Corporate Financial Policy Practice Exam
Course Introduction
Corporate Financial Policy explores the frameworks and strategies that corporations use to manage their financial resources and structure. The course covers key concepts such as capital structure decisions, dividend policy, debt and equity financing, and the implications of financial markets on corporate choices. Students will analyze how policy decisions align with organizational objectives, risk management, and value maximization, integrating theoretical models with practical case studies to understand the impact of financial policy on firm performance and stakeholder interests.
Recommended Textbook
Corporate Finance Core Principles and Applications 4th Edition by Sheldon M. Ross
Available Study Resources on Quizplus
21 Chapters
1604 Verified Questions
1604 Flashcards
Source URL: https://quizplus.com/study-set/3721
2
Chapter 1: Introduction to Corporate Finance
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/74202
Sample Questions
Q1) Which one of the following statements is correct?
A)All types of business formations have limited lives.
B)Partnerships are the most complicated type of business to form.
C)Both sole proprietorships and partnerships are taxed in a similar fashion.
D)Both partnerships and corporations have limited liability for general partners and shareholders.
E)Both partnerships and corporations incur double taxation.
Answer: C
Q2) Which type of business organization has all the respective rights and privileges of a legal person?
A)Sole proprietorship
B)Corporation
C)General partnership
D)Limited partnership
E)Limited liability company
Answer: B
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Financial Statements and Cash Flow
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/74201
Sample Questions
Q1) The carrying value or book value of assets:
A)is always the best measure of a company's value to an investor.
B)represents an average market value over time.
C)is always higher than the replacement cost of the assets.
D)is determined under GAAP and is based on the cost of the assets.
E)is determined under GAPP and is based on the current market value of the assets.
Answer: D
Q2) The long-term debts of a firm are liabilities:
A)owed to the firm's shareholders.
B)that do not come due for at least 12 months.
C)owed to the firm's suppliers.
D)that come due within the next 12 months.
E)the firm expects to incur within the next 12 months.
Answer: B
To view all questions and flashcards with answers, click on the resource link above.
4
Chapter 3: Financial Statements Analysis and Financial Models
Available Study Resources on Quizplus for this Chatper
77 Verified Questions
77 Flashcards
Source URL: https://quizplus.com/quiz/74200
Sample Questions
Q1) You have been advised that the sustainable growth rate for your firm is 2.86 percent.How should you interpret this information? Assume your firm is financially sound. Answer: The sustainable growth rate is the maximum rate at which sales can increase (and your firm can grow)with the restriction that no new equity sales occur and long-term debt increases only in a manner that keeps the debt-equity ratio constant.In other words,as retained earnings rise then long-term debt can increase in order to maintain a constant debt-equity ratio.
Q2) Which ratio measures the number of times a firm lends money to customers,collects that money,and relends it within a year?
A)Total asset turnover
B)Days' sales in receivables
C)Total debt ratio
D)Receivables turnover
E)Quick ratio
Answer: D
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Discounted Cash Flow Valuation
Available Study Resources on Quizplus for this Chatper
100 Verified Questions
100 Flashcards
Source URL: https://quizplus.com/quiz/74199
Sample Questions
Q1) An annuity:
A)has less value than a comparable perpetuity.
B)is either an equal or an unequal stream of payments that occur in equal time periods for a finite period.
C)is a stream of payments that fluctuate with current market interest rates.
D)is a stream of equal payments that occur in equal periods of time for a finite period.
E)has a longer life span than a perpetuity.
Q2) In which type of loan does the borrower initially receive the present value of the future lump sum loan repayment amount?
A)Pure discount loans
B)Both pure discount and interest-only loans
C)Amortized loans
D)Both interest-only and amortized loans
E)Interest-only loans
Q3) Identify a type of loan that is a pure discount loan and explain which features of the loan qualify it to be classified as a pure discount loan.
Q4) What circumstances are required for an APR to equal an EAR?
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Interest Rates and Bond Valuation
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/74198
Sample Questions
Q1) A bond with both a face value and a market value of $1,000 is called a _____ bond.
A)par value
B)premium
C)discount
D)zero coupon
E)floating rate
Q2) A $5,000 face value zero coupon bond is quoted at a price of 46.874.What is the amount you would pay to purchase this bond today?
A)$4,687.40
B)$46.87
C)$2,343.70
D)$234.37
E)$468.74
Q3) A "make-whole" call provision on a bond provides for:
A)call prices that vary with the funds available in a sinking fund.
B)a call price equal to the bond's approximate market value at the time of call.
C)decreasing call prices as interest rates decrease.
D)a call price equal to the face value plus all accrued interest to date.
E)a call price equal to the face value.
