Corporate Financial Strategy
Exam Bank
Course Introduction
Corporate Financial Strategy explores the frameworks and tools that organizations use to make strategic financial decisions, with a focus on maximizing shareholder value and achieving long-term corporate objectives. The course covers topics such as capital structure, dividend policy, mergers and acquisitions, financial risk management, and valuation techniques. Students will analyze real-world case studies to understand how financial strategy aligns with business strategy, evaluate financing options, assess investment opportunities, and develop financial plans suited to dynamic market environments. Through critical thinking and quantitative analysis, students gain skills necessary to guide organizations in formulating and executing effective financial strategies.
Recommended Textbook
Corporate Finance Core Principles and Applications 5th Edition by Stephen Ross
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Page 2
Chapter 1: Introduction to Corporate Finance
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Q1) Dividends are a cash flow from
A)a firm to the financial markets.
B)a shareholder to a firm.
C)the government to a shareholder.
D)the financial markets to a firm.
E)a firm to the government.
Answer: A
Q2) Which one of the following business types is best suited to raising large amounts of capital?
A)Sole proprietorship
B)Limited liability company
C)Limited partnership
D)General partnership
E)Corporation
Answer: E
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Page 3
Chapter 2: Financial Statements AMCQ Cash Flow
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Q1) Liquidity is
A)a measure of the use of debt in a firm's capital structure.
B)equal to current assets minus current liabilities.
C)equal to the market value of a firm's total assets minus its current liabilities.
D)generally associated with intangible assets.
E)valuable to a firm even though liquid assets tend to be less profitable to own.
Answer: E
Q2) Revenue is recorded on an income statement when
A)payment for a sale has been received in full.
B)an order for goods is placed.
C)an exchange of goods or services has occurred and the earnings process is completed.
D)an order for goods or services is placed and an initial payment is received.
E)goods are placed in inventory and ready for future delivery.
Answer: C
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Chapter 3: Financial Statements Analysis Amcq Financial
Models
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Q1) Nelson Farms has 6,500 shares of stock outstanding,with a market value of $13.30 a share,and $31,000 of long-term debt,bearing an interest rate of 7.1 percent.Current assets consist of $1,600 in cash,$15,700 in accounts receivable,and $42,900 in inventory.Accounts payable are $11,300.What is the firm's enterprise value?
A)$121,600
B)$115,850
C)$157,600
D)$184,250
E)$117,450
Answer: B
Q2) Marcel's has a debt-equity ratio of 0.32,a capital intensity ratio of 1.02,and a profit margin of 6.7 percent.What is the return on equity?
A)8)67%
B)7)89%
C)13.13%
D)14.57%
E)12.47%
Answer: A
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Chapter 4: Discounted Cash Flow Valuation
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Q1) The net present value of an investment is best defined as the A)current cost if the investment is made today.
B)net value received at the end of the investment period.
C)present value of the investment's future cash flows minus the investment's cost.
D)net decrease in value caused by waiting to receive the cash benefit from the investment.
E)value received at the end of the investment period minus the investment's cost.
Q2) East Coast Investors invested $28,000 a year into a project for the past 7 years.Today,the project was sold for a net of $324,000.What is the rate of return,ignoring taxes?
A)17.43%
B)17.06%
C)15.59%
D)16.67%
E)16.44%
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6
Chapter 5: Interest Rates AMCQ Bomcq Valuation
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Sample Questions
Q1) Assume a bond yields a real rate of return of 3.6 percent during a time when inflation is 1.87 percent.What would the actual nominal rate of return be?
A)5)61%
B)5)47%
C)5)49%
D)5)54%
E)5)57%
Q2) A $1,000 Treasury bond matures in 13.5 years,pays interest semiannually,and carries a coupon rate of 3.53 percent.What is the price of this bond if the discount rate is 4 percent?
A)$991.17
B)$951.34
C)$949.38
D)$976.96
E)$997.08
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Chapter 6: Stock Valuation
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Q1) Which one of the following statements concerning preferred stock is correct?
