Corporate Finance
Exam Solutions
Course Introduction
Corporate Finance examines the financial decisions made by corporations to maximize shareholder value. The course covers topics such as capital budgeting, capital structure, dividend policy, working capital management, and risk analysis. Students learn how firms raise and allocate capital, evaluate investment opportunities, and use financial tools to manage resources efficiently. Key concepts include time value of money, valuation of securities, cost of capital, and financial planning. Emphasis is placed on both theoretical frameworks and practical applications using real-world case studies, preparing students to address financial challenges in complex organizational environments.
Recommended Textbook
Corporate Finance 9th Edition by Stephen A. Ross
Available Study Resources on Quizplus
31 Chapters
2336 Verified Questions
2336 Flashcards
Source URL: https://quizplus.com/study-set/3456
Page 2
Chapter 1: Introduction to Corporate Finance
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/68671
Sample Questions
Q1) The owners of a limited liability company prefer:
A)being taxed like a corporation.
B)having liability exposure similar to that of a sole proprietor.
C)being taxed personally on all business income.
D)having liability exposure similar to that of a general partner.
E)being taxed like a corporation with liability like a partnership.
Answer: C
Q2) What should be the goal of the financial manager of a corporation? Why?
Answer: The correct goal is to maximize the current value of the outstanding stock.This goal focuses on enhancing the returns to stockholders who are the owners of the firm.Other goals, such as maximizing earnings, focus too narrowly on accounting income and ignore the importance of market values in managerial finance.
Q3) Which form of business structure faces the greatest agency problems?
A)sole proprietorship
B)general partnership
C)limited partnership
D)corporation
E)limited liability company
Answer: D
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Financial Statements and Cash Flow
Available Study Resources on Quizplus for this Chatper
91 Verified Questions
91 Flashcards
Source URL: https://quizplus.com/quiz/68670
Sample Questions
Q1) Refer to the above Table.What is net new borrowing for 2008?
A)-$70
B)-$35
C)$35
D)$70
E)$105
Answer: D
Q2) Refer to the above Table.What is the change in net working capital from 2007 to 2008?
A)-$93
B)-$7
C)$7
D)$85
E)$97
Answer: A
Q3) Explain why the income statement is not a good representation of cash flow.
Answer: Most income statements contain some noncash items, so these must be accounted for when calculating cash flows.More importantly, however, since GAAP is used to create income statements, revenues and expenses are booked when they accrue, not when their corresponding cash flows occur.
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Financial Statements Analysis and Long-Term Planning
Available Study Resources on Quizplus for this Chatper
116 Verified Questions
116 Flashcards
Source URL: https://quizplus.com/quiz/68669
Sample Questions
Q1) Turner's Inc.has a price-earnings ratio of 16.Alfred's Co.has a price-earnings ratio of 19.Thus, you can state with certainty that one share of stock in Alfred's:
A)has a higher market price than one share of stock in Turner's.
B)has a higher market price per dollar of earnings than does one share of Turner's.
C)sells at a lower price per share than one share of Turner's.
D)represents a larger percentage of firm ownership than does one share of Turner's stock.
E)earns a greater profit per share than does one share of Turner's stock.
Answer: B
Q2) State the assumptions that underlie the sustainable growth rate and interpret what the sustainable growth rate means.
Answer: The usual assumptions are: Costs and assets increase proportionately with sales, the dividend payout ratio is fixed (or is given), the current debt-equity ratio is optimal, and no new equity sales are possible.The sustainable growth rate is the maximum rate at which sales can increase with the restriction that no new equity sales are possible and long-term debt increases only in an amount that keeps the debt-equity ratio fixed.
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Discounted Cash Flow Valuation
Available Study Resources on Quizplus for this Chatper
129 Verified Questions
129 Flashcards
Source URL: https://quizplus.com/quiz/68668
Sample Questions
Q1) You are going to loan your friend $1,000 for one year at a 5% rate of interest.How much additional interest can you earn if you compound the rate continuously rather than annually?
A)$.97
B)$1.09
C)$1.27
D)$1.36
E)$1.49
Q2) You buy an annuity which will pay you $12,000 a year for ten years.The payments are paid on the first day of each year.What is the value of this annuity today at a 7% discount rate?
