchasing a new home and need to borrow $325,000 from a mortgage lender.The mortgage lender quotes you a rate of 6.5% APR for a 30-year fixed rate mortgage (with payments made at the end of each month).The mortgage lender also tells you that if you are willing to pay 1 point,they can offer you a lower rate of 6.25% APR for a 30-year fixed rate mortgage.One point is equal to 1% of the loan value.So if you take the lower rate and pay the points,you will need to borrow an additional $3250 to cover points you are paying the lender.Assuming that you do not intend to prepay your mortgage (pay off your mortgage early),are you better off paying the 1 point and borrowing at 6.25% APR or just taking out the loan at 6.5% without any points?
Q3) Should you purchase the delivery truck or lease it? Why?
Q4) Should the nominal interest rate ever be negative? Can the real interest rate ever be negative? Explain.
Q5) What is the effective after-tax rate of each instrument,expressed as an EAR?
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Valuing Bonds
Available Study Resources on Quizplus for this Chatper
115 Verified Questions
115 Flashcards
Source URL: https://quizplus.com/quiz/70536
Sample Questions
Q1) Which of the following statements is FALSE?
A)The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond.
B)The bond certificate indicates the amounts and dates of all payments to be made.
C)The only cash payments the investor will receive from a zero coupon bond are the interest payments that are paid up until the maturity date.
D)Usually the face value of a bond is repaid at maturity.
Q2) The price today of a three-year default-free security with a face value of $1000 and an annual coupon rate of 4% is closest to:
A)$1002.78
B)$1003.31
C)$1028.50
D)$1028.61
Q3) What is the relationship between a bond's price and its yield to maturity?
Q4) What is the price today of a two-year,default-free security with a face value of $1000 and an annual coupon rate of 5.75%? Does this bond trade at a discount,premium,or at par?
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Investment Decision Rules
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/70535
Sample Questions
Q1) Which of the following statements is FALSE?
A)The profitability index measures the value created in terms of NPV per unit of resource consumed.
B)The profitability index is the ratio of value created to resources consumed.
C)The profitability index can be easily adapted for determining the correct investment decisions when multiple resource constraints exist.
D)The profitability index measures the "bang for your buck."
Q2) Consider two mutually exclusive projects A & B.If you subtract the cash flows of opportunity B from the cash flows of opportunity A,then you should:
A)take opportunity A if the regular IRR exceeds the cost of capital.
B)take opportunity A if the incremental IRR exceeds the cost of capital.
C)take opportunity B if the regular IRR exceeds the cost of capital.
D)take opportunity B if the incremental IRR exceeds the cost of capital.
Q3) Which of the following statements is correct?
A)You should accept project A since its IRR > 15%.
B)You should reject project B since its NPV > 0.
C)Your should accept project A since its NPV < 0.
D)You should accept project B since its IRR < 15%.
Q4) If the discount rate for project B is 15%,then what is the NPV for project B?
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Fundamentals of Capital Budgeting
Available Study Resources on Quizplus for this Chatper
95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/70534
Sample Questions
Q1) The free cash flow from the Shepard Industries project in year one is closest to:
A)$240
B)$300
C)-$5
D)$390
Q2) Money that has been or will be paid regardless of the decision whether or not to proceed with the project is:
A)cannibalization.
B)considered as part of the initial investment in the project.
C)an opportunity cost.
D)a sunk cost.
Q3) The incremental cash flow that Galt Motors will incur in year 10 if they elect to manufacture armatures in house is closest to:
A)40,000
B)335,000
C)375,000
D)415,000
Q4) What is sensitivity analysis?
Q5) How does scenario analysis differ from sensitivity analysis?
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Valuing Stocks
Available Study Resources on Quizplus for this Chatper
96 Verified Questions
96 Flashcards
Source URL: https://quizplus.com/quiz/70533
Sample Questions
Q1) Which of the following is NOT a way that a firm can increase its dividend?
A)By increasing its retention rate
B)By decreasing its shares outstanding
C)By increasing its earnings (net income)
D)By increasing its dividend payout rate
Q2) Which of the following statements is FALSE?
A)The firm's weighted average cost of capital (WACC)denoted r<sub>wacc</sub> is the cost of capital that reflects the risk of the overall business,which is the combined risk of the firm's equity and debt.
B)Intuitively,the difference between the discounted free cash flow model and the dividend-discount model is that in the divided-discount model the firm's cash and debt are included indirectly through the effect of interest income and expenses on earnings in the dividend-discount model.
C)We interpret r<sub>wacc</sub> as the expected return the firm must pay to investors to compensate them for the risk of holding the firm's debt and equity together.