A)Unpaid preferred dividends are a liability of the firm whether or not they have been declared.
B)Preferred shareholders may be granted voting rights if preferred dividend payments remain unpaid.
C)Any unpaid preferred dividends will accrue interest at a rate equal to the dividend rate.
D)All unpaid dividends on both cumulative and noncumulative preferred stock must be paid before any common stock dividends can be declared.
E)Preferred dividends will be paid quarterly only when the firm has current net income that exceeds the amount of the quarterly dividend.
Q2) A stock that pays a constant annual dividend will have a market price that
A)increases when the market rate of return increases.
B)decreases when the market rate of return increases.
C)decreases over time.
D)increases over time.
E)always remains constant.
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8
Chapter 7: Net Present Value AMCQ Other Investment Rules
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Sample Questions
Q1) You are considering two independent projects that have a required return of 15 percent.Project A has an initial cost of $198,700 and cash inflows of $67,200,$109,600,and $88,700 for Years 1 to 3,respectively.Project B has an initial cost of $102,000 and cash inflows of $37,600 and $91,200 for Years 1 and 2,respectively.Given this information,which one of the following statements is correct based on the NPV and IRR methods of analysis?
A)You should accept both projects.
B)You should accept Project A and reject Project B.
C)You should accept Project B and reject Project A.
D)NPV indicates accept Project A while IRR indicates accepting Project B.
E)You should reject both projects.
Q2) You are considering a project with an initial cost of $13,000.What is the payback period for this project if the annual cash inflows are $3,450,$5,970,$2,100,and $1,400 for Years 1 to 4,respectively?
A)4)06 years
B)3)97 years
C)3)89 years
D)Never
E)3)81 years
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Chapter 8: Making Capital Investment Decisions
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Sample Questions
Q1) Erosion can be best explained as the
A)loss of current sales due to a new project being implemented.
B)additional income generated from the sales of a newly added product.
C)loss of revenue due to customer theft.
D)loss of revenue due to employee theft.
E)loss of sales due to a product become obsolete.
Q2) The incremental cash flows of a project are best defined as
A)the cash received from the additional sales generated by the project.
B)any change in a firm's cash flows resulting from the addition of the project including opportunity costs.
C)the cash received or lost from changes in the sales of a firm's current products as a result of adding the project.
D)the increase or decrease in a firm's cash flows resulting from adding the project,excluding all sunk and opportunity costs.
E)the total cash flows of a firm once the new project is completely integrated into the firm's operations.
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Chapter 9: Risk Analysis, Real Options, AMCQ Capital
Budgeting
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Q1) Assume a project has estimated fixed costs of $61,200,variable costs per unit of $84.29,a selling price of $199,and an initial cost of $402,000 for fixed assets.Depreciation is straight-line to zero over the project's 4-year life.The tax rate is 30 percent,and the discount rate is 12 percent.What is the financial breakeven point?
A)1,422 units
B)1,806 units
C)1,366 units
D)1,698 units
E)1,228 units
Q2) In scenario analysis,which one of the following items is least apt to be assigned a range of values?
A)Sales price per unit
B)Variable cost per unit
C)Fixed cost
D)Initial cost
E)Sales quantity
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11
Chapter 10: Risk Amcq Return: Lessons From Market History
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Sample Questions
Q1) Winslow stock is currently selling for $39 a share.The stock has a dividend yield of 2.3 percent.How much dividend income will you receive per year if you purchase 400 shares of this stock?
A)$248.80
B)$390.47
C)358.80
D)$239.50
E)$360.00
Q2) Kurt's Toy Co.has total annual returns for the past 5 years of -8.2 percent,11.7 percent,-6.4 percent,18.7 percent,and 6.8 percent.What is the 5-year holding period return?
A)9)00%
B)17.50%
C)22.60%
D)21.67%
E)20.33%
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Chapter 11: Return Amcq Risk: the Capital Asset Pricing
Model Capm
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Sample Questions
Q1) The beta of a security is calculated by dividing the
A)variance of the market by the covariance of the security with the market.
