Applied Corporate Finance
Practice Questions
Course Introduction
Applied Corporate Finance explores the practical application of financial theory and tools to real-world corporate decision-making. The course covers essential topics such as capital budgeting, cost of capital estimation, capital structure, dividend policy, valuation techniques, and risk management strategies. Emphasizing case studies and financial modeling, students learn how managers use financial data to make strategic decisions that enhance firm value. By integrating concepts from accounting, economics, and finance, the course equips students with the analytical skills necessary to evaluate investments, raise and allocate capital, and manage corporate resources effectively in a dynamic business environment.
Recommended Textbook Corporate Finance 7th Canadian Edition by Jaffe
Available Study Resources on Quizplus
32 Chapters
1515 Verified Questions
1515 Flashcards
Source URL: https://quizplus.com/study-set/3620 Page 2
Chapter 1: Introduction to Corporate Finance
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/71895
Sample Questions
Q1) Agency costs as the sum costs of:
A) monitoring costs of the shareholders and the residual loss of wealth due to divergent management behavior.
B) the costs of implementing control devices and the monitoring costs of the shareholders.
C) the costs of implementing control devices and the residual loss of wealth due to divergent management behavior.
D) the set-of-contracts needed to structure the firm and residual wealth.
Answer: B
Q2) The need to manage net working capital arises because:
A) financial management is naturally broken into those areas.
B) shareholders want to ensure they receive dividend payments.
C) there is a mismatch between the timing of cash inflows and cash outflows.
D) the sum of current assets and current liabilities usually is zero.
E) the capital structure pie is limited in size.
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
3
Chapter 2: Accounting Statements and Cash Flow
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/71884
Sample Questions
Q1) Based on the following information,calculate stockholders equity: cash = $5.00 accounts payable = $12.00 other current liabilities = $65.00 accounts receivable = $20.00 inventory = $50.00 net fixed assets = $175.00 long-term debt = $40.00
Answer: ($5 + $20 + $50 + $175)- ($12 + $65 + $40)= $133
Q2) Midget Co.has a profit margin on sales of 4% and a ROE of 18%.If Midget's debt-to-equity ratio is .8,what is the total asset turnover ratio?
A) 2.500.
B) 5.625.
C) 2.000.
D) 10.125.
Answer: A
Q3) What is the change in the net working capital from 2013 to 2014?
Answer: ($7,310 - $2,570)- ($6,225 - $2,820)= $1,335
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Financial Planning and Growth
Available Study Resources on Quizplus for this Chatper
37 Verified Questions
37 Flashcards
Source URL: https://quizplus.com/quiz/71873
Sample Questions
Q1) Financial planning is concerned with the basic policy elements of:
A) investment decision, decisions on the amount of cash payments to shareholders, and the decision of which investment banker to choose.
B) the method of raising capital, investment decisions, and the level of growth to attain.
C) investment decisions, degree of financial leverage, and the decision on the amount of cash payments to shareholders.
D) degree of financial leverage, level of growth to attain, and investment decisions.
Answer: C
Q2) If forecasted net income is $3,600.00 and the expected dividend is $1,098 and the tax rate is 34%,what is the retention ratio?
A) 0.30.
B) 0.198.
C) 0.802.
D) 0.70.
Answer: D
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Financial Markets and Net Present Value: First Principles of Finance
Available Study Resources on Quizplus for this Chatper
35 Verified Questions
35 Flashcards
Source URL: https://quizplus.com/quiz/71869
Sample Questions
Q1) If the corporation had cash on hand of $25,000 before raising any capital for the investment and the financial market rate is 9%.Graph and explain the investment choice the corporation should make.(Hint: Determine the NPV.)
Q2) An individual has income of $20,000 in period 0 and $42,000 in period 1.An investment opportunity that costs $15,000 in period 0 is worth $18,000 in period 1.The market interest rate is 6%.What is the maximum possible consumption in period 1 if the individual consumes $16,000 in period 0 and follows the NPV rule?
