Corporate Finance
Question Bank
Course Introduction
Corporate Finance explores the fundamental principles and techniques used by organizations to make sound financial decisions. This course covers topics such as capital budgeting, financial analysis, risk assessment, capital structure, cost of capital, dividend policies, and working capital management. Students will develop an understanding of how corporations raise, allocate, and manage funds, as well as the strategic implications of financial decisions in maximizing firm value and shareholder wealth. Through case studies and problem-solving exercises, participants will gain practical skills in evaluating investment opportunities, financing options, and corporate financial strategies.
Recommended Textbook
Financial Management Principles and Applications 11th Edition by Sheridan Titman
Available Study Resources on Quizplus
20 Chapters
2091 Verified Questions
2091 Flashcards
Source URL: https://quizplus.com/study-set/3556
Page 2
Chapter 1: Getting Started-Principles of Finance
Available Study Resources on Quizplus for this Chatper
87 Verified Questions
87 Flashcards
Source URL: https://quizplus.com/quiz/70602
Sample Questions
Q1) The financial manager should examine available risk-return trade-offs and make his decision based upon the greatest expected return.
A)True
B)False
Answer: False
Q2) Difficulty in finding profitable projects is due to:
A)social responsibility.
B)competitive markets.
C)ethical dilemmas.
D)opportunity costs.
Answer: B
Q3) Which of the following factors enable a public corporation to grow to a greater extent,and perhaps at a faster rate,than a partnership or a proprietorship?
A)Unlimited liability of shareholders
B)Access to the capital markets
C)Limited life
D)Elimination of double taxation on corporate income
E)All of the above
Answer: B
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Firms and the Financial Market
Available Study Resources on Quizplus for this Chatper
35 Verified Questions
35 Flashcards
Source URL: https://quizplus.com/quiz/70603
Sample Questions
Q1) Investors in securities markets do not use a financial intermediary.
A)True
B)False Answer: True
Q2) Financial intermediaries help bring savers and borrowers together.
A)True
B)False Answer: True
Q3) Capital markets are markets for short term debt instruments maturing in less than one year,and money markets are markets for long term debt instruments maturing in more than one year.
A)True
B)False Answer: False
Q4) Owners of common stock are the owners of the firm.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Understanding Financial Statements, taxes, and Cash Flows
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/70604
Sample Questions
Q1) Your firm has the following balance sheet statement items: total current liabilities of $805,000;total assets of $2,655,000;fixed and other assets of $1,770,000;and long-term debt of $200,000.What is the amount of the firm's net working capital?
A)$25,000
B)$325,000
C)$770,000
D)$80,000
Answer: D
Q2) On an accrual basis income statement,revenues and expenses always match the firm's cash flow.
A)True
B)False
Answer: False
Q3) The marginal tax rate would equal the average tax rate for firms with earnings less than $50,000.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Financial Analysis-Sizing up Firm Performance
Available Study Resources on Quizplus for this Chatper
114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/70605
Sample Questions
Q1) When the present financial ratios of a firm are compared with similar ratios for another firm in the same industry,it is called trend analysis.
A)True
B)False
Q2) Differences in accounting practices limit the use of ratio analysis.
A)True
B)False
Q3) Smith Corporation has current assets of $11,400,inventories of $4,000,and a current ratio of 2.6.What is Smith's acid test ratio?
A)1.69
B)0.54
C)0.74
D)1.35
Q4) A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio?
A)Liquidity
B)Leverage
C)Efficiency
D)Profitability
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Time Value of Money-The Basics
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/70606
Sample Questions
Q1) Earnings per share for XYZ,Inc.grew constantly from $7.99 in 1974 to $12.68 in 1980.What was the compound annual growth rate in earnings-per-share over the period?
Q2) You are considering two investments: A and B.Both investments provide a cash flow of $100 per year for n years.However,investment A receives the cash flow at the beginning of each year,while investment B receives the cash at the end of each year.If the present value of cash flows from investment A is P,and the discount rate is c,what is the present value of the cash flows from investment B?
A)P/(1 + c)
B)P(1 + c)
C)P/(1 + c)<sup>n</sup>
D)P(1 + c)<sup>n</sup>
Q3) To compound $100 quarterly for 20 years at 8%,we must use:
A)40 periods at 4%.
B)five periods at 12%.
C)10 periods at 4%.
D)80 periods at 2%.
Q4) If you invest $450 today and it increases to $6,185 at the end of 20 years,what rate of return have you earned?
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: The Time Value of Money-Annuities and Other Topics
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/70607
Sample Questions
Q1) Your investment goal is to have $3,000,000 in 40 years for retirement.You decide to invest in a mutual fund today that pays 12% per year compounded monthly.How much must you invest at the end of each month to meet your investment goal? Round to the nearest $1.
