Valuation and Financial Modeling Solved Exam Questions
Course Introduction
Valuation and Financial Modeling is designed to provide students with the analytical and practical skills necessary to assess the value of businesses, investments, and financial assets. The course covers a range of valuation techniques including discounted cash flow (DCF) analysis, comparable company analysis, and precedent transactions. Students will gain hands-on experience constructing and interpreting complex financial models using spreadsheets, enabling them to project financial performance, assess risk, and support strategic decision-making. Emphasis is placed on applying theoretical concepts to real-world scenarios, making this course essential for careers in investment banking, corporate finance, private equity, and consulting.
Recommended Textbook Principles of Corporate Finance 12th Edition by Richard Brealey
Available Study Resources on Quizplus
33 Chapters
2346 Verified Questions
2346 Flashcards
Source URL: https://quizplus.com/study-set/2969 Page 2
Chapter 1: Introduction to Corporate Finance
Available Study Resources on Quizplus for this Chatper
49 Verified Questions
49 Flashcards
Source URL: https://quizplus.com/quiz/59060
Sample Questions
Q1) Briefly explain some of the institutional arrangements that ensure that managers work toward increasing the value of a firm.
Answer: The board of directors, elected by shareholders, which scrutinizes managers' actions
Competition among managers
The threat of takeover that brings a new management team Incentive schemes that are closely tied to the value of the firm like stock options
Q2) The following are examples of tangible assets except A)machinery only.
B)machinery and office buildings only.
C)training courses for employees only.
D)machinery, office buildings, and warehouses only.
Answer: C
Q3) The following are examples of real assets:
A)machinery, office buildings, and warehouses only.
B)machinery and office buildings only.
C)common stock only.
D)machinery only.
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: How to Calculate Present Values
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/59059
Sample Questions
Q1) You would like to have enough money saved to receive a $50,000 per year perpetuity after retirement.How much would you need to have saved in your retirement fund to achieve this goal? (Assume that the perpetuity payments start on the day of your retirement.The annual interest rate is 8 percent.)
A)$1,000,000
B)$675,000
C)$625,000
D)$500,000
Answer: B
Q2) You just inherited a trust that will pay you $100,000 per year in perpetuity.However, the first payment will not occur for exactly five more years.Assuming a 10 percent annual interest rate, what is the value of this trust?
A)$620,921
B)$683,013
C)$1,000,000
D)$1,100,000
Answer: B
To view all questions and flashcards with answers, click on the resource link above.
4
Chapter 3: Valuing Bonds
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/59058
Sample Questions
Q1) Consider a bond with a face value of $1,000, an annual coupon rate of 6 percent, a yield to maturity of 8 percent, and 10 years to maturity.This bond's duration is
A)8.7 years.
B)7.6 years.
C)10.0 years.
D)6.5 years.
Answer: B
Q2) Discuss the concept of duration.
Answer: Duration is the weighted average time of the present values of a bond's cash flows. The weights are determined by the present value factors. Duration is expressed in units of time. Duration is an important concept for two reasons. First, the volatility of a bond is directly related to its duration. Second, one way to hedge interest rate risk is through a strategy of duration matching (discussed later in the textbook).
Q3) The spread of junk bond yields, over that of U.S.Treasuries, is generally lower than the spread of investment-grade bonds.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: The Value of Common Stocks
Available Study Resources on Quizplus for this Chatper
66 Verified Questions
66 Flashcards
Source URL: https://quizplus.com/quiz/59057
Sample Questions
Q1) Most of the trading on the NYSE is in ordinary common stocks.
A)True
B)False
Q2) MJ Co.pays out 60 percent of its earnings as dividends.Its return on equity is 15 percent.What is the stable dividend growth rate for the firm?
A)9 percent
B)5 percent
C)6 percent
D)15 percent
Q3) Analysts often value companies by forecasting a series of cash flows and then estimating a horizon value.Suppose a firm forecasts a project's net cash flows ($millions) in years 1 through 4 as $120, $130, $135, and $137, respectively.If the project ends at the end of the fourth year, what is the horizon value of the project? Assume that the company had a historical growth rate of 3 percent and has a discount rate of 10 percent.
A)$0.00
B)$1.37
C)$1.96
D)$4.87
To view all questions and flashcards with answers, click on the resource link above.
6
Chapter 5: Net Present Value and Other Investment Criteria
Available Study Resources on Quizplus for this Chatper
74 Verified Questions
74 Flashcards
Source URL: https://quizplus.com/quiz/59056
Sample Questions
Q1) Present values have the value additivity property.