Q3) The consumption opportunity set moves further out when an investment is available because:
A) the total number of alternatives are now greater.
B) the investment is better than what is available in the market.
C) the project rate of return is less than the market rate.
D) the market rate is irrelevant to the investment choice.
Q4) The present value of future cash flows minus initial cost is called:
A) the future value of the project.
B) the net present value of the project.
C) the equivalent sum of the investment.
D) the initial investment risk equivalent value.
Page 6
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: The Time Value of Money
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/71868
Sample Questions
Q1) As the winner of the Housecleaners sweepstakes,you are entitled to one of the following prizes:
A. $999,999 immediately.
B. $100,000 per year forever.
C. $180,000 per year for the next 10 years starting immediately.
D. $400,000 payable every 2 years over 20 years.
E. $39,000 next year growing by 6% forever.
In terms of present values, which prize should be chosen if r = 9%?
Q2) Charles Carr borrowed $3,500 to consolidate his debts.Since Charles had an excellent credit rating,he was able to borrow at a 12% effective annual rate.Charles is required to make monthly payments.Charles will make equal payments for the next 36 months.Which one of the following values is closest to his monthly payments?
A) $121
B) $122
C) $115
D) $118
E) $123
Q3) What is meant by "amortizing a loan"?
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: How to Value Bonds and Stocks
Available Study Resources on Quizplus for this Chatper
81 Verified Questions
81 Flashcards
Source URL: https://quizplus.com/quiz/71867
Sample Questions
Q1) A 12-year,5% coupon bond pays interest annually.The bond has a face value of $1,000.What is the percentage change in the price of this bond if the market yield rises to 6% from the current yield of 4.5%?
A) 11.11% decrease
B) 12.38% decrease
C) 12.38% increase
D) 14.13% decrease
E) 14.13% increase
Q2) 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) $1,014.
B) $1,055.
C) $888.
D) $1,025.
E) $1,000.
Q3) Explain why some bond investors are subject to liquidity risk and/or default risk.How does each of these risks affect the yield of a bond?
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: Net Present Value and Other Investment Rules
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/71866
Sample Questions
Q1) The Walker Landscaping Company can purchase a piece of equipment for $3,600.The asset has a two-year life,will produce a cashflow of $600 in the first year and $4200 in the second year.The interest rate is 15%.Calculate the project's payback assuming steady cashflows.Also calculate the project's IRR.Should the project be taken? Check your answer by computing the project's NPV.
Q2) You are considering a project with the following data: Internal rate of return 8.7%
Profitability ratio .98
Net present value -$393
Payback period 2.44 years
Required return 9.5%
Which one of the following is correct given this information?
A) The discount rate used in computing the net present value must have been less than 8.7%.
B) The discounted payback period will have to be less than 2.44 years.
C) The discount rate used to compute the profitability ratio was equal to the internal rate of return.
D) This project should be accepted based on the profitability ratio.
E) This project should be rejected based on the internal rate of return.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Net Present Value and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/71865
Sample Questions
Q1) Bluedo's has sales of $435,000,depreciation of $35,000,and net working capital of $56,000.The firm has a tax rate of 34% and a profit margin of 8%.The firm has no interest expense.What is the amount of the operating cash flow?
A) $46,068
B) $57,968
C) $69,800
D) $322,100
E) $114,340
Q2) The incremental cash flow from projects for a company is computed as the:
A) net operating cash flow generated by the project, less any sunk costs and erosion costs.
B) sum of the incremental operating cash flow and after-tax salvage value of the project.
C) net income generated by the project, plus the annual depreciation expense.
D) sum of the incremental operating cash flow, capital spending, and change in net working capital of the project.
E) sum of the sunk costs, opportunity costs, and erosion costs of the project.
Q3) When is it appropriate to use the equivalent annual cost (EAC)methodology,and how do you make a decision using it?