A)$84,282.98
B)$87,138.04
C)$90,182.79
D)$96,191.91
E)$116,916.21
Q3) There are three factors that affect the future value of an annuity.Explain what these three factors are and discuss how an increase in each will impact the future value of the annuity.
To view all questions and flashcards with answers, click on the resource link above.
Page 6
Chapter 5: Net Present Value and Other Investment Rules
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/68667
Sample Questions
Q1) Which one of the following is the best example of two mutually exclusive projects?
A)planning to build a warehouse and a retail outlet side by side.
B)buying sufficient equipment to manufacture both desks and chairs simultaneously.
C)using an empty warehouse for storage or renting it entirely out to another firm.
D)using the company sales force to promote sales of both shoes and socks.
E)buying both inventory and fixed assets using funds from the same bond issue.
Q2) The internal rate of return tends to be:
A)easier for managers to comprehend than the net present value.
B)extremely accurate even when cash flow estimates are faulty.
C)ignored by most financial analysts.
D)used primarily to differentiate between mutually exclusive projects.
E)utilized in project analysis only when multiple net present values apply.
Q3) The IRR rule is said to be a special case of the NPV rule.Explain why this is so and why it has some limitations NPV does not?
Q4) Explain the differences and similarities between net present value (NPV) and the profitability index (PI).
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: Making Capital Investment Decisions
Available Study Resources on Quizplus for this Chatper
89 Verified Questions
89 Flashcards
Source URL: https://quizplus.com/quiz/68666
Sample Questions
Q1) Sunk costs include any cost that:
A)will change if a project is undertaken.
B)will be incurred if a project is accepted.
C)has previously been incurred and cannot be changed.
D)is paid to a third party and cannot be refunded for any reason whatsoever.
E)will occur if a project is accepted and once incurred, cannot be recouped.
Q2) Wilbert's, Inc.paid $90,000, in cash, for a piece of equipment three years ago.Last year, the company spent $10,000 to update the equipment with the latest technology.The company no longer uses this equipment in its current operations and has received an offer of $50,000 from a firm who would like to purchase it.Wilbert's is debating whether to sell the equipment or to expand its operations such that the equipment can be used.When evaluating the expansion option, what value, if any, should Wilbert's assign to this equipment as an initial cost of the project?
A)$40,000
B)$50,000
C)$60,000
D)$80,000
E)$90,000
Q3) Explain the half year convention used in MACRS depreciation.
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: Risk Analysis, Real Options, and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
90 Verified Questions
90 Flashcards
Source URL: https://quizplus.com/quiz/68665
Sample Questions
Q1) Which of the following are hidden options in capital budgeting?
A)option to expand.
B)timing option.
C)option to abandon.
D)All of the above.
E)None of the above.
Q2) At stage 2 of the decision tree it shows that if a project is successful, the payoff will be $53,000 with a 2/3 chance of occurrence.There is also the 1/3 chance of a $-24,000 payoff.The cost of getting to stage 2 (1 year out) is $44,000.The cost of capital is 15%.What is the NPV of the project at stage 1?
A)$-13,275
B)$-20,232
C)$2,087
D)$7,536
E)Can not be calculated without the exact timing of future cash flows
Q3) Discuss two shortcomings in the standard decision tree analysis that a financial manager should be cognizant of?
Q4) What is the benefit of scenario analysis if it does not produce an accept or reject decision for a proposed project?
Page 9
To view all questions and flashcards with answers, click on the resource link above.
Chapter 8: Interest Rates and Bond Valuation
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/68664
Sample Questions
Q1) A bond with a face value of $1,000 that sells for $1,000 in the market is called a _____ bond.
A)par value
B)discount
C)premium
D)zero coupon
E)floating rate
Q2) The rate of return required by investors in the market for owning a bond is called the: A)coupon.
B)face value.
C)maturity.
D)yield to maturity.
E)coupon rate.
Q3) Face value is:
A)always higher than current price.
B)always lower than current price.
C)the same as the current price.
D)the coupon amount.
E)None of the above.
