Corporate Finance
Test Bank
Course Introduction
Corporate Finance explores the fundamental principles and techniques used by firms to make strategic financial decisions. The course covers key topics such as valuation of assets, capital budgeting, risk and return, cost of capital, capital structure, dividend policy, and working capital management. Students will learn to evaluate investment opportunities, understand the financing options available to corporations, and analyze their impact on shareholder value. Through real-world case studies and financial modeling exercises, the course aims to equip students with analytical tools essential for effective corporate financial management in a dynamic business environment.
Recommended Textbook Financial Reporting Financial Statement Analysis and Valuation 6th Edition by Clyde P. Stickney
Available Study Resources on Quizplus
14 Chapters
732 Verified Questions
732 Flashcards
Source URL: https://quizplus.com/study-set/3961
Page 2
Chapter 1: Overview of Financial Reporting, Financial
Statement Analysis, and Valuation
Available Study Resources on Quizplus for this Chatper
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/79407
Sample Questions
Q1) How easily can customers switch to substitute products is a question one might ask when assessing the ___________________________________.
Answer: threat of substitutes
Q2) Resources that have the potential for providing a firm with future economic benefits are called ____________________.
Answer: assets
Q3) Which of the following economic characteristics is consistent with a grocery store chain?
A) minimal competition
B) extensive competition
C) high net income to sales
D) differentiated product
Answer: B
Q4) ___________________________________ financial statements are helpful in highlighting the relative magnitude of changes in financial statement data from year to year.
Answer: Percentage change
Q5) Normally, intense rivalries have a tendency to reduce ____________________. Answer: profitability
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Asset and Liability Valuation and Income Measurement
Available Study Resources on Quizplus for this Chatper
49 Verified Questions
49 Flashcards
Source URL: https://quizplus.com/quiz/79401
Sample Questions
Q1) The net amount a firm would receive if it sold an asset or the net amount it would pay to settle a liability is referred to as
A) current replacement cost
B) net realizable value
C) current cost
D) acquisition cost
Answer: B
Q2) The application of GAAP requires firms to write down assets whose fair values decrease below their book values, but does not allow firms to revalue upward the values of assets whose fair values have increased. This asymmetric treatment rests on the
Answer: conservatism convention
Q3) ____________________ assets and liabilities represent amounts of cash a firm can expect to receive or pay in the future.
Answer: Monetary
Q4) Discuss the three ways in which GAAP allows value changes to be treated in the financial statements. Provide an example of each value change treatment.
Answer: 11ea92c5_789d_9fb3_9469_4b4534c0fed6_TB5976_00
Page 4
To view all questions and flashcards with answers, click on the resource link above.
Chapter 3: Income Flows Versus Cash Flows: Key
Relationships in the Dynamics of a Business
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/79400
Sample Questions
Q1) In a statement of cash flows, proceeds from issuing equity instruments should be classified as cash inflows from
A) lending activities.
B) operating activities.
C) investing activities.
D) financing activities.
Answer: D
Q2) Normally, cash flows from operations will peak during which phase of the product life cycle?
A) Introduction
B) Growth
C) Maturity
D) Decline
Answer: C
Q3) Cash flows from ____________________ activities will normally be negative during all of the introduction and growth phase of the product life cycle.
Answer: inv esting
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Profitability Analysis
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/79399
Sample Questions
Q1) Return on common equity can be disaggregated into three components, which of the three is not one of the components?
A) Assets Turnover ratio
B) Profit Margin ratio
C) Debt to Equity ratio
D) Capital Structure Leverage ratio
Q2) To reduce the risk inherent in ______________________________ a company should strive for a high proportion of variable costs in its cost structure.
Answer:
Q3) Sustainable earnings represent
A) the level of earnings expected to persist in the future.
B) the level of earnings and the growth in the levels of earnings expected to persist in the future.
C) the growth rate of future earnings.
D) retained earnings.
Q4) Economic theory suggests that higher levels of ____________________ in any activity should lead to higher levels of
Answer:
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Risk Analysis
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/79398
Sample Questions
Q1) The best indicator for assessing a firm's long-term solvency risk is its ability to generate what over a period of years?