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Risk Analysis,real Options,and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
33 Verified Questions
33 Flashcards
Source URL: https://quizplus.com/quiz/71864
Sample Questions
Q1) The accounting profit break-even point occurs when:
A) the total revenue curve cuts the total cost curve.
B) the total revenue curve cuts the fixed cost curve.
C) the variable cost curve cuts the total cost curve.
D) the total revenue curve cuts the variable cost curve.
Q2) Fixed production costs are:
A) directly related to labor costs.
B) measured as cost per unit of time.
C) measured as cost per unit of output.
D) dependent on the amount of goods or services produced.
Q3) In a decision tree,the NPV to make the yes/no decision is dependent on:
A) only the cash flows from successful path.
B) on the path where the probabilities add up to one.
C) all cash flows and probabilities.
D) only the cash flows and probabilities of the successful path.
Q4) In order to make a decision with a decision tree:
A) one starts furthest out in time to make the first decision.
B) One one must begin at time 0.
C) Any any path can be taken to get to the end.
D) Any any path can be taken to get back to the beginning.
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Risk and Return: Lessons From Market History
Available Study Resources on Quizplus for this Chatper
48 Verified Questions
48 Flashcards
Source URL: https://quizplus.com/quiz/71894
Sample Questions
Q1) A stock had returns of 8%,14%,and 2% for the past three years.Based on these returns,what is the probability that this stock will earn at least 20% in any one given year?
A) 0.5%
B) 1.0%
C) 2.3%
D) 5.0%
E) 16.0%
Q2) Capital gains are defined as:
A) the change in the firm's dividend payout over year.
B) assets sold at prices greater than their purchasing price.
C) assets sold at prices less than their purchasing price.
D) taxes collected by Federal but not by State governments.
Q3) The expected return on a security in the market context is:
A) a negative function of execs security risk.
B) a positive function of the beta.
C) a negative function of the beta.
D) a positive function of the excess security risk.
E) independent of beta.
Q4) List 2 shortcomings of using value at risk (VaR)as a risk management tool.
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Risk and Return: the Capital Asset Pricing Model
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/71893
Sample Questions
Q1) A portfolio has 25% of its funds invested in Security C and 75% of its funds invested in Security C has an expected return of 8% and a standard deviation of 6%. Security B has an expected return of 10% and a standard deviation of 10%. The securities have a coefficient of correlation of .6. Which of the following values is closest to portfolio return and variance?
A) .095; .001675.
B) .095; .0072.
C) .100; .00849.
D) .090; .0081.
Q2) If you have a portfolio of two risky stocks which turns out to have no diversification.The reason you have no diversification is:
A) the returns are too small.
B) the returns move perfectly opposite of one another.
C) the returns are too large to offset.
D) the returns move perfectly with one another.
E) the returns are completely unrelated to one another.
Q3) Why are some risks diversifiable and some nondiversifiable? Give an example of each.
To view all questions and flashcards with answers, click on the resource link above.
Page 13
Chapter 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/71892
Sample Questions
Q1) The term Corr( <sub>R</sub>, <sub>T</sub>)= 0 tells us that:
A) the error terms of company R and T are 0.
B) the unsystematic risk of companies R and T is unrelated or uncorrelated.
C) the correlation between the returns of companies R and T is greater than zero.
D) the systematic risk companies R and T is unrelated.
Q2) The unexpected return on a security,U,is made up of:
A) market risk and systematic risk.
B) systematic risk and idiosyncratic risk.
C) idiosyncratic risk and unsystematic risk.
D) expected return and market risk.
E) expected return and idiosyncratic risk.
Q3) You have a 3 factor model to explain returns.Explain what a factor represents in the context of the APT? Each factor is multiplied by a what do these represent and how do they relate to the actual return?
Q4) The betas along with the factors in the APT adjust the expected return for:
A) calculation errors.
B) unsystematic risks.
C) spurious correlations of factors.
D) differences between actual and expected levels of factors.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Risk,return,and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/71891
Sample Questions
Q1) Explain the factors that determine beta and how an asset beta can differ from equity betas.