A)True
B)False
Q2) In the case of a loan project (borrowing), one should accept the project if the IRR is more than the cost of capital.
A)True
B)False
Q3) Muscle Company is investing in a giant crane.It is expected to cost $6.5 million in initial investment, and it is expected to generate an end-of-year cash flow of $3.0 million each year for three years.Calculate the IRR.
A)14.6 percent
B)16.4 percent
C)18.2 percent
D)22.1 percent
Q4) The IRR rule states that firms should accept any project offering an internal rate of return in excess of the cost of capital.
A)True
B)False
Q5) Briefly explain the term hard rationing.
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Making Investment Decisions With the Net
Present Value Rule
Available Study Resources on Quizplus for this Chatper
76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/59055
Sample Questions
Q1) You are considering the purchase of one of two machines required in your production process.Machine A has a life of two years.Machine A costs $50 initially and then $70 per year in maintenance.Machine B has an initial cost of $90.It requires $40 in maintenance for each year of its three-year life.Either machine must be replaced at the end of its life.Which is the better machine for the firm? The discount rate is 15 percent and the tax rate is zero.
A)Machine A, because EAC for machine A is $100.76
B)Machine B, because EAC for machine B is $79.42
C)Machine A, because PV of costs for machine A is $163.80
D)Machine B, because PV of costs for machine B is $181.33
Q2) If depreciation is $600,000 and the marginal tax rate is 35 percent, then the tax shield due to depreciation is
A)$210,000.
B)$600,000.
C)$390,000.
D)The answer cannot be determined from the information given.
Q3) Briefly explain the acronym MACRS.
Q4) Briefly explain how inflation is treated consistently while estimating a project's NPV.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Introduction to Risk and Return
Available Study Resources on Quizplus for this Chatper
89 Verified Questions
89 Flashcards
Source URL: https://quizplus.com/quiz/59054
Sample Questions
Q1) A risk premium generated by comparing stocks to 10-year U.S.Treasury bonds will be smaller than a risk premium generated by comparing stocks to U.S.Treasury bills.
A)True
B)False
Q2) In the formula for calculating the variance of an N-stock portfolio, how many covariance and variance terms are there?
Q3) Stock A has an expected return of 10 percent per year and stock B has an expected return of 20 percent.If 40 percent of a portfolio's funds are invested in stock A and the rest in stock B, what is the expected return on the portfolio of stock A and stock B?
A)10 percent
B)20 percent
C)16 percent
D)14 percent
Q4) The average beta of all stocks in the market is zero.
A)True
B)False
Q5) What is the beta of a portfolio with a large number of randomly selected stocks?
Q6) Discuss the importance of beta as a measure of risk.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Portfolio Theory and the Capital Asset Pricing Model
Available Study Resources on Quizplus for this Chatper
89 Verified Questions
89 Flashcards
Source URL: https://quizplus.com/quiz/59053
Sample Questions
Q1) Portfolios that offer the highest expected return for a given variance (or standard deviation) are known as efficient portfolios.
A)True
B)False
Q2) The distribution of annual returns over long periods for stocks is more closely related to the normal distribution than the lognormal distribution.
A)True
B)False
Q3) Explain why purchasing a high-growth mutual fund can be a worse investment than taking out a second mortgage on a home and investing in the market index.
Q4) If the expected return of stock A is 12 percent and that of stock B is 14 percent, and both have the same variance, then nondiversified investors would prefer stock B to stock A)True B)False
Q5) Explain the term efficient portfolio.
Q6) Briefly discuss how you would use the Fama-French three-factor model to estimate the cost of equity for a firm.
10
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Risk and the Cost of Capital
Available Study Resources on Quizplus for this Chatper
74 Verified Questions
74 Flashcards
Source URL: https://quizplus.com/quiz/59052
Sample Questions
Q1) The hurdle rate for capital budgeting decisions is
A)the cost of capital.
B)the cost of debt.
C)the cost of equity.
D)the risk-free rate.
Q2) Firms with cyclical revenues tend to have lower asset betas.
A)True
B)False
Q3) A project has an expected risky cash flow of $500 in year 2.The risk-free rate is 4 percent, the expected market rate of return is 14 percent, and the project's beta is 1.20.Calculate the certainty equivalent cash flow for year 2, CEQ<sub>2</sub>.
A)$622.04
B)$164.29
C)$401.90
D)$416.13
Q4) In general, one should use higher discount rates for longer-term projects.
A)True
B)False
Q5) Why do firms with large cash-flow betas also have high asset betas?
