Corporate Finance
Exam Materials
Course Introduction
Corporate Finance explores the fundamental principles and practices governing financial decision-making within corporations. The course covers key topics such as capital budgeting, financial analysis, valuation of assets and firms, risk management, capital structure, dividend policy, and the use of financial markets. Through case studies and real-world applications, students learn how corporate managers plan, raise, invest, and manage funds efficiently to maximize shareholder value. The course also examines the impact of corporate governance, ethical considerations, and global financial environments on corporate finance decisions.
Recommended Textbook
Principles of Finance 6th Edition by Scott Besley Eugene F. Brigham
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17 Chapters
1876 Verified Questions
1876 Flashcards
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Page 2
Chapter 1: An Overview of Finance
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42 Verified Questions
42 Flashcards
Source URL: https://quizplus.com/quiz/51225
Sample Questions
Q1) The electronic revolution has not really caught on in finance,primarily because finance decision making is a localized,private function that a firm does not wish to disclose to outsiders.
A)True
B)False
Answer: False
Q2) Historically,in the United States,after the country has experienced economic or financial tragedy,cries for new,tougher regulations become abundant,and politicians are generally quick to enact new legislation to take what they think are corrective actions.
A)True
B)False
Answer: True
Q3) The major areas included in the study of finance are information technology,investments and managerial finance.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Financial Assets Instruments
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) A proxy fight involves a battle by a shareholder or group of shareholders who seek to change the investment policy of the firm.If the proxy group is successful,current management retains control of the firm but the proxy group dictates what investments the firm makes.
A)True
B)False
Answer: False
Q2) Which of the following statements concerning preferred stock is correct?
A) Preferred stock generally has a higher component cost to the firm than does common stock.
B) By law in most states,all preferred stock issues must be cumulative,meaning that the cumulative,compounded total of all unpaid preferred dividends must be paid before dividends can be paid on the firm's common stock.
C) From the issuer's point of view,preferred stock is less risky than bonds.
D) Preferred stock,because of the current tax treatment of dividends,is bought mostly by individuals in high tax brackets.
E) Unlike bonds,preferred stock cannot have a convertible feature.
Answer: C
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Chapter 3: Financial Markets and the Investment Banking Process
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47 Verified Questions
47 Flashcards
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Sample Questions
Q1) ____ efficiency states that all publicly available information is reflected in current market prices.
A) Weak-form
B) Semistrong-form
C) Strong-form
D) Economic
Answer: B
Q2) The primary function of the money markets is to provide liquidity to businesses,governments,and individuals so that they can meet their short-term needs for cash.
A)True
B)False
Answer: True
Q3) The market value of the Japanese stock markets exceeds the market value of the major exchanges in the United States.
A)True
B)False
Answer: False
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Chapter 4: Financial Intermediaries and the Banking System
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98 Verified Questions
98 Flashcards
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Sample Questions
Q1) If the reserve requirement for banks is fixed at 10% and the Fed wishes to decrease the money supply by $500 billion,what type of open market operation should the Fed undertake?
A) Sell $55.56 billion in government securities
B) Purchase $55.56 billion in government securities
C) Sell $50.00 billion in government securities
D) Purchase $50.00 billion in government securities
Q2) The liabilities of financial institutions primarily consist of loans. A)True
B)False
Q3) The maximum amount of FDIC deposit insurance per eligible deposit account is A) $50,000
B) $100,000
C) $250,000
D) $500,000
E) greater than $1,000,000.
Q4) Financial intermediaries allow savers to provide the funds directly to the borrowers. A)True
B)False
6
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Chapter 5: The Cost of Money Interest Rates
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65 Verified Questions
65 Flashcards
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Sample Questions
Q1) You read in The Wall Street Journal that 30-day T-bills currently are yielding 8 percent.Your brother-in-law,a broker at Kyoto Securities,has given you the following estimates of current interest rate premiums:
Inflation premium
5%Liquidity premium
1%Maturity risk premium
2%Default risk premium
2%Based on these data,the real risk-free rate of return is
A) 0%
B) 1%
C) 2%
D) 3%
E) 4%
Q2) The price of a bond bought at a discount cannot go down in the financial markets. A)True
B)False
Q3) Expectations of high inflation lead to low interest rates and vice versa. A)True
B)False
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Chapter 6: Business Organizations and the Tax Environment
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) Which of the following statements is correct?
A) The optimal dividend policy is the one that satisfies the shareholders because they supply the firm's capital.