Q2) The beta of a portfolio of the firm's debt and equity:
A) is equal to the sum of all the betas.
B) is equal to the sum of all the betas weighted by their market value weight.
C) is greater than the beta of each component.
D) is always less than zero.
Q3) The use of debt is called:
A) operating leverage.
B) production leverage.
C) financial leverage.
D) total asset turnover risk.
E) business risk.
Q4) The NPV formula for risky projects evaluates __________ using the __________.
A) riskless discount rate; expected incremental cashflows.
B) certain cashflows; risk-free discount rate.
C) expected incremental cashflows; risk-free discount rate.
D) certain cashflows; risky discount rate.
E) expected incremental cashflows; risky discount rate.
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Corporate Financing Decisions and Efficient
Capital Markets
Available Study Resources on Quizplus for this Chatper
44 Verified Questions
44 Flashcards
Source URL: https://quizplus.com/quiz/71890
Sample Questions
Q1) Which one of the following statements is correct concerning market efficiency?
A) Real asset markets are more efficient than financial markets.
B) If a market is efficient, arbitrage opportunities should be common.
C) In an efficient market, some market participants will have an advantage over others.
D) A firm will generally receive a fair price when it sells shares of stock.
Q2) An investor discovers that for a certain group of stocks,large positive price changes are always followed by large negative price changes.This finding is a violation of the:
A) moderate form of the efficient market hypothesis.
B) semi-strong form of the efficient market hypothesis.
C) strong form of the efficient market hypothesis.
D) weak form of the efficient market hypothesis.
Q3) The model,P<sub>t</sub> = P<sub>t-1</sub> + Expected Return + Random errors,supports the weak form of the efficient market hypothesis if:
A) the random error can be predicted by past prices.
B) there is correlation between random errors period to period.
C) the random errors are unrelated from one period to the next period.
D) the expected return is not based on the security's risk.
Q4) Define the three forms of market efficiency.
Page 16
To view all questions and flashcards with answers, click on the resource link above.
Chapter 15: Long-Term Financing: an Introduction
Available Study Resources on Quizplus for this Chatper
44 Verified Questions
44 Flashcards
Source URL: https://quizplus.com/quiz/71889
Sample Questions
Q1) If a group other than management solicits the authority to vote shares to replace management,a _____ is said to occur.
A) proxy fight
B) stockholder derivative action
C) tender offer
D) vote of confidence
Q2) Preferred stock has both a tax advantage and a tax disadvantage.Those two are:
A) in default there are no taxes and dividends are taxed in corporate hands at 70%.
B) corporate dividend receipts are taxed on 30% of the total dividends and a liability is created for arrears.
C) dividends are not a tax-deductible expense but are 70% exempt from corporate taxation.
D) dividends are fully tax deductible but are not equity capital.
Q3) Income trusts are structured such that income is taxed in the hands of the:
A) income trust.
B) operating entity.
C) unitholders.
D) there is no tax on income trusts.
To view all questions and flashcards with answers, click on the resource link above.
17
Chapter 16: Capital Structure: Basic Concepts
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/71888
Sample Questions
Q1) Suppose the tax authorities allow firms to deduct their interest expense from operating income.Both firm U and firm L are in the 34% tax bracket.Show what happens to the market value of both firms if the debt held by firm L is permanent.
Q2) The Nantucket Nugget is unlevered and is valued at $640,000.Nantucket is currently deciding whether including debt in their capital structure would increase their value.Under consideration is issuing $300,000 in new debt with an 8% interest rate.Nantucket would repurchase $300,000 of stock with the proceeds of the debt issue.There are currently 32,000 shares outstanding and their effective marginal tax bracket is zero.What is the change in value and how many shares of stock will be repurchased?
Q3) What will the stock price now be after the recapitalization?
A) $40.
B) $35.
C) $45.
D) $50.
Q4) Mike tells Steve that while his analysis looks good on paper,Steve will never be able to borrow at 8%,but would have to pay a more realistic rate of 12%.If Mike is right,what will Steve's payout be?
