Corporate Finance
Practice Exam
Course Introduction
Corporate Finance provides an in-depth exploration of the fundamental principles and techniques used in financial decision-making within corporations. The course covers topics such as capital budgeting, capital structure, risk and return, valuation of securities, cost of capital, and dividend policy. Emphasis is placed on how managers use financial information for planning, assessing investment opportunities, and developing strategies that maximize firm value. Through real-world case studies and analytical tools, students gain the skills needed to understand and solve complex financial problems faced by modern businesses.
Recommended Textbook
Foundations of Financial Management 17th Edition by Stanley B. Block
Available Study Resources on Quizplus
21 Chapters
2363 Verified Questions
2363 Flashcards
Source URL: https://quizplus.com/study-set/3922
Page 2
Chapter 1: The Goals and Activities of Financial Management
Available Study Resources on Quizplus for this Chatper
123 Verified Questions
123 Flashcards
Source URL: https://quizplus.com/quiz/78237
Sample Questions
Q1) Corporate governance issues have become less important to the financial community during the first decade of the new millennium.
A)True
B)False
Answer: False
Q2) Companies that have higher risk than a competitor in the same industry will generally have
A) to pay a higher interest rate than its competitors.
B) a lower relative stock price than its competitors.
C) a higher cost of funds than its competitors.
D) All of the options
Answer: D
Q3) The formation of a Subchapter S corporation is a way to circumvent the double taxation of a small corporation.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Review of Accounting
Available Study Resources on Quizplus for this Chatper
116 Verified Questions
116 Flashcards
Source URL: https://quizplus.com/quiz/78236
Sample Questions
Q1) Assuming a tax rate of 21%, the after-tax cost of a $100,000 dividend payment is
A) $100,000
B) $70,000
C) $30,000
D) None of the options
Answer: A
Q2) Asset accounts on the balance sheet are listed in order of A) liquidity.
B) profitability.
C) dollar amount.
D) importance.
Answer: A
Q3) Which of the following is an inflow of cash?
A) Funds spent in normal business operations
B) The purchase of a new factory
C) The sale of the firm's bonds
D) The retirement of the firm's bonds
Answer: C
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Financial Analysis
Available Study Resources on Quizplus for this Chatper
131 Verified Questions
131 Flashcards
Source URL: https://quizplus.com/quiz/167482
Sample Questions
Q1) If Crossroads International has $3,000,000 in total sales (75% on credit) and receivables of $500,000, what is its average collection period? Assume a 360-day calendar year.
A) 80 days
B) 60 days
C) 4.5 days
D) 6 days
Answer: A
Q2) Investors and financial analysts wanting to evaluate the operating efficiency of a firm's managers would primarily look at the firm's
A) debt utilization ratios.
B) liquidity ratios.
C) asset utilization ratios.
D) profitability ratios.
Answer: C
Q3) The age of the firm's assets is not necessary for analyzing ratios.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Financial Forecasting
Available Study Resources on Quizplus for this Chatper
93 Verified Questions
93 Flashcards
Source URL: https://quizplus.com/quiz/78234
Sample Questions
Q1) The percent-of-sales method of financial forecasting
A) is more detailed than a cash budget approach.
B) requires more time than a cash budget approach.
C) assumes that balance sheet accounts maintain a constant relationship to sales. D) provides a month-to-month breakdown of data.
Q2) If Excel Inc. has projected sales of $30,000 in January, $20,000 in February, and $20,000 in March, where 20% of sales are cash sales and the remaining credit sales are collected the month after, what are the cash receipts in March?
A) $20,000
B) $16,000
C) $21,400
D) $10,300
Q3) The difference between total receipts and total payments is referred to as A) cumulative cash flow.
B) beginning cash flow.
C) net cash flow. D) cash balance.
To view all questions and flashcards with answers, click on the resource link above.
6
Chapter 5: Operating and Financial Leverage
Available Study Resources on Quizplus for this Chatper
102 Verified Questions
102 Flashcards
Source URL: https://quizplus.com/quiz/78233
Sample Questions
Q1) Financial leverage deals with
A) the relationship of fixed and variable costs.
B) the relationship of debt and equity in the capital structure.
C) the entire income statement.
D) the entire balance sheet.