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: Stock Valuation
Available Study Resources on Quizplus for this Chatper
90 Verified Questions
90 Flashcards
Source URL: https://quizplus.com/quiz/74197
Sample Questions
Q1) Dille Inc.pays no dividend at the present time.In Years 2 and 3,the firm will pay annual dividends of $3 a share.After that,it will pay a constant $1 a share dividend indefinitely.What is this stock worth at a required return of 15 percent?
A)$9.91
B)$7.81
C)$8.62
D)$7.50
E)$11.40
Q2) Wislow Brothers common stock sells for $28.20 a share and pays an annual dividend that increases by 1.5 percent annually.The market rate of return on this stock is 11.3 percent.What is the amount of the last dividend paid?
A)$2.68
B)$2.72
C)$2.84
D)$2.78
E)$2.87
Q3) Contrast some of the features of preferred stock versus common stock.
Q4) Identify at least five features of preferred stock that are similar to bond features.
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: Net Present Value and Other Investment Rules
Available Study Resources on Quizplus for this Chatper
83 Verified Questions
83 Flashcards
Source URL: https://quizplus.com/quiz/74196
Sample Questions
Q1) What is the key reason why a positive NPV project should be accepted?
A)The project is expected to increase shareholder value.
B)The present value of the expected cash flows equal the project's cost.
C)The firm will earn a return equal to the NPV value at the end of the project.
D)The project will have a payback period equal to its life.
E)The project's PI will be less than 1,which also indicates acceptance.
Q2) A project produces annual net income of $9,500,$12,500,and $15,500 over its 3-year life.The initial cost of the project is $210,000.This cost is depreciated straightline to a zero book value over three years.What is the average accounting rate of return if the required discount rate is 12.25 percent?
A)14.80%
B)14.32%
C)23.49%
D)11.90%
E)17.62%
Q3) Academic theory states that net present value is the best capital budgeting model.Why is this the case?
Q4) What are the limitations of the IRR rule? Given these limitations,why is IRR so commonly used?
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Making Capital Investment Decisions
Available Study Resources on Quizplus for this Chatper
87 Verified Questions
87 Flashcards
Source URL: https://quizplus.com/quiz/74195
Sample Questions
Q1) All else equal,a project's operating cash flow will increase when the:
A)net working capital requirement increases.
B)sales projections are lowered.
C)interest expense is lowered.
D)depreciation expense increases.
E)earnings before interest and taxes decreases.
Q2) You spent $500 last week fixing the transmission in your car.Now,the brakes are acting up and you are trying to decide whether to fix them or trade the car in for a newer model.In analyzing the brake situation,the $500 you spent fixing the transmission is a(n)_____ cost.
A)opportunity
B)sunk
C)incremental
D)fixed
E)relevant
Q3) In capital budgeting,it is common practice to assume any net working capital required by a project will be recouped at the end of the project.What is the basis for this assumption?
Q4) Should financing costs be included as an incremental cash flow in capital budgeting analysis?
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Risk Analysis, Real Options, and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/74194
Sample Questions
Q1) Which one of these is a disadvantage of sensitivity analysis?
A)Sensitivity analysis may decrease the false sense of security among managers.
B)Sensitivity analysis fails to identify the key variable that affects a project's net present value.
C)Each variable in sensitivity analysis is treated in isolation.
D)A sophisticated computer program is required to conduct sensitivity analysis.
E)Sensitivity analysis assumes most variables will achieve their most optimistic value.
Q2) In a decision tree,the accept/reject decision is dependent upon:
A)cash flows,probabilities,and future decisions.
B)only the cash flows from the successful path.
C)only the cash flows and probabilities of the successful path.
D)the path where the probabilities sum to one.
E)only the lower half of the tree.
Q3) Explain the significance of the financial break-even point.
Q4) Explain how net present value analysis might cause managers to develop a false sense of security surrounding a project.
Q5) What type of situations might indicate that sensitivity analysis should be performed on a variable?
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Risk and Return Lessons From Market History
Available Study Resources on Quizplus for this Chatper
84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/74193
Sample Questions
Q1) Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 through 2012?
A)Long-term corporate bonds
B)Long-term government bonds
C)Small-company stocks
D)Large-company stocks
E)U.S.Treasury bills
Q2) Assume the market portfolio of common stocks earned 14.1 percent in one year while U.S.Treasury bills earned 4.4 percent and inflation averaged 4.6 percent.What was the market risk premium?
A)5.1%
B)9.7%
C)9.9%
D)13.9%
E)14.3%
Q3) What is the difference between an arithmetic and a geometric average? Is one preferred over the other?
Q4) How does the payment of a dividend affect the total return on a stock?
To view all questions and flashcards with answers, click on the resource link above.
