Corporate Finance
Exam Answer Key
Course Introduction
Corporate Finance explores the fundamental principles and techniques used to manage a corporations financial resources. The course covers essential topics such as capital budgeting, risk and return analysis, cost of capital, financial statement analysis, capital structure decisions, dividend policy, and working capital management. Students will learn how financial managers make investment and financing decisions that maximize firm value, and will gain practical experience analyzing real-world scenarios using quantitative tools. The course also addresses the global financial environment, ethical considerations, and the impact of financial markets on corporate strategy.
Recommended Textbook
Entrepreneurial Finance 4th Edition by J.
Chris Leach
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15 Chapters
1018 Verified Questions
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Page 2
Chapter 1: Introduction and Overview
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Sample Questions
Q1) Free cash flow is the net income forecast to be available to the venture's owners over time.
A)True
B)False
Answer: False
Q2) The first three stages of a successful venture's life cycle occur in the following order:
A)development,rapid growth,survival
B)startup,development,rapid growth
C)startup,survival,rapid growth
D)survival,rapid growth,maturity
E)development,startup,survival
Answer: E
Q3) The last stage in a successful venture's life cycle is called the:
A)rapid growth stage
B)maturity stage
C)development stage
D)survival stage
E)startup stage
Answer: B
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Page 3
Chapter 2: From the Idea to the Business Plan
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Sample Questions
Q1) Determine the cost of goods sold for a venture with the following financial information: revenues = $50,000;net profit margin = 20%; gross profit margin = 70%
A)$40,000
B)$35,000
C)$15,000
D)$10,000
Answer: C
Q2) At the end of a qualitative-based venture opportunity screening exercise,the interviewer prepares a subjective assessment and indicates one of the following except for:
A)natural commercial potential
B)high commercial potential
C)average commercial potential
D)low commercial potential
Answer: A
Q3) A venture with a low score on the VOS Indicator should always be abandoned. A)True
B)False
Answer: False
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Chapter 3: Organizing and Financing a New Venture
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Sample Questions
Q1) Which of the following is not a right or a duty of general partners?
A)participation in profits and losses
B)some liability for partnership obligations
C)veto right on new partners
D)eventual return of capital
E)access to partnership books
Answer: B
Q2) The cumulative dollar amount of income taxes paid by a single filer who has taxable income of $33,950 would be:
A)$150
B)$835
C)$3,840
D)$4,675
E)$10,385
Answer: D
Q3) Financial bootstrapping maximizes the need for financial capital.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Measuring Financial Performance
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Sample Questions
Q1) Startup financing (e.g. ,financing from business angels and venture capitalists)usually occurs during the development stage in a new venture's life cycle.
A)True
B)False
Q2) The balance sheet equation is: Total Assets = Total Liabilities + Net Income.
A)True
B)False
Q3) Which of the following is a source of cash?
A)an increase in accounts receivable
B)a decrease in wages payable
C)the acquisition of land
D)an increasein the amount owed on a note payable
E)the repurchase of outstanding shares of stock
Q4) What is Acme's operating income?
A)$4,000
B)$2,000
C)$9,500
D)$6,000
E)$1,320
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Chapter 5: Evaluating Financial Performance
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Sample Questions
Q1) The equity multiplier shows the extent by which assets are supported by equity and debt.
A)True
B)False
Q2) What is the return on equity for Runs and Goses?
A)26.1%
B)44.7%
C)62.6%
D)18.4%
E)7.9%
Q3) Which one of the following is not a basic ratio techniques used to conduct financial analysis?
A)trend analysis
B)sensitivity analysis
C)cross-sectional analysis
D)industry comparables analysis
Q4) The sale-to-cash conversion period is calculated by dividing average revenues by net sales per day.
A)True
B)False
Page 7
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Chapter 6: Financial Planning:short Term and Long Term
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Sample Questions
Q1) A sales growth rate based on the retention of profits is referred to as the:
A)real sales growth rate
B)sustainable sales growth rate
C)spontaneous sales growth rate
D)nominal sales growth rate
E)weighted average sales growth rate
Q2) The "constant-ratio forecasting method" is a variant of the "percent-of-sales forecasting method."
A)True
B)False
Q3) The added costs associated with obtaining equity capital are based on investor expected rates of return and are explicit costs which affect AFN.
A)True
B)False
Q4) Short-term cash planning tools include preparation of a: sales schedule,a purchases schedule,a wages and commissions schedule,and a cash budget.
A)True
B)False
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Chapter 7: Types and Costs of Financial Capital
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Sample Questions
Q1) Which of the following types of financing would be associated with the highest target compound rate of return?
A)public and seasoned financing
B)second-round and mezzanine financing
C)first-round financing
D)startup financing
E)seed financing
Q2) A venture's "riskiness" in terms of the likelihood of poor performance or failure decreases as it moves from its development stage through to its rapid-growth stage.
A)True
B)False
Q3) Which one of the following components is not used when estimating the cost of risky debt capital?