Q2) Contribution margin is equal to fixed costs minus variable costs.
A)True
B)False
Q3) A factory that relies on highly technical machinery may choose to reduce its overall leverage position by
A) selling its machinery.
B) increasing its accounts receivable.
C) utilizing a higher level of equity.
D) decreasing their variable costs per unit.
Q4) The contribution margin is equal to sales price per unit minus total costs per unit. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
7
Chapter 6: Working Capital and the Financing Decision
Available Study Resources on Quizplus for this Chatper
129 Verified Questions
129 Flashcards
Source URL: https://quizplus.com/quiz/78232
Sample Questions
Q1) It is not necessary to understand interest rate movements when deciding the structure of short-term debt relative to long-term debt.
A)True
B)False
Q2) Pressure to increase current asset buildup often results from A) a decline in sales growth.
B) rapidly expanding sales.
C) increased demands of short-term creditors.
D) None of the options are true.
Q3) A firm will usually increase the ratio of long-term debt to short-term debt when
A) short-term debt has a lower cost than long-term equity.
B) future interest rates are expected to increase.
C) long-term debt has a lower cost than long-term equity.
D) future interest rates are expected to decrease.
Q4) RFID chips have been used to A) track livestock.
B) track marathon runners' times.
C) track inventory at retailers.
D) All of the options are true.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Current Asset Management
Available Study Resources on Quizplus for this Chatper
140 Verified Questions
140 Flashcards
Source URL: https://quizplus.com/quiz/78231
Sample Questions
Q1) "Float" has been largely reduced because of electronic payments and improvements in business-to-business relationships.
A)True
B)False
Q2) When utilizing a lockbox system, a customer typically sends a check to the bank, a bank employee picks up the check and processes the check electronically and then sends record of payment to the company's finance center.
A)True
B)False
Q3) "Extended disbursement float" has to do with the length of time a corporation takes to collect bills.
A)True
B)False
Q4) "Float" is the name given for a short-term loan between suppliers and buyers.
A)True
B)False
Q5) A cash discount typically lowers the average collection period of a firm. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Sources of Short-Term Financing
Available Study Resources on Quizplus for this Chatper
117 Verified Questions
117 Flashcards
Source URL: https://quizplus.com/quiz/182025
Sample Questions
Q1) Commercial paper is very popular with many firms because A) it can usually be issued below the prime rate.
B) it satisfies the firm's need for long-term funds.
C) there are no required lines of credit at the bank.
D) it is very simple to roll over (refinance) in times of economic turmoil.
Q2) Holland Construction Co. has an outstanding 180-day bank loan of $475,000 at an annual interest rate of 7.5%. The company is required to maintain a 15% compensating balance in its checking account. What is the effective interest rate on the loan? Assume the company would not normally maintain this average amount.
A) 11.2%
B) 19.0%
C) 22.45%
D) 8.8%
Q3) General Motors Acceptance Corporation (GMAC) is one of the biggest issuers of asset-backed securities.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: The Time Value of Money
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/78229
Sample Questions
Q1) Using semiannual compounding rather than annual compounding will increase the future value of an annuity.
A)True
B)False
Q2) Mr. Fish wants to build a house in ten years. He estimates that the total cost will be $150,000. If he can put aside $10,000 at the end of each year, what rate of return must he earn in order to have the amount needed?
A) Between 8% and 10%
B) Between 6% and 8%
C) Above 10%
D) Between 4% and 6%
Q3) Mike Carlson will receive $12,000 a year from the end of the third year to the end of the 12th year (10 payments). The discount rate is 10%. The present value today of this deferred annuity is ________.
A) $61,450
B) $42,185
C) $60,909
D) $55,379
To view all questions and flashcards with answers, click on the resource link above.
Chapter 10: Valuation and Rates of Return
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/78228
Sample Questions
Q1) Even though the IRS tries to minimize occurrences, small business owners often intermingle business and personal expenses in order to minimize taxable income.
A)True
B)False
Q2) The inflation premium is based on past and current inflation levels.
A)True
B)False
Q3) If the yield to maturity on a bond is greater than the coupon rate, you can assume
A) interest rates have decreased.
B) the sales price is below par.
C) the sales price is above par.
D) risk premiums have decreased.