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Stock Valuation
Available Study Resources on Quizplus for this Chatper
68 Verified Questions
68 Flashcards
Source URL: https://quizplus.com/quiz/68663
Sample Questions
Q1) Lee Hong Imports paid a $1.00 per share annual dividend last week.Dividends are expected to increase by 5% annually.What is one share of this stock worth to you today if the appropriate discount rate is 14%?
A)$7.14
B)$7.50
C)$11.11
D)$11.67
E)$12.25
Q2) The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model.
A)zero growth
B)dividend growth
C)capital pricing
D)earnings capitalization
E)differential growth
Q3) Explain whether it is easier to find the required return on a publicly traded stock or a publicly traded bond, and explain why.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 10: Risk and Return: Lessons From Market History
Available Study Resources on Quizplus for this Chatper
76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/68662
Sample Questions
Q1) Six months ago, you purchased 1,200 shares of ABC stock for $21.20 a share.You have received dividend payments equal to $.60 a share.Today, you sold all of your shares for $22.20 a share.What is your total dollar return on this investment?
A)$720
B)$1,200
C)$1,440
D)$1,920
E)$3,840
Q2) Winslow, Inc.stock is currently selling for $40 a share.The stock has a dividend yield of 3.8%.How much dividend income will you receive per year if you purchase 500 shares of this stock?
A)$152
B)$190
C)$329
D)$760
E)$1,053
Q3) You earned a total return of -5% on NoDotCom this year, earned -40% last year, and earned 30% two years ago.Calculate both the three-year holding period return and the average three year return.
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: Return and Risk: the Capital Asset Pricing Model
Available Study Resources on Quizplus for this Chatper
127 Verified Questions
127 Flashcards
Source URL: https://quizplus.com/quiz/68661
Sample Questions
Q1) A risk that affects a large number of assets, each to a greater or lesser degree is called:
A)total risk.
B)systematic risk.
C)unsystematic risk.
D)economic risk.
E)standard error.
Q2) The Capital Market Line is the pricing relationship between:
A)efficient portfolios and beta.
B)the risk-free asset and standard deviation of the portfolio return.
C)the optimal portfolio and the standard deviation of portfolio return.
D)beta and the standard deviation of portfolio return.
E)None of the above.
Q3) Unsystematic risk:
A)can be effectively eliminated through portfolio diversification.
B)is compensated for by the risk premium.
C)is measured by beta.
D)cannot be avoided if you wish to participate in the financial markets.
E)is related to the overall economy.
Q4) Explain in words what beta is and why it is important.
Page 13
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/68660
Sample Questions
Q1) What would not be true about a GNP beta?
A)If a stock's \(\beta\) GNP = 1.5, the stock will experience a 1.5% increase for every 1% surprise increase in GNP.
B)If a stock's \(\beta\) GNP = -1.5, the stock will experience a 1.5% decrease for every 1% surprise increase in GNP.
C)It is a measure of risk.
D)It measures the impact of systematic risk associated with GNP.
E)None of the above.
Q2) Explain the conceptual differences in the theoretical development of the CAPM and APT.
Q3) In normal market conditions if a security has a negative beta:
A)the security always has a positive return.
B)the security has an expected return above the risk-free return.
C)the security has an expected return less than the risk-free rate.
D)the security has an expected return equal to the market portfolio.
E)Both A and B.
Q4) 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 beta.What do these represent and how do they relate to the actual return?
Page 14
To view all questions and flashcards with answers, click on the resource link above.
Chapter 13: Risk, Cost of Capital, and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
57 Verified Questions
57 Flashcards
Source URL: https://quizplus.com/quiz/68659
Sample Questions
Q1) The use of WACC to select investments is acceptable when the:
A)correlation of all new projects are equal.
B)NPV is positive when discounted by the WACC.
C)risk of the projects are equal to the risk of the firm.
D)firm is well diversified and the unsystematic risk is negligible.
E)None of the above.
Q2) Betas may vary substantially across an industry.The decision to use the industry or firm beta to estimate the cost of capital depends on:
A)how small the estimation errors are of all betas across industries.
B)how similar the firm's operations are to the operations of all other firms in the industry.
C)whether the company is a leader or follower.
D)the size of the company's public float.
E)None of the above.