D)When using the discounted free cash flow model we should use the firm's equity cost of capital.
Q3) What are some common multiples used to value stocks?
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: Capital Markets and the Pricing of Risk
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/70550
Sample Questions
Q1) The standard deviation of the returns on Stock A from 2000 to 2009 is closest to:
A)33.2%
B)16.4%
C)31.5%
D)11.0%
Q2) If the market risk premium is 6% and the risk-free rate is 4%,then the expected return of investing in Ford Motor Company is closest to:
A)10.0%
B)16.2%
C)17.1%
D)20.6%
Q3) The standard deviation for the return on an individual firm is closest to:
A)23.0%
B)5.25%
C)15.0%
D)10.0%
Q4) Do expected returns for individual stocks increase proportionately with volatility?
Q5) Which pharmaceutical company faces less risk?
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Optimal Portfolio Choice and the Capital Asset
Pricing Model
Available Study Resources on Quizplus for this Chatper
134 Verified Questions
134 Flashcards
Source URL: https://quizplus.com/quiz/70549
Sample Questions
Q1) Which of the following statements is FALSE?
A)When stocks are perfectly positively correlated,the set of portfolios is identified graphically by a straight line between them.
B)An investor seeking high returns and low volatility should only invest in an efficient portfolio.
C)When the correlation between securities is less than 1,the volatility of the portfolio is reduced due to diversification.
D)Efficient portfolios can be easily ranked,because investors will choose from among them those with the highest expected returns.
Q2) The weight on Abbott Labs in your portfolio is:
A)50%
B)40%
C)30%
D)20%
Q3) Calculate the variance on a portfolio that is made up of equal investments in Stock Y and Stock Z stock.
Q4) Calculate the correlation between Stock Y's and Stock Z's returns .
Q5) Calculate the covariance between Stock Y's and Stock Z's returns .
Page 13
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: Estimating the Cost of Capital
Available Study Resources on Quizplus for this Chatper
104 Verified Questions
104 Flashcards
Source URL: https://quizplus.com/quiz/70548
Sample Questions
Q1) Wyatt Oil's average historical return is closest to:
A)-2.50%
B)-3.33%
C)-4.33%
D)-5.17%
Q2) Luther's after-tax debt cost of capital is closest to:
A)4.2%
B)5.4%
C)7.0%
D)9.8%
Q3) Which of the following statements is FALSE?
A)The market portfolio contains more of the smallest stocks and less of the larger stocks.
B)For the market portfolio,the investment in each security is proportional to its market capitalization.
C)Because the market portfolio is defined as the total supply of securities,the proportions should correspond exactly to the proportion of the total market that each security represents.
D)Market capitalization is the total market value of the outstanding shares of a firm.
To view all questions and flashcards with answers, click on the resource link above.
14
Chapter 13: Investor Behavior and Capital Market Efficiency
Available Study Resources on Quizplus for this Chatper
77 Verified Questions
77 Flashcards
Source URL: https://quizplus.com/quiz/70547
Sample Questions
Q1) Which of the following statements is FALSE?
A)If the market portfolio is efficient,then all securities and portfolios must plot on the SML,not just individual stocks.
B)For most stocks the standard errors of the alpha estimates are large,so it is impossible to conclude that the alphas are statistically different from zero.
C)It is not difficult to find individual stocks that,in the past have not plotted on the SML.
D)Small stocks (those with lower market capitalization)have lower average returns.
Q2) Which of the following is NOT true regarding individual investor behavior?
A)Individual investors fail to diversify their portfolios adequately.
B)A vast majority of individual investors hold fewer than 10 stocks in their portfolio.
C)Employees tend to overinvest in their company's own stock.
D)Individual investors' portfolios consistently outperform the market averages.
Q3) Explain why the market portfolio proxy may not be efficient.
Q4) What does the existence of a positive alpha investment strategy imply?
To view all questions and flashcards with answers, click on the resource link above.
15
Chapter 14: Capital Structure in a Perfect Market
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/70546
Sample Questions
Q1) Equity in a firm with no debt is called:
A)levered equity.
B)unlevered equity.
C)riskless equity.
D)risky equity.
Q2) Two separate firms are considering investing in this project.Firm unlevered plans to fund the entire $80,000 investment using equity,while firm levered plans to borrow $45,000 at the risk-free rate and use equity to finance the remainder of the initial investment.Calculate the expected returns for both the levered and unlevered firm.
Q3) Suppose that to raise the funds for the initial investment the firm borrows $45,000 at the risk free rate and issues new equity to cover the remainder.In this situation,calculate the value of the firm's levered equity from the project.What is the cost of capital for the firm's levered equity?
