Introduction to Finance Exam Practice Tests
Course Introduction
Introduction to Finance offers students a foundational understanding of the principles and practices essential to modern financial management. This course covers key topics including the time value of money, risk and return, financial statement analysis, valuation of stocks and bonds, and an overview of capital budgeting. Through case studies and practical examples, students learn how individuals and organizations make decisions regarding investments, financing, and risk mitigation. By the end of the course, students will have the analytical tools and critical thinking skills necessary to understand financial markets and make informed financial decisions.
Recommended Textbook
Corporate Finance 6th Canadian Edition by Stephen A. Ross
Available Study Resources on Quizplus
32 Chapters
1385 Verified Questions
1385 Flashcards
Source URL: https://quizplus.com/study-set/3442
Page 2
Chapter 1: Introduction to Corporate Finance
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/68382
Sample Questions
Q1) In terms of the balance sheet model of the firm, the value of the firm in financial markets is equal to:
A) tangible fixed assets plus intangible fixed assets.
B) sales minus costs.
C) cash inflow minus cash outflow.
D) the value of the debt plus the value of the equity.
E) the value of the debt minus the value of the equity.
Answer: D
Q2) Time preference refers to the fact that:
A) corporations match current assets with current liabilities to minimize the chance of bankruptcy.
B) Corporations match both current and long-term assets with current and long-term liabilities to minimize the change of bankruptcy.
C) Investors prefer current cash flows to future cash flows.
D) Investors seek to time cash flows to minimize tax liabilities.
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
3
Chapter 2: Accounting Statements and Cash Flow
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/68371
Sample Questions
Q1) What is the cash flow of the firm for 2010?
Answer: Change in net working capital = ($75 + $502 + $640 - $405) - ($70 + $563 + $662 - $390) = -$93
Net capital spending = $1,413 - $1,680 + $210 = -$57
Earnings before interest and taxes = $785 - $460 - $210 = $115
Taxable income = $115 - $35 = $80
Taxes = .35($80) = $28
Operating cash flow = $115 + $210 - $28 = $297
Cash flow of the firm = $297 - (-$93) - (-$57) = $447
Q2) According to GAAP, revenue is recognized as income when:
A) a contract is signed to perform a service or deliver a good.
B) the transaction is complete and the goods or services delivered.
C) payment is received.
D) income taxes are paid.
Answer: B
Q3) The Simmons Company reported retained earnings in 2009 of $4750. In 2010, Simmons earned $1120 before taxes and paid a dividend of $730. Simmon's tax rate is 34%. What is Simmons' retained earnings.
Answer: $4750 + $1120(1-.34) - $730 = $4759.20
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Financial Planning and Growth
Available Study Resources on Quizplus for this Chatper
33 Verified Questions
33 Flashcards
Source URL: https://quizplus.com/quiz/68360
Sample Questions
Q1) The addition to retained earnings for the financial planning period is equal to:
A) Net Income + Taxes - Dividends.
B) Net Income - Dividends.
C) Net income + Depreciation - Dividends.
D) Sales - Dividend.
Answer: B
Q2) A firm wishes to maintain a growth rate of 12% per year and a dividend payout of 10%. The ratio of total assets to sales is constant at 1.5, and profit margin is 10%. What must be the debt-to-equity ratio?
A) .52.
B) .67.
C) .79.
D) .84.
Answer: C
Q3) Projected future financial statements are called:
A) plug statements.
B) pro forma statements.
C) reconciled statements.
D) aggregated statements.
Answer: B
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Financial Markets and Net Present Value: First Principles of Finance
Available Study Resources on Quizplus for this Chatper
35 Verified Questions
35 Flashcards
Source URL: https://quizplus.com/quiz/68356
Sample Questions
Q1) At what market rates of interest would make the individual indifferent between (1) all consumption in Period 0 and none in Period 1 and (2) no consumption in Period 0 and all consumption in Period 1?
Q2) A lender with no investment opportunities has equal income in period 0 and in period 1. Which of the following correctly describes the consequence of an increase in the interest rate?
A) Consumption in period 0 stays the same while consumption in period 1 decreases.