A)$245
B)$255
C)$285
D)$305
E)$315
Q2) Michael Bilkman has an opportunity to buy a perpetuity that pays $24,350 annually.His required rate of return on this investment is 14.25%.At what price would Michael be indifferent to buying or not buying the investment? Round off to the nearest $1.
A)$83,470
B)$170,877
C)$95,621
D)$121,709
Q3) When repaying an amortized loan,the interest payments increase over time.
A)True
B)False
Page 8
To view all questions and flashcards with answers, click on the resource link above.
Chapter 7: An Introduction to Risk and Return-History of
Financial Market Returns
Available Study Resources on Quizplus for this Chatper
44 Verified Questions
44 Flashcards
Source URL: https://quizplus.com/quiz/70608
Sample Questions
Q1) Marcus Berger invested $9842.33 in Hawkeyehats,Inc.four years ago.He sold the stock today for $11,396.22.What is his geometric average return?
A)There is insufficient information to derive an answer.
B)2.98%
C)3.73%
D)3.95%
Q2) Under the efficient market hypothesis,would securities be properly priced.
Q3) You purchased the stock of Sargent Motors at a price of $75.75 one year ago today.If you sell the stock today for $89.00,what is your holding period return?
A)35.00%
B)12.50%
C)17.50%
D)25.00%
Q4) Riskier investments have traditionally had lower returns than less risky investments have had.
A)True
B)False
Q5) Are markets moving toward being more efficient or toward being less efficient?
Q6) Why do the arithmetic average return and the geometric return differ?
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Risk and Return-Capital Market Theory
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/70609
Sample Questions
Q1) The security market line (SML)relates risk to return,for a given set of market conditions.If expected inflation increases,which of the following would most likely occur?
A)The market risk premium would increase.
B)Beta would increase.
C)The slope of the SML would increase.
D)The SML line would shift up.
Q2) Which of the following statements is true?
A)A stock with a beta of zero has a very low level of systematic risk.
B)A stock with a beta greater than 1.0 has lower nondiversifiable risk than a stock with a beta of 1.0.
C)A stock with a beta less than 1.0 has lower nondiversifiable risk than a stock with a beta of 1.0.
D)A stock with a beta less than 1.0 has higher nondiversifiable risk than a stock with a beta of 1.0.
Q3) The return for the market during the next period is expected to be 16%;the risk-free rate is 10%.Calculate the required rate of return for a stock with a beta of 1.5.
Q4) Provide an intuitive discussion of beta and its importance for measuring risk.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Debt Valuation and Interest Rates
Available Study Resources on Quizplus for this Chatper
114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/70610
Sample Questions
Q1) A $1,000 par value 10-year bond with a 10% coupon rate recently sold for $900.The yield to maturity:
A)is 10%.
B)is greater than 10%.
C)is less than 10%.
D)cannot be determined.
Q2) Marshall Manufacturing has a bond outstanding that was issued 20 years ago at a coupon rate of 9%.The $1,000 par value bond pays interest semiannually and was originally issued with a term of 30 years.If today's interest rate is 14%,what is the value of the bond today?
A)$654.98
B)$735.15
C)$814.42
D)$941.87
Q3) The yield to maturity on a bond:
A)is fixed in the indenture.
B)is lower for higher-risk bonds.
C)is the required return on the bond.
D)is generally equal to the coupon interest rate.
Q4) Compare and contrast current yield and yield to maturity.
Page 11
To view all questions and flashcards with answers, click on the resource link above.
Chapter 10: Stock Valuation
Available Study Resources on Quizplus for this Chatper
114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/70611
Sample Questions
Q1) Butler,Inc.'s return on equity is 17% and management retains 75% of earnings for investment purposes.Based on this information,what will be the firm's growth rate?
A)4.25%
B)22.67%
C)44.12%
D)12.75%
Q2) Little Feet Shoe Co.just paid a dividend of $1.65 on its common stock.This company's dividends are expected to grow at a constant rate of 3% indefinitely.If the required rate of return on this stock is 11%,compute the current value of per share of LFS stock.
A)$20.63
B)$21.24
C)$15.00
D)$55.00
Q3) The P/E ratio is the market price of a share of stock divided by book equity per share.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
12
Chapter 11: Investment Decision Criteria
Available Study Resources on Quizplus for this Chatper
109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/70612
Sample Questions
Q1) Which of the following factors is least important to capital budgeting decisions.?