Q3) Companies that have highly cyclical sales will have a:
A)low beta if sales are highly dependent on the market cycle.
B)high beta if sales are highly dependent on the market cycle.
C)high beta if sales are independent of the market cycle.
D)All of the above.
E)None of the above.
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Efficient Capital Markets and Behavioral Challenges
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/68658
Sample Questions
Q1) An efficient capital market is one in which:
A)brokerage commissions are zero.
B)taxes are irrelevant.
C)securities always offer a positive rate of return to investors.
D)security prices are guaranteed by the U.S.Securities and Exchange Commission to be fair.
E)security prices reflect available information.
Q2) In the three years prior to a forced departure of management, stock prices, adjusted for market performance, on average will:
A)decline about 20%.
B)decline about 40%.
C)decline about 60%.
D)remain stable.
E)increase about 20%.
Q3) The semistrong form of the efficient market hypothesis states that:
A)all information is reflected in the price of securities.
B)security prices reflect all publicly available information.
C)future prices are predictable.
D)Both A and C.
E)None of the above.
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
49 Verified Questions
49 Flashcards
Source URL: https://quizplus.com/quiz/68657
Sample Questions
Q1) Corporate financial officers prefer to use book values when measuring debt ratios because:
A)book values are more stable than market values.
B)debt covenant restriction are usually expressed in book value terms.
C)rating agencies measure debt ratios in book values terms.
D)All of the above.
E)None of the above.
Q2) Different countries have different sources of funds.For example, in the United States, internally generated funds count for over 4/5 of all funds while in Japan, it is about ½ with externally generated funds making up the remainder.The disparities are less in the United Kingdom and Germany, with about 2/3 of funds coming from internal sources.Discuss this disparity and why it might exist.
Q3) A standard arrangement for the orderly retirement of long-term debt calls for the corporation to make regular payments into a(n):
A)custodial account.
B)sinking fund.
C)retirement fund.
D)irrevocable trustee fund.
E)None of the above
To view all questions and flashcards with answers, click on the resource link above.
Page 17
Chapter 16: Capital Structure: Basic Concepts
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/68656
Sample Questions
Q1) Given a level of operating income of $2,500, show the specific strategy that Mike has in mind.
Q2) What is the cost of equity for a firm if the corporate tax rate is 40%? The firm has a debt-to-equity ratio of 1.5.If it had no debt, its cost of equity would be 16%.Its current cost of debt is 10%.
A)17.4%
B)18.4%
C)19.6%
D)21.4%
E)None of the above.
Q3) The Backwoods Lumber Co.has a debt-equity ratio of .80.The firm's required return on assets is 12% and its cost of equity is 15.68%.What is the pre-tax cost of debt based on MM Proposition II with no taxes?
A)6.76%
B)7.00%
C)7.25%
D)7.40%
E)7.50%
Q4) Explain homemade leverage and why it matters.
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
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/68655
Sample Questions
Q1) The TrunkLine Company will earn $60 in one year if it does well.The debtholders are promised payments of $35 in one year if the firm does well.If the firm does poorly, expected earnings in one year will be $30 and the repayment will be $20 because of the dead weight cost of bankruptcy.The probability of the firm performing poorly or well is 50%.If bondholders are fully aware of these costs what will they pay for the debt? The interest rate on the bonds is 10%.
A)$25.00
B)$27.50
C)$29.55
D)$32.50
E)$35.00
Q2) The TrunkLine Company debtholders are promised payments of $35 if the firm does well, but will receive only $20 if the firm does poorly.Bondholders are willing to pay $25.The promised return to the bondholders is approximately:
A)2.9%
B)16.9%
C)27.3%
D)40.0%
E)100%
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
51 Verified Questions
51 Flashcards
Source URL: https://quizplus.com/quiz/68654
Sample Questions
Q1) Which of the following are guidelines for the three methods of capital budgeting with leverage?
A)Use APV if project's level of debt is known over the life of the project.
B)Use APV if project's level of debt is unknown over the life of the project.
C)Use FTE or WACC if the firm's target debt-to-value ratio applies to the project over its life.
D)Both A and C.
E)Both B and C.
Q2) What are the three standard approaches to valuation under leverage?