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Project Analysis
Available Study Resources on Quizplus for this Chatper
75 Verified Questions
75 Flashcards
Source URL: https://quizplus.com/quiz/59051
Sample Questions
Q1) You are planning to produce a new action figure called "Hillary." However, you are very uncertain about the demand for the product.If it is a hit, you will have net cash flows of $50 million per year for three years (starting next year [i.e., at t = 1]).If it fails, you will only have net cash flows of $10 million per year for two years (also starting next year).There is an equal chance that it will be a hit or failure (probability = 50 percent).You will not know whether it is a hit or a failure until after the first year's cash flows are in .You have to spend $80 million immediately for equipment and the rights to produce the figure.If the discount rate is 10 percent, calculate Hillary's NPV.
A)-9.15
B)+13.99
C)+5.15
D)-14.40
Q2) Tangible assets usually have higher abandonment values than intangible ones.
A)True
B)False
Q3) Monte Carlo simulation is a tool intended to consider all possible combinations of variables.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: Investment Strategy and Economic Rents
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/59050
Sample Questions
Q1) The annual demand (in millions) for baseballs is given by the equation Demand = 10 × (4 - price).If the price of baseballs is $1.50, what is the annual demand for baseballs?
A)10 million
B)15 million
C)20 million
D)25 million
Q2) The manufacture of folic acid is a competitive business.A new plant costs $100,000 and lasts for three years.The cash flow from the plant is as follows: year 1: +$43,300; year 2: +$43,300; and year 3: +$58,300.(Assume no taxes.) If the salvage value of the plant at the end of year 1 is $80,000, should you scrap the plant at the end of year 1?
A)Yes
B)No
C)More information is needed.
D)I don't know.
Q3) While evaluating a project, an analyst should consider its effect upon the sales of the firm's existing products.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Agency Problems Compensation and Performance Measurement
Available Study Resources on Quizplus for this Chatper
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/59049
Sample Questions
Q1) The ultimate responsibility for monitoring a firm rests with the A)shareholders only.
B)shareholders and board of directors.
C)shareholders, board of directors, and independent accountants.
D)shareholders, board of directors, independent accountants, and lenders.
Q2) Briefly explain the term qualified opinion issued by the auditors.
Q3) A firm has an average investment of $1,000 during the year.During the same time, the firm generates after-tax earnings of $150.If the cost of capital is 10 percent, what is the net return on investment?
A)10 percent
B)5 percent
C)12 percent
D)15 percent
Q4) Shareholders typically rely on independent auditors to monitor the performance of their managers.
A)True
B)False
Q5) EVA = income earned - (cost of capital) × (investment).
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Efficient Markets and Behavioral Finance
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/59048
Sample Questions
Q1) In order to test the strong form of market efficiency, researchers have examined the A)recommendations of professional security analysts.
B)recommendations of professional security analysts and performance of mutual funds. C)recommendations of professional security analysts, performance of mutual funds, and performance of pension funds.
D)performance of mutual funds and performance of pension funds.
Q2) Behavioral finance and technical analysis are basically the same theory. A)True
B)False
Q3) Which of the following statements is (are) true if the strong-form efficient market hypothesis holds?
A)Analysts can easily forecast stock price changes.
B)Financial markets are irrational.
C)Analysts can easily forecast stock price changes and stock returns follow a particular pattern.
D)Stock prices reflect all available information.
Q4) State the semistrong form of market efficiency and its implications.
To view all questions and flashcards with answers, click on the resource link above.
15
Chapter 14: An Overview of Corporate Financing
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/59047
Sample Questions
Q1) If you own 1,000 shares of common stock of a firm and there are five directors being elected, what is the maximum number of votes you can cast for a particular director under majority voting?
A)5,000
B)1,000
C)200
D)5
Q2) Internal funds constitute the majority of corporate financing in the following countries:
A)the United States only.
B)the United States and the UK.
C)the United States,the UK, and Germany.
D)the United States,the UK, Germany, and Japan.
Q3) Dual-class shares are often created to give one group of owners more control rights over the company than another group.
A)True
B)False
Q4) Indicate the major sources of finance available to corporations.
Q5) Why do firms rely heavily on internal funds?
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: How Corporations Issue Securities
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/59046
Sample Questions
Q1) Underpricing is not a serious problem for most initial public offerings (IPOs).
A)True
B)False
Q2) The following are advantages of shelf registration except
A)securities can be issued in dribs and drabs without incurring excessive transaction costs.
B)securities can be issued on short notice.
C)security issues can be timed to take advantage of market conditions.
D)securities can be issued in dribs and drabs without incurring excessive transaction costs, can be issued on short notice and can be timed to take advantage of market conditions.
Q3) Which of the following statements is generally true of venture capital (VC) firms?