Q4) Which of the following is not one of the components included in the required rate of return on a bond?
A) Risk premium
B) Real rate of return
C) Inflation premium
D) Market yield
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Cost of Capital
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/78227
Sample Questions
Q1) Larger bond issues can lower "liquidity risk," or the possibility that an investor will not be able to sell a bond quickly and easily.
A)True
B)False
Q2) Using the constant growth model, a firm's expected dividend yield (D<sub>1</sub>) is 4% of the stock price, and its growth rate is 5%. If the tax rate is 21%, what is the firm's cost of equity?
A) 10%
B) 6.65%
C) 9.0%
D) 5.85%
Q3) Which of the following is NOT true about debt financing and the weighted average cost of capital?
A) Debt is usually the cheapest source of financing.
B) As the level of debt increases beyond the optimum capital structure, the cost of capital increases.
C) No debt in the firm's capital structure will minimize the firm's weighted average cost of capital.
D) None of these options are false.
To view all questions and flashcards with answers, click on the resource link above.
Page 13
Chapter 12: The Capital Budgeting Decision
Available Study Resources on Quizplus for this Chatper
114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/78226
Sample Questions
Q1) As the cost of capital increases
A) fewer projects are accepted.
B) more projects are accepted.
C) project selection remains unchanged.
D) None of these options
Q2) Assuming that a firm has no capital rationing constraint and that a firm's investment alternatives are not mutually exclusive, the firm should accept all investment proposals
A) for which it can obtain financing.
B) that have a positive net present value.
C) that have positive cash flows.
D) that provide returns greater than the after-tax cost of debt.
Q3) The net present value profile
A) doesn't work if projects have a negative net present value.
B) is a substitute for the internal rate of return method.
C) graphically portrays the relationship between the discount rate and the net present value.
D) measures the initial cost to the present value of all future earnings.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Risk and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
90 Verified Questions
90 Flashcards
Source URL: https://quizplus.com/quiz/78225
Sample Questions
Q1) Risk may be integrated into capital budgeting decisions by A) adjusting the standard deviation of possible outcomes.
B) determining the expected value.
C) adjusting the discount rate.
D) adjusting the time horizon.
Q2) If one project has a higher standard deviation than another, A) it may have a lower risk.
B) it may have a lower expected value.
C) it has fewer possible outcomes.
D) it may be riskier, but this can only be determined by the coefficient of variation.
Q3) Which ways can a decision tree be presented to help lay out the sequence of decisions that can be made?
A) Tabular
B) Graphical
C) A and B
D) None of these options are correct.
Q4) Risk is not only measured in terms of losses, but also in terms of variability.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Capital Markets
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/78224
Sample Questions
Q1) The highest suppliers of funds to the U.S. credit markets are foreign investors. A)True
B)False
Q2) Fannie Mae, Freddie Mac, and Sallie Mae are private stockholder-owned corporations whose stocks are traded on the NYSE.
A)True
B)False
Q3) In the last decade, the Chinese have invested in U.S. securities and real assets. A)True
B)False
Q4) Regional exchanges are primarily engaged in dual trading activities, although some local stocks are listed on regional exchanges only.
A)True
B)False
Q5) The market for U.S. government securities is the most efficient in the world. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: Investment Banking: Public and Private Placement
Available Study Resources on Quizplus for this Chatper
123 Verified Questions
123 Flashcards
Source URL: https://quizplus.com/quiz/78223
Sample Questions
Q1) Privately placed bonds are the most popular method of raising long-term corporate debt.
A)True
B)False
Q2) The underwriting spread is the guaranteed minimum profit to an investment bank for each share distributed.
A)True
B)False
Q3) A lower equity spread usually means that there is a lower amount of uncertainty in equity compared to other types of capital.
A)True
B)False
Q4) Smaller investment banking houses may handle distributions for relatively unknown corporations on a "best-efforts" basis.
A)True
B)False
Q5) The Gramm-Leach-Bliley Act repealed the Bretton Woods Agreement.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Long-Term Debt and Lease Financing
Available Study Resources on Quizplus for this Chatper
137 Verified Questions
137 Flashcards
Source URL: https://quizplus.com/quiz/78222
Sample Questions
Q1) Which company is a leader in rating bonds?