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 17: Capital Structure: Limits to the Use of Debt
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/71887
Sample Questions
Q1) Covenants restricting the use of leasing and additional borrowings primarily protect: A) the equityholders from added risk of default.
B) the debtholders from the added risk of dilution of their claims.
C) the debtholders from the transfer of assets.
D) the management from having to pay agency costs.
Q2) When firms issue more debt,the tax shield on debt ____,the agency costs on debt (i.e.,costs of financial distress)____,and the agency costs on equity ____.
A) increases; increases; increases B) decreases; decreases; decreases C) increases; increases; decreases D) decreases; decreases; increases E) increases; decreases; decreases
Q3) Given a situation where the corporate tax rate is 34%,and the personal tax rate on dividends is 28%,what must the personal tax rate on interest be to achieve the Miller equilibrium?
Q4) Is there an easily identifiable debt-equity ratio that will maximize the value of a firm? Why or why not?
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Valuation and Capital Budgeting for the Levered Firm
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/71886
Sample Questions
Q1) The APV method is comprised of the all equity NPV of a project and the NPV of financing effects.The four side effects are:
A) tax subsidy of dividends, cost of issuing new securities, subsidy of financial distress and cost of debt financing.
B) cost of issuing new securities, cost of financial distress, tax subsidy of debt and other subsidies to debt financing.
C) cost of issuing new securities, cost of financial distress, tax subsidy of dividends and cost of debt financing.
D) subsidy of financial distress, tax subsidy of debt, cost of other debt financing and cost of issuing new securities.
Q2) The term scale enhancing refers to:
A) a project whose risk is equal to the risk of the firm as a whole.
B) cost of debt which does not affect the firm's cost of equity.
C) new issues of securities much larger than existing issues.
D) past performance out performing future performance.
Q3) Discuss the adjusted present value,the flow to equity and the weighted average cost of capital methods of capital budgeting with leverage and the guidelines for using each method.
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Dividends and Other Payouts
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/71885
Sample Questions
Q1) Your company has announced a dividend of $2.50 per share.You and the rest of the marginal investors are in the 35% tax bracket.What should happen to the stock price?
A) the price of stock should decrease by $1.625 per share immediately after the date of record.
B) the price of stock should decrease by $1.625 per share immediately after the ex-dividend date.
C) the price of stock should decrease by $3.85 per share immediately after the date of record.
D) the price of stock should decrease by $3.85 per share immediately after the ex-dividend date.
Q2) A dividend is usually a cash distribution from:
A) current earnings or accumulated retained earnings.
B) the capital surplus account.
C) common stock account.
D) liquidated capital.
To view all questions and flashcards with answers, click on the resource link above.
21
Chapter 20: Issuing Equity Securities to the Public
Available Study Resources on Quizplus for this Chatper
44 Verified Questions
44 Flashcards
Source URL: https://quizplus.com/quiz/71883
Sample Questions
Q1) Potential investors learn of the information concerning the firm and its new issue from the:
A) registration statement.
B) prospectus.
C) letter of commitment.
D) tombstone.
E) rights offering.
Q2) Calculate the ex-rights price that would make a new stockholder indifferent between buying shares at the old stock price and exercising the rights or buying the shares ex-rights.
Q3) A shareholder who has rights is:
A) not always better off to exercise the rights.
B) not always better off to sell the rights into the market.
C) never better off to let them expire.
D) never in the same ownership position again with rights.
Q4) The winner's curse is used to describe:
A) the payoff you receive on lottery tickets.
B) getting a full allocation of undesirable IPO shares.
C) acquiring all underpriced IPO issues.
D) a fully underwritten issue.
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Long-Term Debt
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/71882
Sample Questions
Q1) If the bond is priced at $1,000,what is the cost to the firm of the call provision?
Q2) If the bond sells for par today,what is the coupon?
Q3) A sinking fund is useful to a corporation because:
A) the corporation does not have to worry about paying the bondholders.