B) The use of debt financing has no effect on earnings per share (EPS)or stock price.
C) The riskiness of projected EPS depends upon how the firm is financed.
D) Stock price is dependent on the projected EPS and the use of debt but not on the timing of the earnings stream.
E) Dividend policy is one aspect of the firm's financial policy that is determined directly by the shareholders.
Q2) If management is maximizing the firm's net income,this is necessarily identical to maximizing earnings per share and stock price.
A)True
B)False
Q3) Normal profits are those that result in rates of return that are just sufficient to attract new capital in financial markets.
A)True
B)False
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Page 8
Chapter 7: Analysis of Financial Statements
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) Common stockholders' equity is the current market value of all common shares of stock outstanding.
A)True
B)False
Q2) From management's standpoint,financial statement analysis is useful
A) both as a way to anticipate future conditions and,more important,as a starting point for planning actions.
B) as a way to anticipate future conditions,but not for current planning.
C) for planning activities,but not as a way to anticipate future conditions.
D) For meeting government requirements,but not for anticipating future conditions or planning actions.
Q3) If Boyd Corporation has sales of $2 million per year (all credit)and days sales outstanding of 35 days,what is its average amount of accounts receivable outstanding (assume a 360 day year)?
A) $194,444
B) $57,143
C) $5,556
D) $97,222
E) $285,714
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Chapter 8: Financial Planning and Control
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122 Verified Questions
122 Flashcards
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Sample
Questions
Q1) Kulwicki Corporation wants to determine the effect of an expansion of its sales on its operating income (EBIT).The firm's current DOL is 2.5.It projects new unit sales to be 170,000,an increase of 45,000 over last year's level of 125,000 units.Last year's EBIT was $60,000.Based on a DOL of 2.5,what is this year's projected EBIT with the increase in sales?
A) $60,000
B) $175,000
C) $100,000
D) $90,000
E) $114,000
Q2) All else being equal,which of the following will lower the breakeven point of a firm?
A) higher fixed costs
B) lower selling price
C) lower variable costs
D) none of the above
Q3) The degree of financial leverage gives an indication of how a change in EBIT will affect EPS.
A)True
B)False
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Page 10
Chapter 9: Time Value of Money
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) You want to borrow $1,000 from a friend for one year,and you propose to pay her $1,120 at the end of the year.She agrees to lend you the $1,000,but she wants you to pay her $10 of interest at the end of each of the first 11 months plus $1,010 at the end of the 12th month.How much higher is the effective annual rate under your friend's proposal than under your proposal?
A) 0.00%
B) 0.45%
C) 0.68%
D) 0.89%
E) 1.00%
Q2) A recent advertisement in the financial section of a magazine carried the following claim: "Invest your money with us at 14 percent,compounded annually,and we guarantee to double your money sooner than you imagine." Ignoring taxes,how long would it take to double your money at a simple rate of 14 percent,compounded annually?
A) Approximately 3.5 years
B) Approximately 5 years
C) Exactly 7 years
D) Approximately 10 years
E) Exactly 14 years
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Page 11
Chapter 10: Valuation Concepts
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) You have just noticed in the financial pages of the local newspaper that you can buy a bond ($1,000 par)for $800.If the coupon rate is 10 percent,with annual interest payments,and there are 10 years to maturity,you should make the purchase if your required return on investments of this type is 12 percent.
A)True
B)False
Q2) Trickle Corporation's 12 percent coupon rate,semiannual payment,$1,000 par value bonds mature in 25 years.The bonds currently sell for $1,230.51 in the market,and the yield curve is flat.Assuming that the yield curve is expected to remain flat,what is Trickle's most likely before-tax cost of debt if it issues new bonds today?
A) 4.78%
B) 6.46%
C) 7.70%
D) 9.56%
E) 12.92%
Q3) The yield to call is always higher than the yield to maturity for coupon bonds.
A)True
B)False
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Chapter 11: Risk and Rates of Return
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) Which type of risk can be eliminated through diversification?
A) total risk
B) market risk
C) firm specific risk
D) none of the above
Q2) All else equal,a risk averse investor choosing between two individual stocks to be held in isolation would prefer the stock with higher coefficient of variation.
A)True
B)False
Q3) In a market dominated by risk-averse investors,riskier securities must have higher expected returns,as estimated by the average investor,than less risky securities.
A)True
B)False
Q4) If investors become more averse to risk,the slope of the Security Market Line (SML)will increase.