A) Goldman Sachs
B) Bloomberg
C) ValueLine
D) Moody's Investor Service
Q2) The true measure of the return on a bond is its
A) par value.
B) coupon rate.
C) current yield.
D) yield to maturity.
Q3) Par value and face value on a bond generally are the same.
A)True
B)False
Q4) An indenture is
A) the section of a corporation's bylaws pertaining to bond issues.
B) the summary of the essential features of a stock issue.
C) the contract between a corporation and a trustee acting for bondholders.
D) the underwriting contract.
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Common and Preferred Stock Financing
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/78221
Sample Questions
Q1) Common stockholders have a residual claim to income; in other words they are last in line during an elimination of the company.
A)True
B)False
Q2) Hewlett-Packard's capital stock has recovered from the loss of confidence brought about by the failure to find a successful CEO and the multimillion-dollar severance packages the ousted executives received.
A)True
B)False
Q3) The Harsanyi Corp. is considering four investments. Which provides the highest after-tax return for Harsanyi Corp. if it is in the 21% federal tax bracket? Assume the tax rate on dividends is 15%.
A) Treasury bonds at 5.0%
B) Corporate bonds at 8.0%
C) Municipal bonds at 5.0%
D) Preferred stock at 6.0%
Q4) Investors are usually in favor of poison pills because they prevent takeovers.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Dividend Policy and Retained Earnings
Available Study Resources on Quizplus for this Chatper
111 Verified Questions
111 Flashcards
Source URL: https://quizplus.com/quiz/78220
Sample Questions
Q1) Corporations are partially exempt from taxes on dividends received from other corporations.
A)True
B)False
Q2) Generally, dividends should be changed when a corporation reaches a new level of permanent income.
A)True B)False
Q3) Regardless of the situation, no well-managed firm would borrow money to pay dividends to stockholders.
A)True
B)False
Q4) Even though capital gains are taxed at a lower rate, there are some acts that charge higher amounts of tax on investment income above a certain amount.
A)True B)False
Q5) The dividend payout ratio is the dividend divided by the stock price. A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Convertibles, Warrants, and Derivatives
Available Study Resources on Quizplus for this Chatper
109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/180059
Sample Questions
Q1) The theoretical floor value for a convertible bond is its
A) conversion price.
B) conversion value.
C) par value.
D) pure bond value.
Q2) The primary issuers of convertible bonds are smaller companies with low credit scores and high risk, but are growing.
A)True
B)False
Q3) The "floor" or pure bond value of a convertible bond is found by
A) multiplying the price of the firm's common stock by the conversion ratio.
B) multiplying the bond's conversion premium by the price of the firm's common stock.
C) multiplying the price of the firm's common stock by the conversion ratio and adding the present value of the bond's face value.
D) adding the present value of the bond's interest payments to the present value of the bond's face value.
To view all questions and flashcards with answers, click on the resource link above.
21
Chapter 20: External Growth Through Mergers
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/78218
Sample Questions
Q1) Antitrust policy can preclude the acquisition of a competitor.
A)True
B)False
Q2) The stock market's reaction to divestitures may actually be positive if the divestiture is perceived to rid the company of an unprofitable business, or if it seems to sharpen the company's focus.
A)True
B)False
Q3) Goodwill is created when the purchasing firm pays more than what the acquired firm is worth.
A)True
B)False
Q4) By using cash instead of stock, a company may diminish the perceived dilutive effects of a merger.
A)True
B)False
Q5) In a merger, two or more companies are combined to form an entirely new entity.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: International Financial Management
Available Study Resources on Quizplus for this Chatper
114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/78217
Sample Questions
Q1) The Export-Import Bank (Eximbank)
A) lends money to foreign purchasers of U.S. goods.
B) issues letters of credit.
C) makes parallel loans.
D) makes fronting loans.
Q2) For a U.S. company, foreign business operations are more complex because the A) host country's economy may be different from the domestic economy.
B) rules of taxation are different.
C) structure and operations of financial markets vary.
D) all of these options are true.
Q3) Which of the following is an inducement for foreign investment in the United States?
A) Shortage of land in foreign countries
B) Advanced technology
C) Large market size
D) All of these options are inducement for investment in U.S.
Q4) Political risk and labor unrest will tend to strengthen a country's currency.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
23