B) it provides the corporation with the option to buy the bonds back at the lower of face value or market price.
C) the payments to the sinking fund are not necessary when the firm is in financial difficulty.
D) they are simple and easy to monitor.
Q4) Studies have shown that around the announcement of bond rating changes:
A) bond values increase, and equity values decrease.
B) bond values decrease, and equity values increase.
C) bond values increase, and equity values do not change.
D) bond values decrease, and equity values do not change.
E) no unusual behavior occurs in bond or equity values.
Q5) What is the bond's value today if the coupon is set at $100?
Q6) What is the bond's value today if the coupon is set at $70?
Q7) If the bond sells for par today,what is the coupon?
Page 23
To view all questions and flashcards with answers, click on the resource link above.
Chapter 22: Leasing
Available Study Resources on Quizplus for this Chatper
43 Verified Questions
43 Flashcards
Source URL: https://quizplus.com/quiz/71881
Sample Questions
Q1) What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0?
A) -$100,000
B) $15,000
C) -$15,000
D) -$125,000
Q2) A lease with high payments early in its life which then decline to termination would:
A) provide greater cash flow to the lessee in the beginning years.
B) be evidence of tax avoidance and not acceptable to the CRA.
C) be qualified as a capital lease under CICA 3065.
D) provide a lower residual value and thus ensure a bargain-purchase price option.
Q3) A financial lease is likely to be most beneficial to both parties when:
A) the lessor's tax rate is lower than the lessee's.
B) the lessor's tax rate is higher than the lessee's.
C) the lessor's tax rate is equal to the lessee's.
D) a financial lease cannot be beneficial to both parties.
Q4) What is the discount rate to be used?
Q5) Should the asset be purchased or leased? Support your answer.
To view all questions and flashcards with answers, click on the resource link above. Page 24
Chapter 23: Options and Corporate Finance: Basic Concepts
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/71880
Sample Questions
Q1) A stock has both a call and a put option outstanding.The exercise price was set equal to the stock price.If the option were to expire now what would be the minimum value of the call and the put respectively?
A) (S<sub>T</sub> - E); ³ 0.
B) 0; (S<sub>T</sub> - E).
C) <0; >0.
D) 0; 0.
E) (E - S<sub>T</sub>); (S<sub>T</sub> - E).
Q2) The special contractual nature giving the owner the right to buy or sell an asset at a fixed price on or before a given date is the basis of:
A) a common stock.
B) a capital investment.
C) a futures.
D) an option.
Q3) The lowest value a call option can have is:
A) zero, because it is a limited liability instrument.
B) S<sub>T</sub>, because the basis of value is the stock price.
C) S<sub>T</sub>-0, because it is a limited liability instrument.
D) X-S<sub>T</sub>, because the exercise price is the hurdle.
Page 25
To view all questions and flashcards with answers, click on the resource link above.
Chapter 24: Options and Corporate Finance: Extensions and Applications
Available Study Resources on Quizplus for this Chatper
24 Verified Questions
24 Flashcards
Source URL: https://quizplus.com/quiz/71879
Sample Questions
Q1) If Mr.Maxim earned $500,000 in regular annual salary why might why might he prefer to have $1,500,000 in straight salary versus salary and options?
Q2) The CFO of NuValue was granted 1,000,000 options.The stock price at the time of the granting of the options was $20 and the options are at the money.The risk free rate was 4% and the options expire in 5 years.The variance on the stock is .05.What is the value of her options contract? If she had negotiated a larger salary and only 10,000 options,what would be the value of the options contract?
Q3) Rejecting an investment today forever may not be a good choice because:
A) the size of the firm will decline.
B) there are always errors in the estimation of NPVs.
C) the option value is negative.
D) the company's foregoing the future rights or option to the investment.
Q4) The NPV approach must be:
A) augmented by added analysis if there are a few embedded options.
B) augmented by added analysis if a decision has significant embedded options.