B) Consumption in period 0 stays the same while consumption in period 1 increases.
C) Consumption in period 0 increases while consumption in period 1 decreases.
D) Consumption in period 0 increases while consumption in period 1 increases.
Q3) Which of the following is not true?
A) Financial markets can be used to adjust consumption patterns over time.
B) Corporate investment decisions have nothing to do with financial markets.
C) Financial markets deal with cash flows over time.
D) Investment decisions rely on the economic principles of financial markets.
Q4) Graph and explain the investment choice the corporation should make. (Hint: Determine the NPV.)
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: The Time Value of Money
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/68355
Sample Questions
Q1) You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why?
A) You should accept the payments because they are worth $56,451.91 today.
B) You should accept the payments because they are worth $56,523.74 today.
C) You should accept the payments because they are worth $56,737.08 today.
D) You should accept the $50,000 because the payments are only worth $47,757.69 today.
E) You should accept the $50,000 because the payments are only worth $47,808.17 today.
Q2) The present value table provides the factors for the:
A) simple interest rate for N periods.
B) discount value of a dollar for N periods for a specified interest rate.
C) discount value of a dollar for 1/N periods for a specified interest rate.
D) simple interest value of an investment for N periods.
E) simple interest value of an investment for 1/N periods.
Q3) An investment today of $3300 is worth $10,000 in 8 years. At what rate has your investment been growing (annually) over the 8 years?
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: How to Value Bonds and Stocks
Available Study Resources on Quizplus for this Chatper
68 Verified Questions
68 Flashcards
Source URL: https://quizplus.com/quiz/68354
Sample Questions
Q1) A firm's value increases when it invests in projects that have
A) a rate of return less than the discount rate.
B) a rate of return equal to the discount rate.
C) a rate of return greater than the discount rate.
D) a rate of return equal to or less than the discount rate.
Q2) The P/E ratio is a multiple of earnings that investors pay for a stock. The P/E is __________ related to growth, __________ related to the discount rate, and __________ related to the stock's risk.
A) positively, positively, negatively.
B) negatively, positively, positively.
C) positively, negatively, negatively.
D) negatively, negatively, positively.
Q3) A corporate bond with a face value of $1,000 matures in 4 years and has a 8% coupon paid at the end of each year. The current price of the bond is $932. What is the yield to maturity for this bond?
A) 5.05%.
B) 8.58%.
C) 10.15%.
D) 11.92%.
E) 6.48%.
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
42 Verified Questions
42 Flashcards
Source URL: https://quizplus.com/quiz/68353
Sample Questions
Q1) The internal rate of return for a project will increase if:
A) the initial cost of the project can be reduced.
B) the total amount of the cash inflows is reduced.
C) each cash inflow is moved such that it occurs one year later than originally projected.
D) the required rate of return is reduced.
Q2) The problem of multiple IRRs can occur when:
A) there is only one sign change in the cashflows.
B) the first cash flow is always positive.
C) the cash flows decline over the life of the project.
D) there is more than one sign change in the cashflows.
Q3) Consider an investment with an initial cost of $20,000 and is expected to last for 5 years. The expected cash flow in years 1 and 2 are $5000, in years 3 and 4 are $5,500 and in year 5 is $1,000. The total cash inflow is expected to be $22,000 or an average of $4,400 per year. Compute the payback period in years.
A) 3.18
B) 3.82
C) 4.55
D) 4.00
To view all questions and flashcards with answers, click on the resource link above.
9
Chapter 8: Net Present Value and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
39 Verified Questions
39 Flashcards
Source URL: https://quizplus.com/quiz/68352
Sample Questions
Q1) Sales for year 2 of the new project are expected to increase by 10%. Current assets are expected to increase by 17% for every dollar increase in sales while accounts payable are expected to increase by 6%. For year 2 the change in cashflows due to working capital will be:
A) +10% of sales
B) -10% of sales
C) +1.1% of sales
D) -1.1% of sales
Q2) The equivalent annual cost method is useful in determining:
A) he annual operating cost of a machine if the annual maintenance is performed versus when the maintenance is not performed as recommended.
