Corporate Finance
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Course Introduction
Corporate Finance explores the fundamental principles and practices governing the financial decisions and strategies of corporations. The course covers key topics such as capital budgeting, risk assessment, cost of capital, financial analysis, capital structure, dividend policy, and valuation techniques. Students will learn how financial managers make investment, financing, and dividend decisions to maximize firm value while considering the risk-return trade-off and market dynamics. Real-world case studies and practical applications are incorporated to enhance understanding of how corporate finance concepts are applied in actual business scenarios.
Recommended Textbook
Introduction to Finance Markets Investments and Financial Management 14th Edition by Ronald
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18 Chapters
2711 Verified Questions
2711 Flashcards
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Chapter 1: The Financial Environment
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151 Verified Questions
151 Flashcards
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Sample Questions
Q1) An effective financial system is a complex mix of government and policy makers,a monetary system,financial institutions,and financial markets that interact to expedite the flow of financial capital from savings into investment.
A)True
B)False
Answer: True
Q2) $1,000 invested today at 6% interest would be worth ________ one year from now
A)$1,600
B)$1,060
C)$1,160
D)$1,006
E)none of the above
Answer: B
Q3) The secondary securities markets are involved in creating and issuing new securities,mortgages,and other claims to wealth.
A)True
B)False
Answer: False
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Chapter 2: Money and the Monetary System
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Which of the following describes the basic function of money?
A)store of purchasing power
B)standard of value
C)medium of exchange
D)liquidity
Answer: C
Q2) The faster velocity of money,the greater an economy's GDP.
A)True
B)False
Answer: True
Q3) Fiat money is paper money fully backed by a precious metal such as gold.
A)True
B)False Answer: False
Q4) Currently,the international monetary system can best be described as a managed floating exchange rate system.
A)True
B)False Answer: True
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Chapter 3: Banks and Other Financial Institutions
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150 Flashcards
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Sample Questions
Q1) Savings banks have nearly three quarters of their assets in the form of:
A)securities
B)cash
C)unsecured loans
D)real estate mortgages and mortgage-backed securities
Answer: D
Q2) The First Bank of the United States:
A)is still in operation in Massachusetts
B)transferred funds from region to region
C)was unchartered
D)all the above
Answer: B
Q3) The primary types of assets on a bank's balance sheet include cash and deposits.
A)True
B)False
Answer: False
Q4) The bank holding company may not engage in direct banking activities.
A)True
B)False
Answer: False
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Chapter 4: Federal Reserve System
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Sample Questions
Q1) The Federal Reserve System replaced the system that existed under the National Banking Act.
A)True
B)False
Q2) Three essential needs of a well-operating financial system include all of the following EXCEPT:
A)an efficient national payments system
B)an elastic or flexible money supply
C)a bank insurance system
D)a lending/borrowing mechanism
Q3) The Fed Board of Governors is composed of seven members who are appointed for a term of 12 years.
A)True
B)False
Q4) All commercial banks are members of the Fed.
A)True
B)False
Q5) In addition to the 12 Reserve Banks,25 branch banks have been established. A)True
B)False
Page 6
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Chapter 5: Policy Makers and the Money Supply
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Sample Questions
Q1) The Fed closely monitors the Treasury account and takes any changes into consideration in conducting daily open market operations in order to minimize the effect on bank reserves.
A)True
B)False
Q2) Total bank reserves do not include which of the following?
A)deficit reserves
B)excess reserves
C)required reserves
D)all the above are included in total bank reserves
Q3) The U.S.Treasury,under the leadership of Treasury Secretary _____________,played an important role in helping the U.S.survive the 2007-09 financial crisis by assisting with the acquisition of Bear Sterns by JP Morgan Chase in March 2008 and by trying to help other financial institutions on the brink of collapse find help through mergers with financially stronger institutions.
A)Henry Paulson
B)Timothy Geithner
C)Alan Greenspan
D)Ben Bernanke
E)none of the above
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Chapter 6: International Finance and Trade
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149 Flashcards
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Sample Questions
Q1) A bankers' acceptance differs from a trade draft in that:
A)it is drawn on a bank rather than on an importer
B)it is always accompanied by a bank letter of credit
C)its acceptance depends entirely on the goodwill of the importer
D)there is no difference
Q2) Before arbitragers take action with respect to exchange rate differentials:
A)central bank approval must be obtained
B)loans to cover transactions must be obtained
C)a market differential of at least 1¢ must exist between two currencies
D)a differential of as little as 1/16 of 1¢ may trigger action
Q3) Large multinational corporations enjoy special opportunities for risk reduction or speculative gains from currency activities:
A)because of their influence on currency developments in the various countries
B)since they can move balances from one country to another as monetary conditions seem to warrant
C)because of their generally stronger credit ratings
D)because they always deal in currencies denominated in U.S.dollars
Q4) An instrument requiring immediate payment is classified as a time draft.