C) jettisoned if there are any embedded options.
D) computed carefully to identify the options.
Q5) What is the value of Mr.Maxim's options?
Q6) Why would the company pay the executive in options as opposed to salary?
To view all questions and flashcards with answers, click on the resource link above. Page 26
Chapter 25: Warrants and Convertibles
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/71878
Sample Questions
Q1) 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.
Q2) Issuing convertible bonds or bonds with warrants is useful for a company of unknown risk because:
A) the effects of risk are opposite on the two value components and tend to cancel each other out.
B) if the firm is high risk, the option premium will be higher while the straight bond value is fixed.
C) only risky companies issued these instruments.
D) the equity value is dependent on current risks only, not the future risk at conversion.
Q3) Kida Consultants currently has 300,000 shares of common outstanding.Firm value net of debt is $3,900,000.Kida has warrants outstanding with an exercise price of $10.How many warrants must the firm have issued if the gain from exercising a single warrant is $8.25?
To view all questions and flashcards with answers, click on the resource link above. Page 27
Chapter 26: Derivatives and Hedging Risk
Available Study Resources on Quizplus for this Chatper
49 Verified Questions
49 Flashcards
Source URL: https://quizplus.com/quiz/71877
Sample Questions
Q1) The main difference between a forward contract and a cash transaction is:
A) only the cash transaction creates an obligation to perform.
B) a forward is performed at a later date while the cash transaction is performed immediately.
C) only one involves a deliverable instrument.
D) neither allows for hedging.
Q2) 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.
Q3) 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%.
Q4) Calculate the duration of Tiger State Bank's assets and liabilities.
Q5) Calculate the duration of a 7-year $1,000 zero-coupon bond with a current price of $399.63 and a yield to maturity of 14%.
To view all questions and flashcards with answers, click on the resource link above.
Page 28
Chapter 27: Short-Term Finance and Planning
Available Study Resources on Quizplus for this Chatper
53 Verified Questions
53 Flashcards
Source URL: https://quizplus.com/quiz/71876
Sample Questions
Q1) Which one of the following will decrease the net working capital of a firm? Assume that the current ratio is greater than 1.0.
A) Selling inventory at a profit.
B) Collecting an accounts receivable.
C) Paying a payment on a long-term debt.
D) Selling a fixed asset for book value.
Q2) Firms hold cash,in part,to satisfy compensating balances. Compensating balances are:
A) cash balances held at the firm in excess of its transactions needs.
B) cash balances held at the firm that are below that of its transactions needs.
C) cash balances held at the firm in excess of its cash inflows.
D) cash balances held at commercial banks to pay implicitly for bank services.
Q3) The minimum total cost of holding current assets occurs at the:
A) intersection of the carrying costs and shortage costs curves.
B) intersection of the marginal cost and average variable costs curves.
C) minimum for both the carrying costs and shortage costs curve.
D) minimum of the average variable cost curve.
Q4) Restrictive short-term financial policies regarding current asset management include three basic actions.List and briefly describe each action.
To view all questions and flashcards with answers, click on the resource link above. Page 29
Chapter 28: Cash Management
Available Study Resources on Quizplus for this Chatper
34 Verified Questions
34 Flashcards
Source URL: https://quizplus.com/quiz/71875
Sample Questions
Q1) What is the savings float and what can you earn if the firm takes Mesa's lockbox service?
Q2) Firms would need to hold zero cash when:
A) transactions related needs are greater than cash inflows.
B) transactions related needs are less than cash inflows.
C) transactions related needs are not perfectly synchronized with cash inflows. D) transactions related needs are perfectly synchronized with cash inflows.
Q3) Sigma Plus Corporation has a variance of daily cash flow of $8.The daily interest rate is .021% (.00021).Sigma desires a minimum cash balance of $80.The fixed cost of a security transaction is $2.00.Using the Miller-Orr model,calculate Sigma's target cash balance,the upper limit on cash balances,and the average daily cash balance.Explain how this is used to manage cash.