B) the tax shield benefits of depreciation given the purchase of new assets for a project.
C) which one of two machines to acquire given equal machine lives but unequal machine costs.
D) which one of two machines to purchase when the machines are mutually exclusive, have different machine lives, and will be replaced once they are worn out.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Risk Analysis, Real Options, and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
24 Verified Questions
24 Flashcards
Source URL: https://quizplus.com/quiz/68351
Sample Questions
Q1) The present value break-even point is superior to the accounting break-even point because:
A) present value break-even is more complicated to calculate.
B) present value break-even covers the economic opportunity costs of the investment.
C) present value break-even is the same as sensitivity analysis.
D) present value break-even covers the fixed costs of production, which the accounting break-even does not.
E) present value break-even covers the variable costs of production, which the accounting break-even does not.
Q2) Sensitivity analysis helps you determine the:
A) range of possible outcomes given possible ranges for every variable.
B) degree to which the net present value reacts to changes in a single variable.
C) net present value given the best and the worst possible situations.
D) degree to which a project is reliant upon the fixed costs.
Q3) The accounting profit break-even point occurs when:
A) the total revenue curve cuts the total cost curve.
B) the total revenue curve cuts the fixed cost curve.
C) the variable cost curve cuts the total cost curve.
D) the total revenue curve cuts the variable cost curve.
Page 11
To view all questions and flashcards with answers, click on the resource link above.
Chapter 10: Risk and Return: Lessons From Market History
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/68381
Sample Questions
Q1) If IS and DS are combined in a portfolio with 50% invested in each, the expected return and risk would be:
A) 5.625%; 37.2%
B) 4.5%; 5.48%
C) 8.0%; 8.2%
D) 5.0%; 0%
E) 4.5%; 0%
Q2) The separation principle states that an investor will:
A) choose any efficient portfolio and invest some amount in the riskless asset to generate the expected return.
B) choose an efficient portfolio based on individual risk tolerance or utility.
C) never choose to invest in the riskless asset because the expected return on the riskless asset is lower over time.
D) invest only in the riskless asset and tangency portfolio choosing the weights based on individual risk tolerance.
Q3) Suppose you desire to invest in any one of the stocks listed above. Can any be recommended?
Q4) Why are some risks diversifiable and some nondiversifiable? Give an example of each.
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Risk and Return: the Capital Asset Pricing Model
Capm
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/68380
Sample Questions
Q1) For a highly diversified equally weighted portfolio, the portfolio variance is:
A) the average covariance.
B) the average expected value.
C) the average variance.
D) the weighted average expected value.
E) the weighted average variance.
Q2) A portfolio exists containing stocks D, E, and F held in proportions 30%, 40%, and 30% respectively. The expected returns on the three stocks are given by 12%, 20%, and 28% respectively. Calculate the portfolio's expected return.
Q3) Covariance measures the interrelationship between two securities in terms of:
A) both expected return and direction of return movement.
B) both size and direction of return movement.
C) the standard deviation of returns.
D) both expected return and size of return movements.
E) the correlations of returns.
Q4) Suppose you desire to invest in any one of the stocks listed above. Can any be recommended?
Q5) Draw and explain the relationship between the opportunity set for a two asset portfolio when the correlation is: [Choose from -1, -.5, 0, +.5, and +1]
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: An Alternative View of Risk and Return: The Arbitrage Pricing Theory
Available Study Resources on Quizplus for this Chatper
36 Verified Questions
36 Flashcards
Source URL: https://quizplus.com/quiz/68379
Sample Questions
Q1) Suppose the JumpStart Corporation's common stock has a beta of 0.8. If the risk-free rate is 4% and the expected market return is 9%, the expected return for JumpStart's common is:
A) 3.2%.
B) 4.0%.
C) 7.2%.
D) 8.0%.
E) 9.0%.
Q2) If company A makes a new product discovery and their stock rises 5% this will have:
A) no effect on Company B's stock price because it is a systematic risk element.
B) no effect on Company B's stock price because it is an unsystematic risk element.
C) a large effect on Company B's stock price because it is a systematic risk element.
D) a large effect on Company B's stock price because it is an unsystematic risk element.