A)True
B)False
Page 8
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Chapter 7: Savings and Investment Process
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Sample Questions
Q1) Greater potential savings would result from a (n):
A)age distribution shift to more teenagers
B)shift to more elderly people in the total population
C)shift to more young married couples
D)shift to more middle-aged families
Q2) Financial assets include ownership of land,buildings,machinery,inventory,commodities,and precious metals.
A)True
B)False
Q3) In recent years,the United States has been running large trade surpluses with both Japan and China.
A)True
B)False
Q4) Contractual savings are financial assets set aside for use in the future.
A)True
B)False
Q5) Real assets include indirect ownership of land,buildings,machinery,inventory,commodities,and precious metals.
A)True
B)False
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Chapter 8: Interest Rates
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Sample
Questions
Q1) Which of the following statements is most correct?
A)the liquidity preference theory holds that interest rates are determined by the supply of and demand for loanable funds.
B)the loanable funds theory and the liquidity preference theory are incompatible with each other because one is right and the other is wrong.
C)finding the yield to maturity on a corporate bond is comparable to finding the internal rate of return.
D)the market segmentation theory holds that securities of different maturities are perfect substitutes for each other.
Q2) Holding demand constant,a decrease in the supply of loanable funds will result in a (n)___________ in interest rates.
A)increase
B)decrease
C)increase or decrease
D)none of the above
Q3) The nominal interest rate may include a default risk premium.
A)True
B)False
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10
Chapter 9: Time Value of Money
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Sample Questions
Q1) The return provided by a $100 annuity deposited for 10 years that results in a future value of $1,593.74 is 15%.
A)True
B)False
Q2) Because interest compounds,the annual percentage rate formula will overstate the true interest cost.
A)True
B)False
Q3) If the quarterly rate of interest is 2.5% and interest is compounded quarterly,then the APR is:
A)10.38%
B)10.00%
C)2.50%
D)none of the above
Q4) As the number of periods increases,present value increases.
A)True B)False
Q5) As the interest rate increases,present value decreases. A)True
B)False
11
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Chapter 10: Bonds and Stocks: Characteristics and Valuation
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Sample Questions
Q1) The terms or covenants of a bond contract are set out in which of the following documents?
A)debenture
B)trust indenture
C)mortgage
D)negative pledge clause
Q2) The par value of a common stock is meaningful in that it is often used to determine the fixed annual dividend.
A)True
B)False
Q3) Several factors will be considered by the board of directors and management as they consider the level of dividend payout.Some of these factors include:
A)the ability of the firm to generate cash to sustain the level of dividends.
B)legal and contractual considerations
C)growth opportunities
D)all of the above
E)none of the above
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Page 12
Chapter 11: Securities Markets
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Sample Questions
Q1) If there were no secondary markets for trading between investors,there would be no primary market for the initial sale of securities.
A)True
B)False
Q2) An order that remains in effect until the end of the day is called a:
A)good-until-canceled order
B)limit order
C)day order
D)stop-loss order
Q3) A global depository receipt is traded on the American Stock Exchange.
A)True
B)False
Q4) The flotation costs of an initial public offering are comprised solely of direct costs and the spread.
A)True
B)False
Q5) The SEC's definition of "Insiders" is limited to corporate personnel.
A)True
B)False
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Chapter 12: Financial Return and Risk Concepts
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Sample Questions
Q1) During the onset of the Financial Crisis between 2007 and 2008,the returns on stocks and treasury bonds
A)converged
B)convened
C)were about the same D)were unrelated E)none of the above
Q2) In general,large company stocks are less risky than small company stocks.
A)True
B)False
Q3) If IBM has a beta of 1.2 when the risk-free rate is 6% and the expected return on the market portfolio is 18%,the expected return on IBM is:
A)17.2%
B)20.4%
C)22.1%
D)23.6%
Q4) The market portfolio is a portfolio that contains all risky assets.
A)True
B)False
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Chapter 13: Business Organization and Financial Data
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Sample Questions
Q1) The goal of any firm should be the maximization of sales.