A)CAPM, SML, and CML
B)APR, FTE, and CAPM
C)APT, WACC, and CAPM
D)APV, FTE, and WACC
E)NPV, IRR, Payback
Q3) Using APV, the analysis can be tricky in examples of:
A)tax subsidy to debt.
B)interest subsidy.
C)flotation costs.
D)All of the above.
E)Both A and C.
Page 20
To view all questions and flashcards with answers, click on the resource link above.
Chapter 19: Dividends and Other Payouts
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/68653
Sample Questions
Q1) The observed empirical fact that stocks attract particular investors based on the firm's dividend policy and the resulting tax impact on investors is called the:
A)information content effect.
B)clientele effect.
C)efficient markets hypothesis.
D)MM Proposition I.
E)MM Proposition I
Q2) An investor is more likely to prefer a high dividend payout if a firm:
A)has high flotation costs.
B)has few, if any, positive net present value projects.
C)has lower tax rates than the investor.
D)has a stock price that is increasing rapidly.
E)offers high capital gains which are taxed at a favorable rate.
Q3) A one-for-four reverse stock split will:
A)increase the par value by 25%.
B)increase the number of shares outstanding by 400%.
C)increase the market value but not affect the par value per share.
D)increase a $1 par value to $4.
E)increase a $1 par value by $4.
To view all questions and flashcards with answers, click on the resource link above.
Page 21
Chapter 20: Issuing Securities to the Public
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/68652
Sample Questions
Q1) In comparison to debt issuance expenses, the total direct costs of equity issues are:
A)considerably less.
B)about the same.
C)meaningless.
D)considerably greater.
E)None of the above.
Q2) Assuming everything else is constant, if a stock's old price is $40 and the ex-rights or new stock price is $32, then the value of the right is:
A)$-8.
B)$8.
C)impossible to determine without the subscription price.
D)impossible to determine without the number of rights needed to buy one share.
Q3) Management's first step in any issue of securities to the public is:
A)to file a registration form with the SEC.
B)to distribute copies of the preliminary prospectus.
C)to distribute copies of the final prospectus.
D)to obtain approval from the board of directors.
E)to prepare the tombstone advertisement.
Q4) Discuss what a Dutch auction is and how it works.
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Leasing
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/68651
Sample Questions
Q1) What is the minimum lease payment that the lessor would be willing to accept?
A)$161,000
B)$176,995
C)$217,645
D)$237,083
E)None of the above
Q2) Firms that use financial leases must consider their debt-to-equity ratios as inadequate measures of financial leverage because:
A)lenders are concerned about the firm's total liabilities and related cash flow.
B)debt displacement occurs with leasing.
C)less future debt can be raised for a growing firm when a lease is used.
D)All of the above.
E)None of the above.
Q3) Which of the following is not a financial lease?
A)A leveraged lease
B)An operating lease
C)A sale-and-leaseback
D)Both A and B.
E)None of the above.
To view all questions and flashcards with answers, click on the resource link above.
Page 23
Chapter 22: Options and Corporate Finance
Available Study Resources on Quizplus for this Chatper
87 Verified Questions
87 Flashcards
Source URL: https://quizplus.com/quiz/68650
Sample Questions
Q1) The current market value of the assets of Bigelow, Inc.is $86 million, with a standard deviation of 15% per year.The firm has zero-coupon bonds outstanding with a total face value of $45 million.These bonds mature in 2 years.The risk-free rate is 4% per year compounded continuously.What is the value of d<sub>1</sub>?
A)3.54
B)3.62
C)3.68
D)3.71
E)3.75
Q2) The last day on which an owner of an option can elect to exercise is the _____ date. A)ex-payment
B)ex-option
C)opening
D)expiration
E)intrinsic
Q3) Explain the rationale behind the statement that equity is a call option on the firm's assets.When would a shareholder allow the call to expire?
Q4) How do options apply to capital budgeting? Explain and give an example.
To view all questions and flashcards with answers, click on the resource link above.
Page 24
Chapter 23: Options and Corporate Finance: Extensions and Applications
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/68649
Sample Questions
Q1) What is d<sub>1</sub>?
A).1842
B).4102
C).4583
D).4909
E).5412
Q2) What is the value of a call option?