A)VCs are always silent partners in the start-up company that they finance.
B)VCs always have a majority of directors in the start-up company.
C)VCs generally provide management advice and contacts in addition to capital.
D)VCs are combinations of publicly traded companies.
Q4) Generally, IPOs are overpriced and are subject to the winner's curse.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Payout Policy
Available Study Resources on Quizplus for this Chatper
70 Verified Questions
70 Flashcards
Source URL: https://quizplus.com/quiz/59045
Sample Questions
Q1) Generally, firms engage in stock repurchases during A)boom times as firms accumulate excess cash.
B)recessions due to low stock prices.
C)times when competitor's stock prices are dropping.
D)recessions due to low stock prices and times when competitors? stock prices are dropping.
Q2) A high-dividend policy is more difficult for a weak firm than for a strong firm because a weak firm likely will not have the cash to support it.
A)True
B)False
Q3) Miller and Modigliani's indifference proposition regarding dividend policy
A)assumes that tax rates increase at the same rate as inflation.
B)assumes that investors can sell their stock at a fair price.
C)states that investors are indifferent between stock dividends and cash dividends.
D)states that investors are indifferent between stock repurchases and cash dividends.
Q4) Briefly describe the middle-of-the-roaders' position on dividend policy.
Q5) Briefly explain how shareholders' returns are taxed twice in the United States.
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 17: Does Debt Policy Matter
Available Study Resources on Quizplus for this Chatper
81 Verified Questions
81 Flashcards
Source URL: https://quizplus.com/quiz/59044
Sample Questions
Q1) The equity beta of a levered firm is 1.2.The beta of debt is 0.2.The firm's market value debt to equity ratio is 0.5.What is the asset beta if the tax rate is zero?
A)1.20
B)0.73
C)0.20
D)0.87
Q2) A firm's asset beta equals the weighted average of the betas on its debt and equity, given the assumption of no taxes.
A)True
B)False
Q3) The principle of value additivity holds for the aggregation of assets but does not apply to the division of assets.
A)True
B)False
Q4) State the law of conservation of value.
Q5) State the generalized version of Modigliani-Miller Proposition I.
Q6) Describe the break-even point, as displayed on an EPS-operating income graph.
Q7) Briefly describe the traditionalists' position on capital structure.
Q8) State and explain M&M's Proposition II.
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: How Much Should a Corporation Borrow
Available Study Resources on Quizplus for this Chatper
74 Verified Questions
74 Flashcards
Source URL: https://quizplus.com/quiz/59043
Sample Questions
Q1) MM's Proposition I corrected for the inclusion of corporate income taxes is expressed as
A)V<sub>L</sub> = V<sub>U.</sub>
B)V<sub>L</sub> = V<sub>U</sub> + D(1 - T<sub>C</sub>).
C)V<sub>L</sub> = V<sub>U</sub> + (T<sub>C</sub>)(D).
D)V<sub>U</sub> = V<sub>L</sub> + (T<sub>C</sub>)(D).
Q2) Assume the marginal corporate tax rate is 30 percent.The firm has no debt in its capital structure.It is valued at $100 million.What would be the value of the firm if it issued $50 million in perpetual debt and repurchased the same amount of equity?
A)$65 million
B)$115 million
C)$100 million
D)$150 million
Q3) A firm nearing bankruptcy has an incentive to issue more high-risk debt.
A)True
B)False
Q4) Discuss some examples of conflicts of interest that may arise between bondholders and stockholders when a firm is in financial distress.
Q5) Discuss the basic idea behind Miller's arguments about debt and taxes.
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Financing and Valuation
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/59042
Sample Questions
Q1) A firm has a total market value of $10 million while its debt has a market value of $4 million.What is the after-tax weighted average cost of capital if the before-tax cost of debt is 10 percent, the cost of equity is 15 percent, and the tax rate is 35 percent?
A)13 percent
B)11.6 percent
C)8.8 percent
D)10.4 percent
Q2) Discounting free cash flows at the WACC assumes that debt is rebalanced every period to maintain a constant ratio of debt to market value of the firm.
A)True
B)False
Q3) The market value of short-term debt is very close to the book value of debt for healthy firms.
A)True
B)False
Q4) Briefly explain how WACC can be used for valuing a business.
Q5) What are some of the additional factors that have to be considered when analyzing an international project? Briefly explain.
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 20: Understanding Options
Available Study Resources on Quizplus for this Chatper
75 Verified Questions
75 Flashcards
Source URL: https://quizplus.com/quiz/59041
Sample Questions
Q1) The value of any option (both call and put options) is positively related to the A)volatility of the underlying stock price and time to expiration.