Q3) Explain the conceptual differences in the theoretical development of the CAPM and APT.
To view all questions and flashcards with answers, click on the resource link above.
14
Chapter 13: Risk, Return, and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
57 Verified Questions
57 Flashcards
Source URL: https://quizplus.com/quiz/68378
Sample Questions
Q1) XYZ INC has several divisions and the one managed by Dr. Donaldson has asset base of $4 million and earnings after taxes is $2 million. A new project would earn $2 million per year on an investment of $5 million. As a result, ROA of the division changed from
A) 50% to 44%
B) 55% to 40%
C) 44% to 50%
D) 50% to 70%
Q2) Beta is useful in the calculation of:
A) the company's variance.
B) the companies discount rate.
C) the company's standard deviation.
D) unsystematic risk.
E) the risk free-rate or the market rate.
Q3) A firm with high operating leverage has:
A) low amounts of fixed cost in their production process.
B) high amounts of variable cost in their production process.
C) high amounts of fixed cost in their production process.
D) high price per unit.
E) low price per unit.
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Corporate Financing Decisions and Efficient
Capital Markets
Available Study Resources on Quizplus for this Chatper
39 Verified Questions
39 Flashcards
Source URL: https://quizplus.com/quiz/68377
Sample Questions
Q1) Technical analysts believe that the:
A) future stock prices are unpredictable and therefore plot past prices.
B) stock prices are in equilibrium and advise not to follow price patterns.
C) future stock prices are a reflection of the past and plot prices to find reoccurring price patterns.
D) stock prices are only predictable based on the outlook for corporations earnings.
E) SML is the most reliable predictor.
Q2) If the securities market is efficient an investor need only throw darts at the stock pages to pick securities and be just as well off.
A) This is true because there are no differences in risk and return.
B) This is true because in an efficient stock market prices do not fluctuate.
C) This is false because professional portfolio managers prefer to generate commissions.
D) This is false because investors may not hold a desirable risk-return combination in their portfolio.
E) This is false because the markets are controlled by the institutional investors.
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: Long-Term Financing: an Introduction
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/68376
Sample Questions
Q1) Long-term debt is often called:
A) secured debt.
B) subordinated debt.
C) funded debt.
D) capital debt.
Q2) From this information, calculate Enstat's book value per share.
Q3) If cumulative voting is permitted:
A) the total number of votes a shareholder has is equal to the number of shares owned.
B) the total number of votes a shareholder has is equal to the number of shares owned times the average number of years the shareholder has owned the shares.
C) the total number of votes a shareholder has can be calculated as the number of shares owned times the number of directors to be elected.
D) the total number of votes a shareholder has is equal to the number of shares times the number of board meetings the shareholder has attended.
Q4) Rework the shareholder's equity as it appears on the books if the company issues 40,000 new share of common at $70 per share.
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Capital Structure: Basic Concepts
Available Study Resources on Quizplus for this Chatper
44 Verified Questions
44 Flashcards
Source URL: https://quizplus.com/quiz/68375
Sample Questions
Q1) The Nantucket Nugget is unlevered and is valued at $640,000. Nantucket is currently deciding whether including debt in their capital structure would increase their value. The current of cost of equity is 12%. Under consideration is issuing $300,000 in new debt with an 8% interest rate. Nantucket would repurchase $300,000 of stock with the proceeds of the debt issue. There are currently 32,000 shares outstanding and their effective marginal tax bracket is 34%. What will Nantucket's new WACC be?
Q2) The firm's capital structure refers to:
A) the way a firm invests its assets.
B) the amount of equity or capital in the firm.
C) the amount of dividends a firm pays.
D) the way in which a firm's assets are financed.
E) how much cash the firm holds.
Q3) The weighted average cost of capital is invariant to the use of leverage under MM conditions of no taxes. Graph the relationship of the weighted average cost of capital and leverage; be sure to include the cost of equity and debt. Explain why this relationship holds.
Q4) Given a level of operating income of $2,500, show the specific strategy that Mike has in mind.