B)correlation of the security with the market by the variance of the security.
C)variance of the market by the correlation of the security with the market.
D)covariance of the security with the market by the variance of the market.
E)covariance of the security with the market by the variance of the security.
Q2) The intercept point of the security market line is the rate of return that corresponds to
A)the market rate of return.
B)the beta of the market.
C)a value of one.
D)a value of zero.
E)the risk-free rate.
Q3) A stock with a beta of zero would be expected to have a rate of return equal to A)the prime rate.
B)the average AAA bond.
C)the market rate.
D)the risk-free rate.
E)zero.
Page 13
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Chapter 12: Risk, cost of Capital, AMCQ Valuation
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Q1) The Lumber Shack just paid an annual dividend of $1.23 a share.The dividend growth rate is 4 percent,the tax rate is 34 percent,and the common stock sells for $38 a share.What is the cost of equity?
A)7)24%
B)7)09%
C)7)18%
D)7)37%
E)7)32%
Q2) Companies A and B are identical except for their capital structures.Company A is an all-equity company while Company B is levered.Given this,you can assume that Company B's equity beta is ________ Company A's beta and its debt beta is assumed to be ________.
A)greater than;equal to zero
B)greater than;equal to one
C)equal to;equal to the market beta
D)less than: equal to zero
E)less than;equal to one
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Page 14
Chapter 13: Efficient Capital Markets Amcq Behavioral Challenges
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Sample Questions
Q1) Weak form efficiency is best defined as a market where current prices are based on A)totally rational decisions.
B)historical prices.
C)information known to any person or organization.
D)all publicly available information.
E)irrational decisions by amateur investors.
Q2) The abnormal return in an event study is described as the
A)actual return on a security minus the market rate of return on the same date.
B)total return earned by a security on the date of an announcement affecting that security.
C)total return earned on a security for the 7-day period commencing 3 days prior to an announcement affecting that security.
D)change in market value of a security on the day of an announcement affecting that security.
E)any change in the market price of a security that exceeds 5 percent over a 7-day period.
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Chapter 14: Capital Structure: Basic Concepts
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Q1) MM Proposition I,with taxes,is based on the concept that the A)optimal capital structure is the one that is totally financed with equity. B)capital structure of the firm does not matter because investors can use homemade leverage.
C)firm is worse off levered than unlevered.
D)value of the firm increases as total debt increases because of the interest tax shield. E)cost of equity increases as the debt-equity ratio of a firm increases.
Q2) An unlevered firm has a cost of capital of 12.46 percent and a tax rate of 35 percent.The firm is considering a new capital structure with 35 percent debt.The interest rate on the debt would be 6.68 percent.What would be the firm's levered cost of capital?
A)14.48%
B)14.78%
C)13.90%
D)14.27%
E)13.94%
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Page 16
Chapter 15: Capital Structure: Limits to the Use of Debt
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Q1) Issuing debt instead of new equity in a closely held firm more likely causes owner-managers to
A)work harder than they would if equity had been issued.
B)consume more perquisites because the cost is passed on to the debtholders.
C)enjoy more leisure time than they would with an equity issue.
D)accept more unprofitable projects.
E)shirk their duties as they have less capital at risk.
Q2) Cool Refreshments has bonds outstanding with a face value of $211,000 that are selling at par.It also has 14,000 shares of stock outstanding that are selling for $16.20 a share.The all-equity value of the firm is $408,000.The tax rate is 35 percent.What is the value of the financial distress costs? Assume there are no other claims on the firm.
A)$44,050
B)$46,800
C)$46,220
D)$45,100
E)$46,550
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Chapter 16: Dividemcqs AMCQ Other Payouts
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Q1) Auto Supply has 54,200 shares of stock outstanding with a par value of $1 per share and a market value of $6.20 a share.The company just announced a two-for-nine reverse stock split.What will be the par value per share after the split?