A)$4.14
B)$4.86
C)$5.13
D)$5.62
E)$6.16
Q3) In what instances is the binomial option pricing model superior to the Black Scholes option pricing model?
Q4) An example of a special option is:
A)an executive stock option.
B)the embedded option in a start-up company.
C)the option in simple business contracts.
D)the option to shut down and reopen a project.
E)All of the above.
To view all questions and flashcards with answers, click on the resource link above. Page 25
Chapter 24: Warrants and Convertibles
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/68648
Sample Questions
Q1) Refer to the above scenario.The holder of a $1,000 face value bond can exchange the bond any time for 25 shares of stock.The conversion price is:
A)$25.
B)$40.
C)$100.
D)Depends on the current market price of the bond.
E)None of the above.
Q2) Refer to the above scenario.What is the conversion value of the bond?
A)$25
B)$40
C)$770
D)$1,000
E)No conversion premium is given.
Q3) A convertible bond is selling for $800.It has 10 years to maturity, a $1000 face value, and a 10% coupon paid semi-annually.Similar nonconvertible bonds are priced to yield 14%.The conversion price is $50 per share.The stock currently sells for $31.375 per share.Determine the bond's option premium.
Q4) Explain why there is neither a "Free" nor "Expensive Lunch" when convertible bonds are issued?
To view all questions and flashcards with answers, click on the resource link above. Page 26
Chapter 25: Derivatives and Hedging Risk
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/68647
Sample Questions
Q1) The duration of a 2 year annual 10% bond that is selling for par is:
A)1.00 years.
B)1.91 years.
C)2.00 years.
D)2.09 years.
E)None of the above.
Q2) A forward contract is described by:
A)agreeing today to buy a product at a later date at a price to be set in the future.
B)agreeing today to buy a product today at its current price.
C)agreeing today to buy a product at a later date at a price set today.
D)agreeing today to buy a product if and only if its price rises above the exercise price today at its current price.
E)None of the above.
Q3) If a firm sells a floor at 6% this will:
A)pay the holder the LIBOR interest below the 6%.
B)pay the firm 6% on their purchase.
C)pay the holder the LIBOR interest above 6%.
D)limit the amount of borrowing to 6% of assets.
E)None of the above.
To view all questions and flashcards with answers, click on the resource link above.
Page 27
Chapter 26: Short-Term Finance and Planning
Available Study Resources on Quizplus for this Chatper
123 Verified Questions
123 Flashcards
Source URL: https://quizplus.com/quiz/68646
Sample Questions
Q1) Pluto, Inc.has a beginning cash balance of $430 on February 1<sup>st</sup>.The firm has projected sales of $600 in January, $800 in February and $900 in March.The cost of goods sold is equal to 70% of sales.Goods are purchased one month prior to the month of sale.The accounts payable period is 30 days and the accounts receivable period is 15 days.The firm has monthly cash expenses of $180.What is the projected ending cash balance at the end of February? Assume that every month has 30 days.
A)$150
B)$360
C)$390
D)$450
E)$570
Q2) The cash cycle is defined as the time between:
A)the arrival of inventory in stock and when the cash is collected from receivables.
B)selling the product and posting the accounts receivable.
C)selling the product and collecting the accounts receivable.
D)cash disbursements and cash collection.
E)the sale of inventory and cash collection.
To view all questions and flashcards with answers, click on the resource link above. Page 28
Chapter 27: Cash Management
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/68645
Sample Questions
Q1) The cost of holding cash:
A)is the opportunity cost of lost return.
B)is zero because it is the most liquid and desirable asset.
C)increases as cash holdings increase.
D)Both A and B.
E)Both A and C.
Q2) Based on the firm's current practice, how many times during the next 3 months will the cash balance be replenished?
A)3.33 times
B)4.42 times
C)8.33 times
D)13.35 times
E)None of the above.
Q3) Floating rate CDs differ from regular CDs in that:
A)they have longer maturity.
B)they differ substantially in default risk.
C)they are not taxed.
D)they have coupons that are frequently reset.
E)All of the above describe differences.
To view all questions and flashcards with answers, click on the resource link above.