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 17: Capital Structure: Limits to the Use of Debt
Available Study Resources on Quizplus for this Chatper
44 Verified Questions
44 Flashcards
Source URL: https://quizplus.com/quiz/68374
Sample Questions
Q1) Studies have found that firms with high proportions of intangible assets are likely to use ____________ debt compared with firms with low proportions of intangible assets.
A) more
B) the same amount of
C) less
D) either more or the same amount of
Q2) While difficult to determine exactly, Larry Weiss estimated the distress costs to be about ____________ of firm value.
A) 1%
B) 3.1%
C) 5-6%
D) 8-10%
Q3) When small companies issue large stock offerings, we can expect owner managers to:
A) increase both leisure time and work related amenities.
B) decrease both leisure time and work related amenities.
C) increase leisure time but decrease work related amenities.
D) decrease leisure time and increase work related amenities.
E) decrease leisure time but keep work related amenities the same.
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Valuation and Capital Budgeting for the Levered Firm
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/68373
Sample Questions
Q1) The appropriate cost of debt to the firm is:
A) the weighted cost of debt after tax. D) the coupon rate pre-tax.
B) the levered equity rate.
C) the market borrowing rate after tax.
Q2) A very large firm has a debt beta of zero. If the cost of equity is 11%, and the risk-free rate is 5%, the cost of debt is:
A) 5%.
B) 6%.
C) 11%.
D) 15%.
Q3) A firm has a total value of $500,000 and debt valued at $300,000. What is the weighted average cost of capital if the after tax cost of debt is 9% and the cost of equity is 14%?
A) 7.98%.
B) 12.125%.
C) 11.0%.
D) 10.875%.
To view all questions and flashcards with answers, click on the resource link above.
Page 20
Chapter 19: Dividends and Other Payouts
Available Study Resources on Quizplus for this Chatper
42 Verified Questions
42 Flashcards
Source URL: https://quizplus.com/quiz/68372
Sample Questions
Q1) The increase in the stock price after a dividend increase is called the information content effect because:
A) the change in dividend was expected by shareholders.
B) the dividend increase signaled investors to adjust the expectations of future earning upward.
C) the dividend change signaled investors to adjust the risk of the firm downward.
D) the dividend change signaled shareholders that the firm could now payout more as they enter the mature phase of their business.
Q2) If stockholders care about taxes, then stocks should attract clienteles based on dividend yields. Surveys support this by showing that the highest dividend yield stocks are held by investors in the:
A) highest tax bracket.
B) average tax bracket.
C) lowest tax bracket.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 20: Issuing Equity Securities to the Public
Available Study Resources on Quizplus for this Chatper
43 Verified Questions
43 Flashcards
Source URL: https://quizplus.com/quiz/68370
Sample Questions
Q1) Yoma Inc. is attempting to raise $5,000,000 in new equity with a rights offering. The subscription price will be $40 peer share. The stock currently sells for $50 per share and there are 250,000 shares outstanding. How many rights are needed to buy a new share?
Q2) Yoma Inc. is attempting to raise $5,000,000 in new equity with a rights offering. The subscription price for the 125,00 new shares will be $40 per share. The stock currently sells for $50 per share and there are 250,000 shares outstanding. What will the price per share be if all rights are exercised?
Q3) In a best efforts offering the investment banker makes their money primarily by:
A) earning the spread between the buying and offering price.
B) earning a commission on each share sold.
C) earning the discount between the buying and offering price.
D) charging a flat fee for all services.
Q4) Assuming everything else is constant, if a stock's old price is $25 and the ex-rights or new stock price is $19, then the value of the right is:
A) $-6.
B) $6.
C) impossible to determine without the subscription price.
D) impossible to determine without the number of rights needed to buy one share.
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Long-Term Debt
Available Study Resources on Quizplus for this Chatper
51 Verified Questions
51 Flashcards
Source URL: https://quizplus.com/quiz/68369
Sample Questions
Q1) The trustee's job as agent for the bondholders is to:
A) represent the bondholders if the company defaults, manage any sinking fund, and see that the indenture terms are obeyed.
B) advise the company on debt disposition, manage any sinking fund, and minimize indenture covenants.