A)The time value of money
B)The risk-return tradeoff
C)Net income based on accrual accounting principles
D)Cash flows directly resulting from the decision
Q2) With respect to the capital budgeting practices of large U.S.corporations:
A)the profitability index has been gaining in popularity.
B)IRR and NPV have been gaining in popularity.
C)payback and discounted payback have been gaining in popularity.
D)IRR and NPV have declined in popularity.
Q3) The IRR assumes that cash flows are reinvested at the cost of capital.
A)True
B)False
Q4) Why is it so difficult for firms to find good investment ideas?
Q5) Briefly describe the actual capital budgeting methods of large U.S.corporations.
Q6) The required rate of return represents the cost of capital for a project.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Analyzing Project Cash Flows
Available Study Resources on Quizplus for this Chatper
112 Verified Questions
112 Flashcards
Source URL: https://quizplus.com/quiz/70613
Sample Questions
Q1) Which of the following would be considered a termination cash flow?
A)The expected salvage value of the asset
B)Any tax payments or refunds associated with the salvage value of the asset
C)Recapture of any investment in working capital that was included as an incremental cash outlay
D)All of the above
Q2) Which of the following is included in the terminal cash flow?
A)The expected salvage value of the asset
B)Tax impacts from selling asset
C)Recapture of any working capital
D)All of the above
Q3) Schiller Construction Inc.has estimated the following revenues and expenses related phase I of a proposed new housing development? Incremental sales= $5,000,000,total cash expenses
$3,500,000,depreciation
$500,000,taxes 35%,interest expense,$200,000.Operating cash flow equals
A)$650,000
B)$1,000,000
C)$1,150,000
D)$975,000
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Risk Analysis and Project Evaluation
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/70614
Sample Questions
Q1) Boulangerie Bouffard expects to sell 1 million croissants next year for $1.25 each.Variable cost of a croissant is $0.75.Fixed costs are $150,000,depreciation $200,000 and the tax rate is 25%.If the bakery can increase the price of a croissant to $1.50 sales will fall by 50,000 croissants.Free cash flow will increase or decrease by:
A)$131,250 increase.
B)$37,500 increase.
C)$75,000 decrease.
D)$250,000 increase.
Q2) ________ is a risk analysis technique in which the best- and worst-case net present values are compared with the project's expected net present value.
A)Project standing alone risk
B)Decision tree analysis
C)Scenario analysis
D)Pure play method
Q3) Dudster company's DOL is 2.If sales increase by 10%,NOI will increase by 5%.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: The Cost of Capital
Available Study Resources on Quizplus for this Chatper
130 Verified Questions
130 Flashcards
Source URL: https://quizplus.com/quiz/70615
Sample Questions
Q1) How frequently do most firms update their cost of capital?
A)Rarely,if ever
B)At least once a year
C)Daily
D)Only when there are major changes in the firm's capital structure.
Q2) The cost of capital is:
A)the opportunity cost of using funds to invest in new projects.
B)the rate of return the firm must earn on its investments in order to satisfy the required rate of return of the firm's investors.
C)the required rate of return for new capital investments which have typical or average risk.
D)all of the above.
Q3) Sutter Corporation's common stock is selling for $16.80 a share.Last year,Sutter paid a dividend of $.80.Investors are expecting Sutter's dividends to grow at a rate of 5% per year.What is the cost of common equity?
Q4) Vipsu Corporation plans to issue 10-year bonds with a par value of $1,000 that will pay $55 every six months.The net amount of capital to the firm from the sale of each bond is $840.68.If Vipsu is in the 25% tax bracket,what is the after-tax cost of debt?
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: Capital Structure Policy
Available Study Resources on Quizplus for this Chatper
108 Verified Questions
108 Flashcards
Source URL: https://quizplus.com/quiz/70616
Sample Questions
Q1) Why is the Debt to Assets Ratio always higher than the Debt to Value ratio?
Q2) A firm's capital structure consists of which of the following?
A)The amount of debt that a firm utilizes
B)The amount of debt and preferred stock that a firm utilizes
C)The amount of debt,preferred stock,and common stock that a firm utilizes
D)None of the above
Q3) Which of the following is NOT a component of a firm's capital structure?
A)Preferred stock
B)Bonds
C)Common stock
D)Accounts payable
E)Retained earnings
Q4) The tradeoff theory of capital structure management assumes:
A)no corporate income taxes.
B)cost of equity remains constant with an increase in financial leverage.
C)firms might fail.
D)none of the above.