Page 29
Chapter 28: Credit and Inventory Management
Available Study Resources on Quizplus for this Chatper
53 Verified Questions
53 Flashcards
Source URL: https://quizplus.com/quiz/68644
Sample Questions
Q1) Delta Distributors has an investment in accounts receivable of $2,750,000.Daily credit sales are $118,280.If 30% of Delta's credit customers receive a discount by paying within 10 days and the remainder of Delta's customers pay in 40 days, what is the net period that Delta maintains?
A)19 days
B)31 days
C)37 days
D)40 days
E)None of the above.
Q2) Rockwell Heating is selling a commercial heating unit at the price of $100,000 per unit.The variable cost of producing this unit is $75,000.Rockwell is considering offering credit terms to their customers, which would allow payment to be delayed one month.Rockwell predicts that offering these terms will increase monthly sales from 50 units to 60 units.Rockwell does not expect the increased production to change variable cost and Rockwell does not expect to charge a higher price.The appropriate discount rate is 1% a month.Determine the probability of payment that would make Rockwell indifferent between granting credit and the present policy.
B.b = .968
To view all questions and flashcards with answers, click on the resource link above.
Page 30
Chapter 29: Mergers and Acquisitions
Available Study Resources on Quizplus for this Chatper
83 Verified Questions
83 Flashcards
Source URL: https://quizplus.com/quiz/68643
Sample Questions
Q1) Rudy's, Inc.and Blackstone, Inc.are all-equity firms.Rudy's has 1,500 shares outstanding at a market price of $22 a share.Blackstone has 2,500 shares outstanding at a price of $38 a share.Blackstone is acquiring Rudy's for $36,000 in cash.What is the merger premium per share?
A)$2.00
B)$4.25
C)$6.50
D)$8.00
E)$14.00
Q2) Which of the following represent potential gains from an acquisition?
I.the replacement of ineffective managers
II.lower costs per unit produced
III.an increase in firm size so that diseconomies of scale are realized
IV.spreading of overhead costs
A)II and III only
B)I and IV only
C)I, II, and IV only
D)I, III, and IV only
E)I, II, III, and IV
Q3) Discuss why Bank of America purchased Merrill Lynch in 2009.
To view all questions and flashcards with answers, click on the resource link above. Page 31
Chapter 30: Financial Distress
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/68642
Sample Questions
Q1) A firm that has a series of negative earnings, sales declines and workforce reductions is likely headed to:
A)acquisition of another firm.
B)a merger.
C)financial distress.
D)new financing.
E)None of the above.
Q2) What is the absolute priority rule of the following claims once a corporation is determined to be bankrupt?
A)administrative expenses, wages claims, government tax claims, debtholder and then equityholder claims
B)administrative expenses, wages claims, government tax claims, equityholder and then debtholder claims
C)wage claims, administrative expenses, debtholder claims, government tax claims and equityholder claims
D)wage claims, administrative expenses, debtholder claims, equityholder claims and government tax claims
E)None of the above
To view all questions and flashcards with answers, click on the resource link above. Page 32
Chapter 31: International Corporate Finance
Available Study Resources on Quizplus for this Chatper
95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/68641
Sample Questions
Q1) Today, you can get either 140 Canadian dollars or 1,140 Mexican pesos for 100 U.S.dollars.Last year, 100 U.S.dollars was worth 139 Canadian dollars and 1,160 Mexican pesos.Which one of the following statements is correct given this information?
A)$100 invested in Canadian dollars last year would now be worth 1,148.20 Mexican pesos.
B)$100 invested in Mexican pesos last year would now be worth $98.28.
C)$100 invested in Mexican pesos last year would now be worth $102.03
D)$1,200 invested in Canadian dollars last year would now be worth $1,208.63.
E)$1,200 invested in Canadian dollars last year would now be worth $1,191.43.
Q2) In the spot market, $1 is currently equal to £.55.The expected inflation rate in the U.K.is 4 percent and in the U.S.3 percent.What is the expected exchange rate two years from now if relative purchasing power parity exists?
A)£.5391
B)£.5445
C)£.5555
D)£.5611
E)£.5667
To view all questions and flashcards with answers, click on the resource link above.
Page 33