A)real interest rate
B)inflation premium
C)default risk premium
D)market risk premium
E)liquidity premium
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9
Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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Sample Questions
Q1) The U.S.federal law that impacts the creation and sales of securities is:
A)Securities Exchange Act of 1934
B)Securities Act of 1933
C)Investment Company Act of 1940
D)Investment Advisers Act of 1940
Q2) SEC Rule 147 provides guidance on the issuer's diligent responsibilities in assuring that offerees are in-state and that securities don't move across state lines.
A)True
B)False
Q3) State securities regulations are referred to as:
A)Regulation A legislation
B)"stormy day" laws
C)"blue sky" laws
D)SEC oversight legislation
Q4) The typical business organization for a venture in its rapid-growth stage is a partnership or LLC.
A)True
B)False
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Chapter 9: Valuing Early-Stage Ventures
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Sample Questions
Q1) Finding the present value of the horizon value produces the venture's reversion value.
A)True
B)False
Q2) The "reversion value" is the future value of the terminal value.
A)True
B)False
Q3) The maximum dividend method is
A)the cleanest for valuing assets,but creates problems valuing surplus cash
B)the cleanest for valuation purposes but its dividend-laden financial statements can dramatically understate the firm's cash position
C)the cleanest for cash planning,but creates problems valuing the venture by discounting the dividends
D)calculated by directly discounting the cash flow statement's projected dividend flow to investors,but ignores risks associated with periodic gluts of surplus cash
Q4) The stepping stone year is the first year before the explicit forecast period. A)True B)False
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Chapter 10: Venture Capital Valuation Methods
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Sample Questions
Q1) What is the issue price per share?
A)$0.1939
B)$0.1203
C)$0.3168
D)$0.1584
Q2) The VSCS and DDA methods are "just-in-time" capital methods which do not assess capital charges for idle cash.
A)True
B)False
Q3) The discount rate that one applies in a multiple scenario valuation will usually be lower than the discount rate that would be applied to the business plan cash flows.
A)True
B)False
Q4) The VSCS is like a post-money version of the DDA.
A)True
B)False
Q5) A price-earnings ratio is related to the level and growth of earnings.
A)True
B)False
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Chapter 11: Professional Venture Capital
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Sample Questions
Q1) A "term sheet" is a summary of the investment terms and conditions accompanying an investment by venture capitalists.
A)True
B)False
Q2) Pension funds are the dominant source of funds for venture investing.
A)True
B)False
Q3) In a Venture Capital Fund Placement Memorandum,all of the following are included in the summary of terms except?
A)indemnification
B)objective
C)liquidation
D)valuation
E)expenses
Q4) Term sheets are usually drafted by:
A)the mangers of the venture seeking VC funding
B)the VC fund seeking to fund the venture
C)management and founders
D)it is usually done by an third party,in order to Ensure the fair treatment of both parties
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Chapter 12: Other Financing Alternatives
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Sample Questions
Q1) Not-for-profit or government-affiliated Community Development Financial Institutions (CDFIs)are lenders in which of the following SBA credit programs?
A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan
Q2) The SBA's venture capital credit program works through Community Development Financial Institutions (CDFIs).
A)True
B)False
Q3) Direct public offerings have recently become a serious challenge to traditional venture capital firms.
A)True
B)False
Q4) Credit cards issued to start-ups have proven to be an alternative source of start-up financing.
A)True
B)False
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Chapter 13: Security Structures and Determining Enterprise
Values
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Sample Questions
Q1) Generally speaking,warrants are call options that allow the holder to purchase what type of security at a specific price?
A)common stock
B)preferred stock
C)convertible debt
D)none of the above
Q2) Which of the following offers the option where the dividend obligation can be satisfied in cash or by issuing additional par amounts of the preferred security?
A)paid in kind preferred stock
B)cumulative preferred stock
C)participating preferred stock
D)convertible preferred stock
E)non-cumulative preferred stock
Q3) Which of the following is not a type of option?
A)call option
B)put option
C)warrant
D)LBO
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Chapter 14: Harvesting the Business Venture Investment
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Sample Questions
Q1) Which of the following is not a candidate for a leveraged buyout?
A)a venture with stable and adequate operating cash flows
B)a venture with a high amount of equity relative to debt
C)a venture with the ability to protect market share
D)a venture with a high debt ratio
Q2) Which of the following is not a type of trading order?
A)market order
B)limit order
C)stop order
D)none of the above
Q3) An "initial public offering" is the only method used by entrepreneurs when exiting a venture.
A)True
B)False
Q4) When harvesting a venture,the outright purchase of the going concern by managers,employees,or external buyers is known as going public.
A)True
B)False
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Page 16
Chapter 15: Financially Troubled Ventures: Turnaround Opportunities
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Sample Questions
Q1) Which of the following restricts the ability of individual creditors to foreclosure to try to recover their individual claims?
A)automatic stay provision
B)holdout problem
C)cram down procedure
D)net worth requirements
Q2) Asset restructuring involves which of the following:
A) improving the working capital to sales relationship
B) selling off fixed assets
C) growing revenues
D) cutting costs relative to revenues
E) a and b above
F) c and d above
Q3) A voluntary bankruptcy petition if filed by the venture's management.
A)True
B)False
Q4) Chapter 7 bankruptcy filing permits for the attempt to reorganize.
A)True
B)False
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