Corporate Finance
Mock Exam
Course Introduction
Corporate Finance explores the fundamental principles and practices that govern financial decision-making in corporations. The course covers topics such as capital budgeting, financial analysis, valuation techniques, risk and return, cost of capital, capital structure, dividend policy, and working capital management. Students will learn how firms raise capital, invest in projects, manage resources, and maximize shareholder value, while addressing real-world challenges faced by financial managers. The course integrates theoretical concepts with practical applications, equipping students with the tools necessary for effective financial planning and strategic decision-making in todays dynamic business environment.
Recommended Textbook
Principles of Managerial Finance Brief 8th Edition by Chad J. Zutter
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15 Chapters
2711 Verified Questions
2711 Flashcards
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Chapter 1: The Role of Managerial Finance
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111 Verified Questions
111 Flashcards
Source URL: https://quizplus.com/quiz/68037
Sample Questions
Q1) Financing decisions deal with the left-hand side of the firm's balance sheet.
A)True
B)False
Answer: False
Q2) Which of the following is an example of agency cost?
A)costs incurred for setting up an agency
B)failure to make an investment that would make shareholders wealthier
C)payment of income tax
D)payment of interest
Answer: B
Q3) The primary principle that finance borrows from economics is ________.
A)generally accepted accounting principles
B)cash is king
C)marginal cost-benefit analysis
D)shareholder value maximization
Answer: C
Q4) Dividends are periodic distributions of cash to the stockholders of a firm.
A)True
B)False
Answer: True
Page 3
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Chapter 2: The Financial Market Environment
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) Money markets involve the trading of securities with maturities of one year or less.
A)True
B)False
Answer: True
Q2) Long-term debt instruments used by both government and business are known as
A)preferred stocks
B)T-bills
C)bonds
D)equities
Answer: C
Q3) A market that establishes correct prices for the securities that firms sell and allocates funds to their most productive uses is called a(n)________.
A)future market
B)forex market
C)efficient market
D)weak-form market
Answer: C
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4
Chapter 3: Financial Statements and Ratio Analysis
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218 Verified Questions
218 Flashcards
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Sample Questions
Q1) ________ analysis involves the comparison of different firms' financial ratios at the same point in time.
A)Time-series
B)Cross-sectional
C)Marginal
D)Technical
Answer: B
Q2) The ________ ratio measures the return earned on the common stockholders' investment in the firm.
A)net profit margin
B)price/earnings
C)return on equity
D)return on total assets
Answer: C
Q3) The Sarbanes-Oxley Act of 2002 was passed to eliminate many of the disclosure and conflict-of-interest problems of corporations.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Long- and Short-Term Financial Planning
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189 Verified Questions
189 Flashcards
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Sample Questions
Q1) The pro forma accumulated retained earnings amount is ________.(See Table 4.5)
A)$90,000
B)$175,000
C)$140,000
D)$130,000
Q2) The key input to any cash budget is ________.
A)the sales forecast
B)the production plan
C)the pro forma balance sheet
D)the current tax laws
Q3) In the month of August,a firm had total cash receipts of $10,000,total cash disbursements of $8,000,depreciation expense of $1,000,and a beginning cash balance of $500.At the end of August,the firm wants a minimum cash balance of $3,000.At the end of August,the firm ________.
A)required total financing of $500
B)had an excess cash balance of $5,500
C)had an excess cash balance of $500
D)required total financing of $2,500
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Chapter 5: Time Value of Money
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185 Verified Questions
185 Flashcards
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Sample Questions
Q1) The present value of a $25,000 perpetuity at a 14 percent discount rate is ________.
A)$178,571
B)$285,000
C)$350,000
D)$219,298
Q2) Dorothy borrows $10,000 from the bank.For a four-year loan,the bank requires annual end-of-year payments of $3,223.73.The annual interest rate on the loan is
A)9 percent
B)10 percent
C)11 percent
D)12 percent
Q3) Hayley makes annual end-of-year payments of $6,260.96 on a five-year loan with an 8 percent interest rate.The original principal amount was ________.
A)$31,000
B)$30,000
C)$25,000
D)$20,000
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7
Chapter 6: Interest Rates and Bond Valuation
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214 Verified Questions
214 Flashcards
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Sample Questions
Q1) Which of the following explains the general shape of the yield curve?
A)Expectations theory
B)Perfect market theory
C)Capital asset pricing theory
D)Securities market theory
Q2) Any bond rated Aaa through Caa according to Moody's,would be considered investment grade debt.
A)True
B)False
Q3) The cost of a long-term debt generally ________ that of a short-term debt.
A)is less than
B)is equal to
C)is greater than
D)is less than or equal to
Q4) If the required return is greater than the coupon rate,a bond will sell at ________.
A)par
B)a discount
C)a premium
D)book value
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Chapter 7: Stock Valuation
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172 Verified Questions
172 Flashcards
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Sample Questions
Q1) American Depositary Receipts (ADRs)are claims issued by U.S.banks representing ownership of shares of a foreign company's stock held on deposit by the U.S.bank in the foreign market and issued in dollars to U.S.investors.
A)True
B)False
Q2) Preferred stock has characteristics of debt since it provides a fixed periodic cash payment.
A)True
B)False
Q3) If the expected return is less than the required return,investors will sell the asset,because it is not expected to earn a return commensurate with its risk.
A)True
B)False
Q4) Common stockholders expect to earn a return by receiving ________.
A)semiannual interest
B)fixed periodic payments
C)dividends
D)annual interest
Q5) Calculate the estimated dividend for 2020.(See Table 7.1)
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Chapter 8: Risk and Return
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214 Verified Questions
214 Flashcards
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Sample Questions
Q1) Risk can be assessed by means of scenario analysis and probability distributions.