A) Sales
B) Earnings
C) Positive cash flows
D) Income from continuing operations
Q2) When a financial analyst examines the credit risk of a company it is common that he or she uses a set of factors that all begin with the letter "C". Each factor provides a consideration that enters into the lending decision. List and discuss how each of the factors affects a company's credit risk.
Q3) In bankruptcy prediction analysis a type ____________________ error is classifying a firm as bankrupt and it ultimately survives.
Q4) In bankruptcy prediction analysis a type ____________________ error is classifying a firm as nonbankrupt when it ultimately goes bankrupt.
Q5) The source of risk related to political unrest and exchange rate changes are
Q6) Beta captures the _________________________ of the firm.
Q7) Discuss the differences between Chapter 7 and Chapter 11 bankruptcy filings?
Page 7
To view all questions and flashcards with answers, click on the resource link above.
Chapter 6: Quality of Accounting Information and Adjustments to Reported Financial Statement Data
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/79397
Sample Questions
Q1) Earnings that are high quality would
A) be informative about current performance and provide information about the long-run sustainability of profits.
B) be informative about past performance and provide information about the long-run sustainability of profits.
C) be informative about current performance and provide information about the long-run sustainability of assets.
D) be informative about past performance and provide information about the long-run sustainability of assets and liabilities.
Q2) The date on which a firm commits itself to a formal plan to dispose of a segment is the
A) disposal date
B) measurement date
C) commitment date
D) sale date
Q3) Under current GAAP unrealized gains and losses from four balance sheet items are reported in
Page 8
To view all questions and flashcards with answers, click on the resource link above.
Chapter 7: Revenue Recognition and Related Expenses
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/79396
Sample Questions
Q1) Under the percentage-of-completion contract method
A) revenue and cost are recognized during the production cycle, but gross profit recognition is deferred until the contract is completed.
B) revenue, cost, and gross profit are recognized during the production cycle.
C) revenue, cost, and gross profit are recognized at the time the contract is completed.
D) none of these
Q2) Firms recognize an ______________________________ when the carrying amount of a fixed asset exceeds its fair value and is deemed not recoverable.
Q3) Firms recognize an impairment loss when the carrying amount of a tangible fixed asset is deemed "not recoverable" as specified by GAAP. GAAP defines a carrying amount as "not recoverable" if
A) it is greater than the sum of the cash flows expected from the asset's use and disposal.
B) it is greater than the sum of the undiscounted cash flows expected from the asset's use and disposal.
C) it is less valuable than its current carrying value.
D) it is less valuable than its current fair value.
To view all questions and flashcards with answers, click on the resource link above.
Page 9
Chapter 8: Liability Recognition and Related Expenses
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/79395
Sample Questions
Q1) ____________________ differences arise from revenues and expenses that GAAP requires firms to include in income before taxes but that the income tax law excludes from taxable income.
Q2) The _____________________________________________ is equal to the actuarial present value of amounts that the employer expects to pay to retired employees based on the employees' service to date and using expected future salary amounts.
Q3) The accumulated benefit obligation measures
A) the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels.
B) an estimated total benefit at retirement and then computes the level cost that will be sufficient, together with interest expected to accumulate at the assumed rate, to provide the total benefits at retirement.
C) the pension obligation on the basis of the plan formula applied to years of service to date and based on future salary levels.
D) the shortest possible period for funding to maximize the tax deduction.
Q4) A ____________________ lease arrangement is one in which the lessee assumes the risks and enjoys the rewards of ownership.
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Intercorporate Entities
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/79394
Sample Questions
Q1) Olivia Co. owns 4,000 of the 10,000 outstanding shares of Hobbitt Corp. common stock and exercises significant influence over the company. During 2006, Hobbitt earns $80,000 and pays cash dividends of $30,000. For the year ended December 31, 2006 Olivia should report income related to the investment equal to
A) $0
B) $12,000
C) $32,000
D) $20,000
Q2) When one company acquires another company it may not be able to estimate the potential losses inherent in the acquired assets or the potential liability of the acquired company, for these reasons the acquirer may establish
Q3) Ownership of 50% or more of the voting stock of another company implies an ability to ____________________.
Q4) When a foreign entity operates as a relatively self-contained and integrated unit within a foreign country, normally, its functional currency is the
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: Forecasting Financial Statements
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/79406
Sample Questions
Q1) It may be difficult to forecast sales for firms with _________________________ patterns because their historical growth rates reflect wide variations in both direction and amount from year to year.