12
Chapter 11: Return and Risk: the Capital Asset Pricing Model
Capm
Available Study Resources on Quizplus for this Chatper
78 Verified Questions
78 Flashcards
Source URL: https://quizplus.com/quiz/74192
Sample Questions
Q1) The rate of return on the common stock of Flowers by Flo is expected to be 15 percent in a boom economy,7 percent in a normal economy,and only 3 percent in a recessionary economy.The probabilities of these economic states are 20 percent for a boom,70 percent for a normal economy,and 10 percent for a recession.What is the variance of the returns on this stock?
A).001296
B).001580
C).001963
D).002001
E).002471
Q2) A portfolio is invested 60 percent in one stock and 40 percent in one bond.The bond has an expected return of 7.25 percent.What is the expected rate of return on the stock if the portfolio expected return is 10.40 percent?
A)6.45%
B)9.60%
C)12.50%
D)14.22%
E)10.68%
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Risk, Cost of Capital, and Valuation
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/74191
Sample Questions
Q1) Asian Foods needs $65,000 for a new project.The firm has a target capital structure of 25 percent debt and 75 percent external equity.The flotation cost of debt is 5.25 percent compared to 10.15 percent for equity.What amount does the firm need to raise?
A)$70,801.25
B)$76,211.17
C)$71,369.75
D)$69,497.79
E)$59,674.09
Q2) Assume the overall market has a risk premium of 8.3 percent and the risk-free rate is 3.6 percent.What is the risk premium for a stock that has a .87 beta and a standard deviation of 11.2 percent?
A)3.62%
B)7.22%
C)7.60%
D)4.58%
E)10.82%
Q3) Explain how leverage affects the relationship between the asset beta and the equity beta.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Efficient Capital Markets and Behavioral Challenges
Available Study Resources on Quizplus for this Chatper
48 Verified Questions
48 Flashcards
Source URL: https://quizplus.com/quiz/74190
Sample Questions
Q1) The U.S.Securities and Exchange Commission periodically charges individuals for insider trading and claims those individuals have made unfair profits.Based on this fact,you would tend to argue that the financial markets are at best _____ form efficient.
A)weak
B)semiweak
C)semistrong
D)perfect
E)strong
Q2) The efficient market hypothesis supports which one of these statements?
A)Market prices do not reflect the underlying value of securities.
B)Managers can profitably speculate in foreign currency.
C)Financial managers can time stock and bond sales.
D)Managers cannot boost stock prices through creative accounting.
E)Market prices are uncaused.
Q3) What are the basic principles behind behavioral finance?
Q4) Why do you think it is difficult for researchers to agree on principles related to behavioral finance?
Q5) Explain why in an efficient market investments have an expected net present value (NPV)of zero.
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Capital Structure: Basic Concepts
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/74189
Sample Questions
Q1) A firm has a debt-to-equity ratio of 1.Its cost of equity is 16 percent and its pretax cost of debt is 8 percent.If there are no taxes or other imperfections,what would be its cost of equity if the debt-to-equity ratio were zero?
A)8%
B)10%
C)12%
D)14%
E)16%
Q2) Baker Breads has $13,000 of debt outstanding that is selling at par and has a coupon rate of 7 percent.The tax rate is 35 percent.What is the present value of the tax shield?
A)$318.50
B)$8,450.00
C)$910.00
D)$4,550.00
E)$4,760.50
Q3) Explain homemade leverage and why it matters.
Q4) Explain the basic principle of MM Proposition I without taxes along with the assumptions upon which the proposition is based.
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: Capital Structure: Limits to the Use of Debt
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/74188
Sample Questions
Q1) The free cash flow hypothesis supports:
A)decreasing stockholder dividends to retain more cash within the firm.
B)reducing a firm's level of debt to save the cash currently being spent on interest payments.
C)increasing the debt portion of a firm's capital structure.
D)hiring managers with little or no stock ownership in the firm.
E)the idea that firms with high levels of free cash flow are more apt to make good acquisitions than firms with low levels.
Q2) The explicit costs,such as the legal expenses,associated with corporate default are classified as _____ costs.
A)unlevered
B)beta conversion
C)direct bankruptcy
D)indirect bankruptcy
E)flotation
Q3) How might business risk affect the capital structure of a firm?
Q4) Explain a Section 363 bankruptcy and identify its primary benefit over a traditional bankruptcy.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 16: Dividends and Other Payouts
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/74187
Sample Questions
Q1) Winslow Co.has 142,000 shares of stock outstanding at a market price of $52 a share.The company just announced a 5-for-3 stock split.How many shares of stock will be outstanding after the split?
A)62,500 shares
B)82,200 shares
C)83,333 shares
D)233,333 shares
E)236,667 shares
Q2) In respect to a balance sheet,a stock split will:
A)not affect the total value of any of the equity accounts.
B)increase the total value of the common stock account.
C)decrease the total book value of owners' equity.
D)increase the value of the capital in excess of par value account.