A)True
B)False
Q2) A given change in inflationary expectations will be fully reflected in a corresponding change in the returns of all assets and will be reflected graphically in a parallel shift of the SML.
A)True
B)False
Q3) A normal probability distribution is a symmetrical distribution whose shape resembles a bell-shaped curve.
A)True
B)False
Q4) Diversifiable risk is the relevant portion of risk attributable to market factors that affect all firms.
A)True B)False
Q5) Unsystematic risk can be eliminated through diversification. A)True B)False
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Chapter 9: The Cost of Capital
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) The cost of retained earnings is ________.
A)less than the cost of debt
B)equal to the cost of a new issue of common stock
C)equal to the cost of common stock equity
D)irrelevant to the investment/financing decision
Q2) In using the cost of capital,it is important that it reflects the historical cost of raising funds over the long run.
A)True
B)False
Q3) In computing the cost of retained earnings,the net proceeds represents the amount of money retained net of any underpricing and/or flotation costs.
A)True
B)False
Q4) When the market values of a firm's securities have been changing dramatically,the firm may want to calculate its WACC based on ________.
A)book value weights
B)nominal weights
C)historic weights
D)target weights
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Chapter 10: Capital Budgeting Techniques
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) A firm can accept a project with a net present value of zero because ________.
A)the project would maintain the wealth of the firm's owners
B)the project would enhance the wealth of the firm's owners
C)the project would maintain the earnings of the firm
D)the project would enhance the earnings of the firm
Q2) The appeal of the IRR technique is due to the general disposition of business people to think in terms of rates of return rather than actual dollar returns.
A)True
B)False
Q3) What is the NPV for a project if its cost of capital is 0 percent and its initial after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1,$1,900,000 in year 2,$1,700,000 in year 3,and $1,300,000 in year 4?
A)$1,700,000
B)$371,764
C)$137,053
D)$6,700,000
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Page 12
Chapter 11: Capital Budgeting Cash Flows and Risk
Refinements
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184 Verified Questions
184 Flashcards
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Sample Questions
Q1) The net present value of the project when adjusting for risk is ________.(See Table 11.7)
A)-$9,300
B)$0
C)$87,000
D)$105,000
Q2) The present value of the project's annual cash flows is ________.
A)$47,820
B)$42,820
C)$51,635
D)$100,563
Q3) Calculate the tax effect from the sale of the existing asset.(See Table 11.4)
Q4) In terms of an investment project's operating cash flows,depreciation deductions are irrelevant because they do not represent an outlay of cash.
A)True
B)False
Q5) A sunk cost is a cash outlay that has already been made and cannot be recovered.
A)True
B)False
Q6) Calculate the initial investment required for the new asset.(See Table 11.4) Page 13
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Page 14
Chapter 12: Leverage and Capital Structure
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213 Flashcards
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Sample Questions
Q1) The steeper the slope of the EBIT-EPS capital structure line,the lower is the financial risk.
A)True
B)False
Q2) Financial leverage measures the effect of fixed financing costs on the relationship between ________.
A)sales and EBIT
B)sales and EPS
C)EBIT and EPS
D)net income and sales
Q3) ________ refers to the effects that fixed costs have on the returns that shareholders earn.
A)Purchase power parity
B)Leverage
C)Business risk
D)Pecking order theory
Q4) The levels of fixed-cost assets and funds that management selects affect the variability of returns.
A)True
B)False
Page 15
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Chapter 13: Payout Policy
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133 Verified Questions
133 Flashcards
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Sample Questions
Q1) A shareholder receiving a stock dividend typically receives nothing of value.
A)True
B)False
Q2) According to the residual theory of dividends,if a firm's equity need exceeds the amount of retained earnings,the firm would ________.
A)borrow to pay the cash dividend
B)sell additional stock to pay the cash dividend
C)pay no cash dividends
D)pay less dividends
Q3) When a firm pays a stated dollar dividend and adjusts the payment as earnings increase,its dividend policy can be called ________.
A)a low-regular-and-extra dividend policy
B)a regular dividend policy
C)a target dividend-payout ratio policy
D)a constant-payout-ratio dividend policy
Q4) The Jobs and Growth Tax Relief Reconciliation Act of 2003 significantly reduced the double taxation of dividends.
A)True
B)False
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Chapter 14: Working Capital and Current Assets Management
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325 Verified Questions
325 Flashcards
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Sample Questions
Q1) The ________ of a firm is the amount of time that elapses from the point when the firm inputs material and labor into the production process to the point when cash is collected from the sale of the finished product that contains these production inputs.
A)cash conversion cycle
B)average age of inventory
C)operating cycle
D)average collection period
Q2) Controlled disbursing involves the strategic use of mailing points and bank accounts to lengthen mail float and clearing float,respectively.
A)True
B)False
Q3) In analyzing an applicant's creditworthiness,a credit manager typically gives primary attention to two of the five C's of credit-collateral and condition-since they represent the most basic requirements for extending credit to an applicant.
A)True
B)False
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Chapter 15: Current Liabilities Management
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171 Verified Questions
171 Flashcards
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Sample Questions
Q1) Financing that matures in one year or less and has specific assets pledged as collateral is called ________.
A)unsecured long-term financing
B)unsecured short-term financing
C)secured short-term financing
D)secured long-term financing
Q2) One of the most common designations for the beginning of the credit period is ________.
A)2/10
B)the date of invoice
C)the end of a quarter
D)the transaction date
Q3) Collateral is typically required for a ________.
A)secured short-term loan
B)line of credit
C)short-term,self-liquidating loan
D)single-payment note
Q4) Discuss and contrast the three types of loans discussed in the text that use inventory as collateral: floating inventory liens,trust receipt inventory loans,and warehouse receipt loans.
Page 18
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