C) represent the bondholders if the company defaults, call the bond issue and minimize indenture covenants.
D) advise the company on debt disposition, call the bond issue and see that the terms of the indenture are obeyed.
Q2) Short-term debt is sometimes referred to as:
A) secured debt.
B) funded debt.
C) unfunded debt. D) unsecured debt.
Q3) The choice of whether a private placement or a public bond issue is undertaken depends on many factors. Three elements of primary concern are registration, interest rates and covenants. How do these affect the choice and why might a private placement be chosen?
Q4) If the bond sells for par today, what is the coupon?
To view all questions and flashcards with answers, click on the resource link above. Page 23
Chapter 22: Leasing
Available Study Resources on Quizplus for this Chatper
37 Verified Questions
37 Flashcards
Source URL: https://quizplus.com/quiz/68368
Sample Questions
Q1) Should the asset be purchased or leased? Support your answer.
Q2) What is the after-tax cash flow from leasing in years 1-9?
A) -$255.
B) -$955.
C) -$1,295.
D) -$1,850.
Q3) The price or lease payment that the lessee sets as their bound is known as:
A) the present value of the tax shields.
B) the reservation payment, L<sub>MIN</sub>.
C) the present value of operating savings.
D) the reservation payment, L<sub>MAX</sub>.
Q4) What would the after-tax cash flow in year 9 be if the asset had a residual value of $500 (ignoring any possible risk differences)?
A) -$955.
B) -$1,455.
C) -$605.
D) -$1,305.
Q5) What are the cashflows in years 1 through 8?
Q6) Calculate the NPV of the lease versus the purchase decision.
Q7) What is the discount rate to be used?
To view all questions and flashcards with answers, click on the resource link above. Page 24
Chapter 23: Options and Corporate Finance: Basic Concepts
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/68367
Sample Questions
Q1) In terms of relating options to the value of the firm, the equity of the firm can be viewed as:
A) a call option on the firm with the exercise price equal to the promised payments to the bondholders.
B) a call option on the firm with the exercise price equal to the firm's after-tax cash flow. C) a put option on the firm with the exercise price equal to the promised payments to the bondholders.
D) a put option on the firm with an exercise price equal to the firm's after-tax cash flow.
Q2) You have entered into a call option contract for 1 period. The stock is selling for $28, you borrowed 412 at 8% and the delta is .6. What is the cost of the call?
A) $8.89.
B) $16.00.
C) $5.69.
D) $9.60.
Q3) Explain how the value of a firm can be viewed as an option. How can the call and put views be resolved?
To view all questions and flashcards with answers, click on the resource link above. Page 25
Chapter 24: Options and Corporate Finance: Extensions and Applications
Available Study Resources on Quizplus for this Chatper
21 Verified Questions
21 Flashcards
Source URL: https://quizplus.com/quiz/68366
Sample Questions
Q1) What are the u, the up state multiplier, and d, the down state multiplier, if there are monthly intervals and the standard deviation is .38?
A) 1.1159; .8961
B) .0317; 31.5789
C) .0317; .9683
D) .2193; .7807
Q2) The risk-neutral probabilities for an asset, with a current value equal to the present value of future payoffs are:
A) given by the probability of each state occurring.
B) given by the value of the underlying asset under good news and the risk free rate.
C) given by the value of the underlying asset under good news and bad news.
D) given by the value of the underlying asset under good news, bad news, and the risk free rate.
Q3) Rejecting an investment today forever may not be a good choice because:
A) the size of the firm will decline.
B) there are always errors in the estimation of NPVs.
C) the option value is negative.
D) the company's foregoing the future rights or option to the investment.
To view all questions and flashcards with answers, click on the resource link above. Page 26
Chapter 25: Warrants and Convertibles
Available Study Resources on Quizplus for this Chatper
43 Verified Questions
43 Flashcards
Source URL: https://quizplus.com/quiz/68365
Sample Questions
Q1) What is the conversion premium?
A) 29.86%.
B) 106.61%.
C) 0.00%.
D) 59.009%.
Q2) The holder of a $1,000 face value bond can exchange the bond any time for 25 shares of stock. The conversion ratio is:
A) 40.