Q4) The net float of a firm is made up of disbursement float and collection float.Discuss the three components of collection float and how they would work against the firm.
Q5) If Mesa will charge your firm an annual fee of $35,000 and $.20 per check handled will you accept Mesa's services?
To view all questions and flashcards with answers, click on the resource link above.
Chapter 29: Credit Management
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/71874
Sample Questions
Q1) If a firm grants credit with terms of 2/10 net 45,September 1 dating the creditor:
A) must pay a penalty of 2% when payment is made later than September 1<sup>st</sup>.
B) must pay a penalty of 10% when payment is made later than 2 days after September 1<sup>st</sup>.
C) receives a discount of 2% when payment is made at least 10 days before September 1<sup>st</sup>.
D) receives a discount of 2% when payment is made before September 1<sup>st</sup> and pays a penalty of 10% if payment is made after September 1<sup>st</sup>.
E) receives a discount of 2% when payment is made within 10 days after the effective invoice date of September 1<sup>st</sup>.
Q2) When credit is offered with only the invoice as a formal instrument of credit,the credit procedure is called:
A) invoice account.
B) open account.
C) unsecured account.
D) unsecured note.
To view all questions and flashcards with answers, click on the resource link above.
Page 31
Chapter 30: Mergers and Acquisitions
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/71872
Sample Questions
Q1) In a merger or acquisition,a firm should be acquired if:
A) it generates a positive net present value to the shareholders of an acquiring firm.
B) it is a firm in the same line of business, in which the acquirer has expertise.
C) it is a firm in a totally different line of business which will diversify the firm.
D) it pays a large dividend which will provide cash pass through to the acquirer.
Q2) The empirical evidence strongly indicates that the stockholders of the target firm realize large wealth gains as a result of a takeover bid but the stockholders in the acquiring firm gain little,if anything.Although no definitive answer exists as to why this is the case,several possible explanations have been proposed.List and explain three of these possible explanations for the minimal returns to the acquiring firm's stockholders.
Q3) Which of the following is the opposite of a targeted repurchase?
A) Repurchase standstill provision
B) Exclusionary self-tender
C) Super majority amendment
D) Tender offer
To view all questions and flashcards with answers, click on the resource link above.
32
Chapter 31: Financial Distress
Available Study Resources on Quizplus for this Chatper
20 Verified Questions
20 Flashcards
Source URL: https://quizplus.com/quiz/71871
Sample Questions
Q1) How much and what percentage of their claim will the unsecured creditors receive,in total?
A) $290,909; 36.36%
B) $300,000; 37.50%
C) $600,000; 75.00%
D) $100,000; 12.50%
Q2) Insolvency can be defined as:
A) not having cash.
B) being illiquid.
C) an inability to pay one's debts.
D) an inability to increase one's debts.
E) the present value of payments being less than assets.
Q3) How much and what percentage of their claim will the secured creditors receive,in total?
A) $1,200,000; 100.00%
B) $1,009,091; 84.10%
C) $900,000.00; 75.00%
D) $981,818; 81.82%
To view all questions and flashcards with answers, click on the resource link above.
33
Chapter 32: International Corporate Finance
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/71870
Sample Questions
Q1) In foreign exchange markets the swap rate is:
A) the volume of currency traded in a day.
B) the rate of profit made on any transaction.
C) the nightlife of the stereotypical Frenchman.
D) the difference in the foreign exchange rates on a roundtrip agreement to buy and sell a currency.
Q2) Underwriters of Eurobonds sell the bonds on a:
A) best-efforts basis.
B) best-efforts, all or none basis.
C) firm-commitment basis.
D) regular basis to governments.
Q3) Swiss franc denominated bonds issued in Switzerland by a French company are called:
A) Eurobonds.
B) Foreign bonds.
C) European Original Issue (EOI) bonds.
D) American Depository Bonds (ADBs).
Q4) 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.
Page 34
To view all questions and flashcards with answers, click on the resource link above.