E)decrease the value of the retained earnings account.
Q3) Which one of the following is an argument in favor of a low dividend policy?
A)Few,if any,positive net present value projects are available to the firm
B)Only the gain on a sale of stock is taxed
C)Agency costs
D)Investor desire for current income
E)Lack of investor self-control
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Options and Corporate Finance
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/74186
Sample Questions
Q1) Atlas stock is selling for $54.38 a share.A $52.50 call is valued at $2.50.What is the time value of ten call option contracts?
A)$18.80
B)$620.00
C)$188.00
D)$6.20
E)$62.00
Q2) A stock has a market value of $34.50 a share.The $35 call option is priced at $1.10.The intrinsic value of this option is ____ and the time value is ______.
A)$0;$1.10
B)$1.10;$0
C)$.50;$.65
D)$.65;$.50
E)$1.60;-$.50
Q3) What would you expect to occur if a call were to sell for less than its intrinsic value? Ignore taxes and transaction costs.
Q4) What is a protective put and what does it protect?
To view all questions and flashcards with answers, click on the resource link above.
19
Chapter 18: Short-Term Finance and Planning
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/74185
Sample Questions
Q1) A manufacturing firm has a 90 day collection period.The firm produces seasonal merchandise and thus has the least sales during the first quarter of a year and the highest level of sales during the third quarter of a year.The firm maintains a relatively steady level of production which means that its cash disbursements are fairly equal in all quarters.Assume all other disbursements are also equal throughout the year.Assume a 360 day year.The firm is most apt to face a cash-out situation in:
A)the first quarter.
B)the second quarter.
C)the third quarter.
D)the fourth quarter.
E)any quarter,equally.
Q2) Compensating balances are frequently a part of revolving lending arrangements with banks,yet they add to the cost of financing for the borrower.Why,then,would borrowers agree to such terms? What other types of financing are there that the firm could use as an alternative?
Q3) Assume you are the new financial officer of a manufacturing firm.What should you consider when deciding which type of financing policy- restrictive,flexible,or compromise - you should pursue?
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Raising Capital
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/74184
Sample Questions
Q1) What was the average first-day return on IPOs for the period 1975-2012 in the U.S.?
A)28.7 percent
B)21.7 percent
C)9.2 percent
D)11.4 percent
E)18.6 percent
Q2) Which one of the following projects is most apt to be financed with venture capital?
A)Seasonal merchandise for a major retailer
B)New product for an international manufacturing company
C)Domestic outlet for a large global importer
D)Additional warehouse space for a profitable trucking firm
E)Prototype for a newly patented tool by an individual inventor
Q3) Which one of the following best describes an initial public offering?
A)The first sale of equity shares to the general public
B)Any newly issued shares offered to the general public
C)Shares sold to the public in exchange for cash
D)Shares held by a firm's founder
E)Any shares initially offered to a firm's existing shareholders
To view all questions and flashcards with answers, click on the resource link above.
Chapter 20: International Corporate Finance
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/74183
Sample Questions
Q1) Up-Town Markets exchanged their floating-rate payments with Downtown Markets' fixed rate payments.This exchange is referred to as a:
A)gilt exchange.
B)forward rate.
C)cross-rate.
D)spot exchange.
E)swap.
Q2) The forward rate market is dependent upon:
A)current forward rates exceeding current spot rates.
B)current spot rates exceeding current forward rates over time.
C)current spot rates equaling current forward rates on average over time.
D)current spot rates equaling the actual future spot rates on average over time.
E)forward rates equaling the actual future spot rates on average over time.
Q3) The international Fisher effect says that _____ rates are equal across countries.
A)real
B)inflation
C)nominal
D)future
E)spot
To view all questions and flashcards with answers, click on the resource link above.
Page 22
Chapter 21: Mergers and Acquisitions Web Only
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/74182
Sample Questions
Q1) New Tech has a market value of $384,000.Emerson Electrics has 40,000 shares of stock outstanding at a price per share of $39.Emerson Electrics is acquiring New Tech in exchange for 10,000 shares of Emerson Electrics stock.The merger is expected to create $28,000 of synergy.What is the merger net present value?
A)-$81,000
B)-$10,400
C)$22,400
D)$17,600
E)$46,400
Q2) On average,shareholders of the:
A)target firm benefit from mergers.
B)target firm benefit from cash mergers and incur losses in stock mergers.
C)acquiring firm benefit the most from a merger.
D)target firm suffer losses when a merger occurs.
E)both the acquiring and target firm incur losses when firms merge.
Q3) Explain the pros and cons of a cash acquisition over a stock acquisition.
Q4) Explain a golden parachute and justify why a firm's shareholders may be willing to agree to such an arrangement.
To view all questions and flashcards with answers, click on the resource link above.
Page 23