A)True
B)False
Q2) The statement of retained earnings includes all of the following accounts within the statement except:
A)interest expense
B)net profits after taxes
C)preferred stock dividends
D)stock repurchases
E)all of the above are included
Q3) Agency costs may include:
A)costs of auditing financial statements
B)liability insurance for board of directors
C)management perks
D)all the above
E)none of the above
Q4) One advantage of the corporate form of organization is the ease with which ownership may be transferred.
A)True
B)False
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Chapter 14: Financial Analysis and Long-Term Financial Planning
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Sample Questions
Q1) All other things being equal,an increase in the amount fixed operating costs for a firm would:
A)increase the degree of financial leverage
B)decrease the degree of financial leverage
C)have no impact on degree of financial leverage
D)not enough information given
Q2) The profitability ratio that measures the return that shareholders earned on the equity they invested in the firm is the:
A)operating profit margin
B)return on equity
C)net profit margin
D)return on assets
Q3) A firm with total asset turnover lower than the industry average may have
A)excessive debt.
B)excessive cost of goods sold.
C)excessive sales.
D)insufficient fixed assets.
E)none of the above
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Chapter 15: Managing Working Capital
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Sample Questions
Q1) Precautionary motives for holding cash include holding funds to take advantage of unusual cash discounts for needed materials.
A)True
B)False
Q2) The federal funds rate is normally several points lower than the Treasury Bill rate.
A)True
B)False
Q3) Ningbo shipping has projected sales in May,June,and July of $100,$200,and $300,respectively.It makes 20 percent of sales for cash and collects the balance one month following the sale.Ningbo Shipping's total cash receipts in July are
A)$220
B)$200
C)$180
D)cannot be determined
Q4) U.S.Treasury bills are sold at a discount through competitive bidding in an annual auction.
A)True
B)False
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Chapter 16: Short-Term Business Financing
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Sample Questions
Q1) Commercial finance companies:
A)make riskier unsecured business loans but charge higher interest rates
B)specialize in loans secured by inventories and real estate
C)concentrate their lending activity to firms pledging the notes receivable of their customers
D)are primarily interested in loans secured by a business customer's accounts receivable and inventories
Q2) The factor,unlike the commercial finance company:
A)engages in accounts receivable financing
B)purchases the accounts receivable outright
C)assumes limited credit risks
D)is not responsible for the collection of accounts
Q3) The Small Business Administration cannot assist in the financing of small enterprises by:
A)making direct loans to businesses
B)participating jointly with private banks in extending loans to businesses
C)engaging in accounts receivable financing
D)agreeing to guarantee a bank loan
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Chapter 17: Capital Budgeting Analysis
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Sample Questions
Q1) Which of the following statements is correct?
A)Capital budgeting analysis is not a framework for evaluating all business decisions;it is only a tool for the "financial" types.
B)Proper analysis will identify irrelevant cash flows and an appropriate discount rate to reflect the risk of the strategy and will compare the benefits and costs of the project without considering the time value of money.
C)Whether the investment is one in a business strategy,building a new warehouse,seeking fuel efficient methods of doing business,upgrading information technology systems,or investing in human resources,we should not try to quantify the benefits and cost of these choices in order to evaluate them properly.
D)To achieve success over time,a firm's managers must identify and invest in projects that provide positive net present values to maximize shareholder wealth.
E)all of the above statements are correct
Q2) Nonfinancial information plays no part in capital budgeting.
A)True
B)False
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Chapter 18: Capital Structure and the Cost of Capital
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Sample Questions
Q1) All of the following methods can be used to estimate the cost of debt except:
A)If the firm targets an "A" rating (or any other bond rating),a review of the yields to maturity on A-rated bonds in Standard & Poor's Bond Guide can provide an estimate of the firm's current borrowing costs.
B)The firm can solicit the advice of personal financial planners on the cost of issuing new debt.
C)If the firm has debt currently trading,it can use public market prices and yields to estimate its current cost of debt.
D)A firm can seek long-term debt financing from a bank or a consortium of banks;preliminary discussions with the bankers will indicate a ballpark interest rate the firm can expect to pay on its borrowing.
E)All of the above statements are correct.
Q2) Given the conflict between risk and return,the purpose of capital structure management is to find the debt level:
A)that will always be kept below the equity level
B)where the price of company stock is maximized
C)that most adequately supports corporate goals
D)that is equal in dollar value to the equity level
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Page 20