B) 25.
C) 100.
D) 50
Q3) Concerning warrants and call options, which of the following statements generally is correct?
A) The issue procedures for both are quite similar.
B) When a call option is exercised, the firm must issue new stock.
C) When a warrant is exercised, existing stock changes hands.
D) Exercise of a call option does not affect share value, but warrant exercise does.
Q4) Explain why there is neither a "Free" nor "Expensive Lunch" when convertible bonds are issued?
To view all questions and flashcards with answers, click on the resource link above. Page 27
Chapter 26: Derivatives and Hedging Risk
Available Study Resources on Quizplus for this Chatper
48 Verified Questions
48 Flashcards
Source URL: https://quizplus.com/quiz/68364
Sample Questions
Q1) In percentage terms, higher coupon bonds experience a _______ price change compared with lower coupon bonds of the same maturity given a change in yield to maturity.
A) greater
B) smaller
C) similar
D) smaller or greater
Q2) The buyer of a forward contract:
A) will be taking delivery of the good(s) today at today's price.
B) will be making delivery of the good(s) at a later date at that date's price.
C) will be making delivery of the good(s) today at today's price.
D) will be taking delivery of the good(s) at a later date at pre-specified price.
Q3) Derivatives can be used to either hedge or speculate. These actions:
A) increase risk in both cases.
B) decrease risk in both cases.
C) spread or minimize risk in both cases.
D) offsets risk by hedging and increase risk by speculating.
E) offset risks by speculating and increase risk by hedging.
Q4) Calculate the duration of Tiger State Bank's assets and liabilities.
To view all questions and flashcards with answers, click on the resource link above. Page 28
Chapter 27: Short-Term Finance and Planning
Available Study Resources on Quizplus for this Chatper
48 Verified Questions
48 Flashcards
Source URL: https://quizplus.com/quiz/68363
Sample Questions
Q1) Which of the following is not included in current liabilities?
A) Accounts payable.
B) Prepaid insurance.
C) Accrued wages.
D) Taxes.
E) Notes payable.
Q2) The three basic forms of inventory loans include:
A) blanket inventory lien, field warehouse financing, and line of credit.
B) blanket inventory lien, line of credit, and trust receipt.
C) blanket inventory lien, field warehouse financing, and trust receipt.
D) field warehouse financing, line of credit, and trust receipt.
Q3) The two kinds of shortage costs are:
A) commitment costs and costs related to safety reserves.
B) commitment costs and costs related to supply factors.
C) commitment costs and order costs.
D) order costs and costs related to safety reserves.
E) order costs and costs related to supply factors.
Q4) A. What is the cash cycle for White Bluffs, Inc. if all sales are credit sales.
B. If you knew that Accounts Payables were $4884 last year, what effect would this have on your estimate of the cash cycle. Show and explain why.
Page 29
To view all questions and flashcards with answers, click on the resource link above.
Chapter 28: Cash Management
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/68362
Sample Questions
Q1) During the month you receive 4 checks, one for $100, two for $200, and one for $500. They are delayed for 2 days, 4 days, and 8 days respectively. What is your average daily collection float (a month has 30 days)?
Q2) Firms would need to hold zero cash when:
A) transactions related needs are greater than cash inflows.
B) transactions related needs are less than cash inflows.
C) transactions related needs are not perfectly synchronized with cash inflows. D) transactions related needs are perfectly synchronized with cash inflows.
Q3) Your firm receives 10 checks per month. Of these, 6 are for $1,000 and 4 are for $500. The delay for the $1,000 checks is 5 days, and the $500 checks are delayed 8 days.
Q4) What is the total opportunity cost for a month based on the firm's current practice?
A) $60.00.
B) $27.92.
C) $18.98.
D) $5.00.
Q5) If Mesa will charge your firm an annual fee of $35,000 and $.20 per check handled will you accept Mesa's services?
To view all questions and flashcards with answers, click on the resource link above.