Q4) The beginning of the modern theory of finance was marked by:
A)the approach used by Modigliani and Miller.
B)the approach used by John and Williams.
C)the approach taken by Berk and DeMarzo.
D)the approach taken by Dan Harris.
Q5) What is the conservation of value principle?
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Debt and Taxes
Available Study Resources on Quizplus for this Chatper
95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/70545
Sample Questions
Q1) Assume that investors in Google pay a 15% tax rate on income from equity and a 25% tax rate on interest income.If Google were to issue sufficient debt to reduce its taxes by $600 million per year permanently,then the effective tax advantage of this debt would be closest to:
A)10%
B)15%
C)25%
D)30%
Q2) The income that would be available to equity holders in 2006 if Kroger was not levered is closest to:
A)$1525 million
B)$2035 million
C)$1500 million
D)$1325 million
Q3) With its current leverage,WELS Corporation will have Free Cash Flow of $4 million.If WELS corporate tax rate is 35% and it pays 8% interest on its debt,how much additional debt can WELS issue this year and still receive the benefit of the interest tax shield next year?
To view all questions and flashcards with answers, click on the resource link above.
Available Study Resources on Quizplus for this Chatper
111 Verified Questions
111 Flashcards
Source URL: https://quizplus.com/quiz/70544
Sample Questions
Q1) Assume that in the event of default,20% of the value of MI's assets will be lost in bankruptcy costs and suppose that MI has zero-coupon debt with a $125 million face value due next year.The initial value of MI's equity is closest to:
A)$30 million
B)$29 million
C)$15 million
D)$24 million
Q2) Because debtor-in-possession (DIP)financing is senior to all existing creditors: A)it allows a firm that has filed for bankruptcy renewed access to financing to keep operating.
B)it is an important cost for firms that rely heavily on trade credit.
C)it is likely to be small for producers of raw materials,as the value of those goods,once delivered,does not depend on the seller's continued success.
D)it allows debtors to assume they may have an opportunity to avoid their obligations to a firm.
Q3) Suppose that MI has zero-coupon debt with a $140 million face value due next year.Calculate the value of levered equity,the value of debt,and the total value of MI with leverage.
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Payout Policy
Available Study Resources on Quizplus for this Chatper
96 Verified Questions
96 Flashcards
Source URL: https://quizplus.com/quiz/70543
Sample Questions
Q1) Assuming Luther issues a 5:2 stock split,then Luther's new share price is closest to:
A)$32.00
B)$16.00
C)$24.00
D)$30.00
Q2) Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.Omicron's cum-dividend price is closest to:
A)$50.00
B)$40.00
C)$5.00
D)$45.00
Q3) In which years were dividends NOT tax disadvantaged?
A)1987 - 2002
B)1987,1993 - 2002
C)1987,1991 - 2002
D)1988 - 1990,2003 - 2009
Q4) Calculate the effective tax disadvantage for retaining cash in 1999,2001,and 2005.
To view all questions and flashcards with answers, click on the resource link above.
19
Chapter 18: Capital Budgeting and Valuation With Leverage
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/70542
Sample Questions
Q1) The NPV of this project using the APV method is closest to:
A)$10 million
B)$13 million
C)$42 million
D)$71 million
Q2) The Debt Capacity for Omicron's new project in year 2 is closest to:
A)$55.25
B)$38.75
C)$22.00
D)$33.00
Q3) The NPV for Omicron's new project is closest to:
A)$23.75
B)$27.50
C)$28.75
D)$25.75
Q4) Suppose that to fund this new project,Aardvark borrows $150 with the principal to be paid in three equal installments at the end each year.Calculate the present value of Aardvark's interest tax shield.
Q5) Calculate the present value of the interest tax shield provided by Omicron's new project.
Page 20
To view all questions and flashcards with answers, click on the resource link above.
Chapter 19: Valuation and Financial Modeling: a Case Study
Available Study Resources on Quizplus for this Chatper
49 Verified Questions
49 Flashcards
Source URL: https://quizplus.com/quiz/70541
Sample Questions
Q1) The free cash flow to equity in 2010 is closest to:
A)6255
B)10,684
C)11,559
D)18,394
Q2) Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation unlevered P/E ratio of Ideko in 2010 is closest to:
A)17.6
B)16.4
C)14.5
D)19.0
Q3) Based upon Ideko's Sales and Operating Cost Assumptions,what production capacity will Ideko require in 2009?
A)1505 units
B)1115 units
C)1323 units
D)1702 units
Q4) What is the purpose of the sensitivity analysis?
Page 21
To view all questions and flashcards with answers, click on the resource link above.