A)$)22
B)$)44
C)$1.00
D)$2.50
E)$4.50
Q2) Reverse stock splits can be used to
A)adjust the debt-equity ratio such that it falls within a preferred range.
B)increase the excess cash held by a firm.
C)increase both the number of shares outstanding and the market price per share simultaneously.
D)increase the total equity of a firm.
E)avoid delisting.
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18
Chapter 17: Options Amcq Corporate Finance
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Q1) An increase in which one of these will decrease the value of a call option and increase the value of a put option?
A)Stock price
B)Time to expiration
C)Stock volatility
D)Interest rate
E)Exercise price
Q2) The value of an option if it were to immediately expire is called the option's ________ value.
A)strike
B)time
C)intrinsic
D)volatility
E)market
Q3) In the Black-Scholes option pricing model,what does the variable R represent?
A)The annually compounded risk-free rate of return
B)The continuously compounded variance
C)The continuously compounded annual risk-free rate of return
D)The annually compounded market rate of return
E)The continuously compounded market rate of return
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Chapter 18: Short-Term Finance Amcq Planning
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Q1) The Babco Co.has a $225,000 line of credit with an interest rate of 6.5 percent and a compensating balance requirement of 4 percent that is based on the total amount borrowed.What is the effective interest rate if the firm needs $163,000 to finance some expenses? The company plans on repaying the loan in a lump sum at the end of 1 year.
A)7)20%
B)7)27%
C)7)08%
D)5)80%
E)6)77%
Q2) HM Industries has a beginning receivables balance on January 1<sup>st</sup> of $484.Sales for January through April are $420,$364,$390,and $433,respectively.The accounts receivable period is 60 days.How much did the firm collect in the month of April? Assume a 360-day year.
A)$420
B)$364
C)$377
D)$390
E)$392
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Chapter 19: Raising Capital
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Q1) In the Brau and Fawcett survey,which one of these was most cited by CFOs as the motive for going public?
A)Creating public shares for use in future acquisitions
B)Allowing the firm's principals to diversify their holdings
C)Establishing a market value for the firm
D)Minimizing the firm's cost of capital
E)Allowing venture capitalists to cash out
Q2) DJ's stock currently sells for $32 a share.The firm has a rights offer outstanding for new equity shares with each current share receiving one right.To purchase one new share,you must submit two rights and $28.What is the ex-rights stock price?
A)$29.02
B)$31.64
C)$29.45
D)$30.67
E)$30.36
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21
Chapter 20: International Corporate Finance
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Sample Questions
Q1) 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 equalling current forward rates on average over time.
D)current spot rates equalling the actual future spot rates on average over time.
E)forward rates equalling the actual future spot rates on average over time.
Q2) A sweater you desire costs Can$68.What will the same sweater cost in the United States if the indirect quote is 1.1417 and purchasing power parity exists?
A)$59.56
B)$64.09
C)$68.78
D)$77.63
E)$76.27
Q3) The theory that real interest rates are equal across countries is called A)purchasing power parity.
B)the international Fisher effect.
C)the unbiased forward rates condition.
D)uncovered interest parity.
E)interest rate parity.
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Page 22
Chapter 21: Mergers Amcq Acquisitions Web Only
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Q1) JLM has 7,400 shares of stock outstanding at a market price per share of $18.Hi-Tek has 36,000 shares outstanding that sell for $45 a share.By merging,$5,000 of synergy can be created.Hi-Tek is acquiring JLM for $135,000 worth of Hi-Tek stock.What is the postmerger value per share?
A)$45.00
B)$46.57
C)$45.08
D)$44.92
E)$44.83
Q2) LTL has 9,000 shares of stock outstanding at a market price per share of $21.STS has 45,000 shares outstanding that sell for $39 a share.By merging,$15,200 of synergy can be created.What would be the postmerger value of the combined firm if STS acquires LTL in a stock acquisition valued at $200,000?
A)$1,744,000
B)$1,759,200
C)$1,944,000
D)$1,766,500
E)$1,959,200
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