Q2) Financial statement forecasts are important analysis tools because forecasts of ______________________________ play a central role in valuation and many other financial decision contexts.
Q3) For some types of assets, such as plant, property and equipment, asset growth typically ____________________ future sales growth.
Q4) Baseball Card Land, Inc. sells baseball cards and other memorabilia. The company tries to maintain a cash balance equivalent to approximately 30 days of sales. Sales in 2006 amounted to $352,412 and the company expects growth in 2007 of 33% and in 2008 of 40%. Given the information provided about Baseball Card Land what is the company's 2008 projected cash balance?
A) $53,934
B) $49,524
C) $21,873
D) $38,524
Q5) Realistic expectations are ____________________ and ____________________.
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/79405
Sample Questions
Q1) Under the assumption of clean surplus accounting how would you compute total dividends paid to common equityholders in order to value the firm?
Q2) In some valuation scenarios, such as a leveraged buyout, it may be necessary to adjust the market equity beta to reflect a ________________________________________.
Q3) Which of the following is not a problem with using a dividend-based valuation formula
A) dividends are arbitrarily established
B) dividends represent a transfer of wealth to shareholders
C) some firms do not pay a regular periodic dividend
D) it is a challenge to forecast the final liquidating dividend
Q4) To determine the appropriate weights to use in the weighted average cost of capital, an analyst will need to determine the ______________________________ of the debt, preferred stock and common equity capital.
Q5) Dividends measure the cash that ____________________ ultimately receive from investing in an equity share.
Page 13
Q6) Provide the rationale for using expected dividends in a valuation model.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: Valuation: Cash-Flow-Based Approaches
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/79404
Sample Questions
Q1) Starting with free cash flows from operations discuss how an analyst would measure free cash flows to common equity shareholders.
Q2) Continuing free cash flows represent
A) the cash flows remaining after deducting cash flows attributable to debt holders
B) the free cash flows after the point at which the firm has settled into a long-run steady-state growth rate.
C) all sustainable free cash flows
D) all after-tax free cash flows
Q3) Starting with cash flow from operations and adjusting for net interest after tax and cash requirements for liquidity equals
A) free cash flows for all debt and equity capital stakeholders
B) free cash flow
C) free cash flows to common equity capital shareholders
D) free cash flow from operations
Q4) One disadvantage of the free cash flow valuation method is that many times the ______________________________ dominates the total value.
Q5) Provide the rationale for using expected free cash flow in valuation.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Valuation: Earnings-Based Approaches
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/79403
Sample Questions
Q1) Economists sometimes argue that earnings are not a _________________________ attribute on which to base valuation.
Q2) What is the rationale for using expected earnings as a basis for valuations?
Q3) Residual income is
A) adjusted net income the firm reports.
B) the difference between the net income the analyst expects the firm to generate and the required earnings of the firm.
C) the difference between the net income the analyst expects the firm to generate and the reported earnings of the firm.
D) the book value of common equity capital at the beginning of the period multiplied by the required rate of return on common equity capital.
Q4) The value of a share of common equity should equal the present value of the _____________________________________________ the shareholders will receive.
Q5) Currently U.S. GAAP does not follow clean surplus accounting, what are the four dirty surplus items that do not flow through net income?
Q6) What is meant by the term clean surplus accounting?
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Valuation: Market-Based Approaches
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/79402
Sample Questions
Q1) The ______________________________ represents the value of the firm, based on book value of equity and forecasts of expected future earnings, in the absence of discounting for risk.
Q2) Economics teaches that, in equilibrium, firms will earn a return equal to the ______________________________.
Q3) Discuss how risk and profitability factors cause differences in price-earnings ratios across firms.
Q4) Under the value-to-book model new projects will be abnormally profitable only when
A) ROCE equals ROA
B) ROCE equals R<sub>E</sub>
C) ROCE is greater than R<sub>E</sub>
D) ROCE is less than R<sub>E</sub>
Q5) The market price of a share of common equity reflects the _____________________________________________ of all of the market participants following that particular stock.
Q6) The differences in industry market-to-book ratios may be the result of differences in growth, ROCE relative to R<sub>E</sub>, as well as differences in _______________________________________________________.
Page 16
To view all questions and flashcards with answers, click on the resource link above.