Q5) U.S.companies differ very little in their capital structures.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Dividend Policy
Available Study Resources on Quizplus for this Chatper
130 Verified Questions
130 Flashcards
Source URL: https://quizplus.com/quiz/70617
Sample Questions
Q1) Kelly owns 10,000 shares in McCormick Spices,which currently has 500,000 shares outstanding.The stock sells for $86 on the open market.McCormick's management has decided on a 2-1 split.
a.Will Kelly's financial position alter after the split,assuming that the stocks will fall proportionately?
b.Assuming only a 35% fall on each stock,what will be Kelly's value after the split?
Q2) Which of the following is most likely to have a negative impact on stock price?
A)Omitting a stock repurchase offer
B)Failure to increase the dividend at the same rate as previous years
C)Cutting the dividend per share in dollar terms
D)Reducing the dividend payout ratio
Q3) Which of the following might cause dividend policy to affect shareholder wealth?
A)Taxes
B)Transaction costs
C)Changes in the firm's investment policies
D)All of the above
Q4) A stock dividend increases a firm's retained earnings.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Financial Forecasting and Planning
Available Study Resources on Quizplus for this Chatper
114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/70618
Sample Questions
Q1) Based on the information in Table 1,what are Dorian Industries' total cash receipts (collections)for April 2004?
A)$400,000
B)$300,000
C)$100,000
D)($60,000)
Q2) Considering each action independently and holding other things constant,which of the following actions would increase a firm's discretionary financing needed (the need for additional capital)?
A)A decrease in the firm's accounts receivable average collection period
B)An increase in the firm's profit margin
C)A decrease in the firm's inventory turnover
D)A decrease in the expected growth rate in sales
E)A decrease in the firm's tax rate
Q3) Long-term financial plans typically encompass:
A)6 to 12 months.
B)about 5 years.
C)5 to 10 years.
D)the entire lifecycle of the corporation.
Q4) What is meant by discretionary financing?
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Working Capital Management
Available Study Resources on Quizplus for this Chatper
146 Verified Questions
146 Flashcards
Source URL: https://quizplus.com/quiz/70619
Sample Questions
Q1) What factors should we consider when selecting a source of short-term credit?
A)Effective cost and availability
B)Liquidity and profitability
C)Historical trend analysis and liquidity
D)None of the above
Q2) The Smith Corporation has purchased $500,000 worth of inventory.The vendor offers terms of 1/15 net 45.Unfortunately,Smith does not have enough cash available to take advantage of the discount.It can borrow $500,000 from Wesson National Bank for 30 days at an annual percentage rate of 6%.Should Smith forego the discount or pay within the discount period with money borrowed from the bank?
Q3) A disadvantage involved in investing in marketable securities is that:
A)this reduces the risk of illiquidity.
B)this investment increases net working capital.
C)this investment offers a flexible means of financing.
D)these assets offer low rates of return,commensurate with their risk.
Q4) As the inventory turnover ratio decreases,the inventory conversion cycle increases.
A)True
B)False
Q5) Describe the differences between secured and unsecured short-term credit.
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: International Business Finance
Available Study Resources on Quizplus for this Chatper
122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/70620
Sample Questions
Q1) A trader who simultaneously bought Swiss francs in New York for .9772 and sold them in Zurich for .9774 would be practicing:
A)simple arbitrage.
B)inside trading.
C)compound arbitrage.
D)parity exploitation.
Q2) What keeps foreign exchange quotes in two different countries in line with each other?
A)Cross rates
B)Forward rates
C)Arbitrage
D)Spot rates
Q3) The current spot exchange rate between the Japanese yen and the U.S.dollar is 92.61 Y/US$.The yen is expected to appreciate by 4% against the dollar over the next year.What do you expect the spot exchange rate between the yen and the dollar to be one year from now?
A)92.61 Y/US$
B)98.18 Y/US$
C)89.05 Y/US$
D)103.08 Y/US$
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 20: Corporate Risk Management
Available Study Resources on Quizplus for this Chatper
129 Verified Questions
129 Flashcards
Source URL: https://quizplus.com/quiz/70621
Sample Questions
Q1) The popularity of options can be explained by the use of options:
A)in writing future contracts.
B)as a type of financial insurance.
C)to expand the set of possible investment alternatives available.
D)both B and C.
E)all of the above.
Q2) Forward contracts benefit only the customer due to a reduction in uncertainty. A)True B)False
Q3) Assume that the current price of DEY stock is $25,that a 1 year call option on the stock has a strike or exercise price of $27.50,the risk free rate is 4%,and that you have calculated N(d<sub>1</sub>)as .5476 and N(d2)as .4432.Use the Black-Scholes model to calculate the price of the option.
A)$1.74
B)$4.20
C)1.98
D)$2.50
Q4) What is the general rule that firms should follow when deciding how much risk to assume?
To view all questions and flashcards with answers, click on the resource link above. Page 22