A)True
B)False
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Chapter 12: The Cost of Capital
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) The expected rate of return on a constant growth stock is equal to the ____ plus its
A) risk-free rate;inflation premium
B) risk-free rate;expected growth rate
C) dividend yield;risk premium
D) dividend yield;expected growth rate
Q2) The cost of issuing preferred stock by a corporation must be adjusted to an after-tax figure because of the 70 percent dividend exclusion provision for corporations holding other corporations' preferred stock.
A)True
B)False
Q3) Capital refers to items on the right-hand side of a firm's balance sheet.
A)True
B)False
Q4) Refer to Global Advertising Company.What is Global's cost of retained earnings?
A) 12.22%
B) 17.22%
C) 10.33%
D) 9.66%
E) 16.00%
Page 14
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Chapter 13: Capital Budgeting
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192 Verified Questions
192 Flashcards
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Sample Questions
Q1) Refer to Real Time Inc.What is the initial investment outlay required at t = 0?
A) $42,000
B) $40,000
C) $38,600
D) $37,600
E) $36,600
Q2) If a firm is considering purchasing an asset whose beta is greater than the current beta of the firm,it should use a discount rate greater than the firm's average required rate of return to evaluate the possible investment.
A)True
B)False
Q3) Monte Carlo simulation
A) Can be useful for estimating a project's stand-alone risk.
B) Is capable of using probability distributions for variables as input data instead of a single numerical estimate for each variable.
C) Produces both an expected NPV (or IRR)and a measure of the riskiness of the NPV or IRR.
D) All of the above.
E) Only answers a and b are correct.
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Page 15
Chapter 14: Capital Structure and Dividend Policy Decisions
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Underlying the dividend irrelevance theory proposed by Miller and Modigliani is their argument that the value of the firm is determined only by its basic earning power and its business risk.
A)True
B)False
Q2) As the percentage of debt in a firm's capital structure increases,its financial risk increases.Once the firm increases its debt beyond the optimal level,rising interest charges result in an immediate decrease in EPS.
A)True
B)False
Q3) A decrease in the debt-to-assets ratio will generally have no effect on ____ risk.
A) Financial
B) Total
C) Business
D) Systematic,or market
E) None of the above (it will affect each type of risk above).
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Chapter 15: Working Capital Management
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174 Verified Questions
174 Flashcards
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Sample Questions
Q1) Firms generally choose to finance temporary assets with short-term debt because A) Matching the maturities of assets and liabilities reduces risk.
B) Short-term interest rates traditionally have been more stable than long-term interest rates.
C) A firm that borrows heavily long-term is more apt to be unable to repay the debt than the firm that borrows heavily short-term.
D) The yield curve traditionally has been downward sloping.
E) Sales remain constant over the year,and financing requirements also remain constant.
Q2) Generally,ordering costs are the single most important cost element in inventory management,because they are greater in magnitude than carrying costs.
A)True
B)False
Q3) When deciding whether or not to take a trade discount,the cost of borrowing funds should be compared to the cost of trade credit to determine if the cash discount should be taken.
A)True
B)False
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Chapter 16: Investment and Securities
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) Asset allocation recommendations shift from investments like ____ to ____ as the individual investor gets closer to retirement.
A) stocks;equity
B) stocks;cash
C) cash;stocks
D) bonds;stocks
Q2) The relative amount of personal funds,or initial equity,an investor can borrow from the broker when purchasing stocks on margin is called the initial margin requirement.
A)True
B)False
Q3) All of the following are reasons to monitor your investment portfolio except to
A) Ensure the goals are being met.
B) Take advantage of changes in economic and legal conditions.
C) Adjust the portfolio with respect to a change in risk attitude.
D) Capture additional transaction costs.
E) None of the above.
Q4) When the market is rising,it is called a bull market.
A)True
B)False
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Chapter 17: Investment Analysis and Valuation Techniques
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) Technical analysts essentially believe "history repeats itself" because investors behave in a predictable manner when faced with situations they have faced in the past.
A)True
B)False
Q2) The monetary policy of the United States is formulated and carried out by the Federal Reserve.
A)True
B)False
Q3) In general,financial statement analysis involves a comparison of a firm's operating performance and financial position with that of other firms in the same line of business and can be used to form expectations about the firm's future cash flow distributions.
A)True
B)False
Q4) Investments professionals agree that individuals should be disciplined with their investment strategy.Their advice would be: "don't change approaches just because results aren't immediate."
A)True
B)False
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