Page 30
Chapter 29: Credit Management
Available Study Resources on Quizplus for this Chatper
29 Verified Questions
29 Flashcards
Source URL: https://quizplus.com/quiz/68361
Sample Questions
Q1) Ali Storage Company projects 800 customers next year. Of these, 600 have been profitable and have never defaulted on past obligations, while 200 have not been profitable. All of the unprofitable accounts are expected to default if given credit. Ali can pay $0.40 to an agency that will tell them whether a customer has been profitable. If Ali's price per unit is $10, and its cost per unit is $6, should they allow the credit check to be performed? Assume a discount rate of 1%.
Q2) Selling goods and services on credit is:
A) an investment in a customer.
B) necessary because customers cannot pay for the goods.
C) a decision independent of customers.
D) permissible if your bank lends the money.
Q3) Which of the following statements is not true?
A) An aging schedule shows only overdue accounts.
B) An aging schedule shows the probability that a 67-day account will be unpaid when it is a 68-day account.
C) Average collection period data is somewhat flawed if sales are seasonal.
D) Collection efforts may involve legal action.
E) Investments in accounts receivable equal average daily sales times average collection period.
To view all questions and flashcards with answers, click on the resource link above.
Page 31
Chapter 30: Mergers and Acquisitions
Available Study Resources on Quizplus for this Chatper
53 Verified Questions
53 Flashcards
Source URL: https://quizplus.com/quiz/68359
Sample Questions
Q1) The Turf-Top Lawn Mower Company has acquired the Quick Clean Power Snow Shovel Company. Turf-Top has agreed to pay $600 in cash, the money was raised through a new debt issue. All liabilities will be paid off. The balance sheets of both companies are at market values which are also the book values before the combination. Construct the new balance sheet for this purchase. How has the position of TTLM shareholders changed?
Q2) Compensation paid to top management in the event of a takeover is called a: A) poison pill.
B) golden parachute.
C) self-tender.
D) buyout.
Q3) The value of synergy is estimated by the equation:
A) VA+ VB- Revenue.
B) VAB- VA- VB.
C) VAB- VB- Taxes.
D) VA- VB- Costs.
Q4) Describe the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.
To view all questions and flashcards with answers, click on the resource link above.
Page 32
Chapter 31: Financial Distress
Available Study Resources on Quizplus for this Chatper
17 Verified Questions
17 Flashcards
Source URL: https://quizplus.com/quiz/68358
Sample Questions
Q1) What is the correct priority of the following claims once a corporation is determined to be bankrupt?
A) administrative expenses, wages claims not exceeding $2,000, government tax claims, debtholder and then equityholder claims.
B) administrative expenses, wages claims not exceeding $2,000, government tax claims, equityholder and then debtholder claims.
C) all wage claims, administrative expenses, debtholder claims, government tax claims and equityholder claims.
D) all wage claims, administrative expenses, debtholder claims, equityholder claims and government tax claims.
Q2) How much should the unsecured creditors receive?
A) $1,000,000.
B) $500,000.
C) $750,000.
D) $667,000.
To view all questions and flashcards with answers, click on the resource link above. Page 33
Chapter 32: International Corporate Finance
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/68357
Sample Questions
Q1) The U.S. inflation rate for the coming year is 2%. The German inflation rate for the coming year is 42%. You can buy 1.7 D-marks with 1 U.S. dollar today. Based on relative purchase power parity, how many D-marks will you be able to buy with 1 dollar in 1 year?
Q2) Newsat Telco is planning on investing $40 billion in Europe this year for a satellite communications systems. The expected cashflow over the next three years is 20.6 billion Euros per year growing at the rate of inflation. After three year they will abandon the system as worthless. The European current and expected inflation rate is 5.2% per annum over this period and the U.S. inflation rate is expected to be 2.8% per annum. The current exchange rate is $.9/Euro. Newsat has a U.S. cost of capital of 15%. Should Newsat invest?
Calculate cashflows for each year and convert back with the yearly exchange rate based on RPPP.
Q3) The cross rate is the:
A) exchange rate between the US dollar and other currency.
B) exchange rate between two currencies other than the US dollar.
C) rate converting the direct rate into the indirect rate.
D) the attitude of the agent at the exchange kiosk.
To view all questions and flashcards with answers, click on the resource link above.