B)time to expiration and risk-free rate.
C)volatility of the underlying stock price and risk-free rate.
D)risk-free rate.
Q2) An American call option gives its owner the right to buy stock at a fixed strike price during a specified period of time.
A)True
B)False
Q3) Call options can have a positive value at expiration even when the underlying stock is worthless.
A)True
B)False
Q4) In June 2017, an investor buys a put option on Genentech stock with an exercise price of $75 and expiring in January 2019.If the stock price in July 2017 is $80, then this option is
A)in-the-money.
B)out-of-the-money.
C)a LEAPS option.
D)out-of-the-money and a LEAPS option.
Page 22
To view all questions and flashcards with answers, click on the resource link above.
Chapter 21: Valuing Options
Available Study Resources on Quizplus for this Chatper
75 Verified Questions
75 Flashcards
Source URL: https://quizplus.com/quiz/59040
Sample Questions
Q1) Suppose Carol's stock price is currently $20.In the next six months it will either fall to $10 or rise to $40.What is the current value of a six-month call option with an exercise price of $15? The six-month risk-free interest rate is 5 percent per six-month period.(Use the replicating portfolio method.)
A)$8.73
B)$10.28
C)$16.88
D)$13.33
Q2) A stock is currently selling for $50.The stock price could go up by 10 percent or fall by 5 percent each month.The monthly risk-free interest rate is 1 percent.Calculate the price of an American put option on the stock with an exercise price of $55 and a maturity of two months.(Use the two-stage binomial method.)
A)$5.10
B)$3.96
C)$4.78
D)$1.19
Q3) Briefly explain why a call option is always riskier than a simple investment in the underlying stock.
To view all questions and flashcards with answers, click on the resource link above.
23
Chapter 22: Real Options
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/59039
Sample Questions
Q1) How does an abandonment option increase the value of a project?
Q2) Adjusted present value of project (APV) = NPV (without abandonment option) + value of abandonment option.
A)True B)False
Q3) The option to make a follow-on investment is a put option.
A)True
B)False
Q4) Which of the following conditions might lead a financial manager to delay a positive-NPV project? (Assume that project NPV-if undertaken immediately-is held constant.)
A)The risk-free interest rate falls.
B)Uncertainty about future project value increases.
C)The first cash inflow generated by the project is higher than previously thought.
D)Investment required for the project increases.
Q5) The binomial method can be used for most abandonment options.
A)True B)False
Q6) Briefly explain how temporary abandonment can be thought of as a complex option.
Page 24
To view all questions and flashcards with answers, click on the resource link above.
Chapter 23: Credit Risk and the Value of Corporate Debt
Available Study Resources on Quizplus for this Chatper
53 Verified Questions
53 Flashcards
Source URL: https://quizplus.com/quiz/59038
Sample Questions
Q1) The interest rate on a one-year risk-free bond is 5 percent.BAC Company issued a 5 percent coupon bond with a face value of $1,000, maturing in one year.If the bond is considered risk-free, what is the price of the bond?
A)$1,050
B)$1,000
C)$985
D)$950
Q2) Commercial banks and several other financial institutions are not permitted to invest in bonds unless they are investment grade.What is the definition of an investment-grade bond?
A)One with a triple-A rating.
B)One with a rating of Baa or better.
C)One with a rating of B or better.
D)One with a rating of C or better.
Q3) Generally, promised yields are at least as great as expected yields.
A)True
B)False
Q4) Bonds rated below BBB (Baa) are termed junk bonds.
A)True
B)False
Page 25
To view all questions and flashcards with answers, click on the resource link above.
Chapter 24: The Many Different Kinds of Debt
Available Study Resources on Quizplus for this Chatper
100 Verified Questions
100 Flashcards
Source URL: https://quizplus.com/quiz/59037
Sample Questions
Q1) Which of the following is the most sensible reason for issuing convertibles?
A)Convertibles are convenient and flexible-they're usually unsecured and subordinated, and cash requirements for debt service are relatively low.
B)Interest rates on convertible issues are significantly less than on straight debt.
C)Firms that need equity capital use convertibles as a roundabout way of issuing stock.
D)Firms prefer to issue convertibles when their shares are undervalued.
Q2) A type of bond that has the advantage of secrecy of ownership, but has the disadvantage of ownership not recorded by the firm's registrar, is a
A)registered bond.
B)premium bond.
C)par bond.
D)bearer bond.
Q3) Project finance requires a capital investment that can be clearly separated from the parent and offers tangible security to lenders.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 25: Leasing
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/59036
Sample Questions
Q1) The cost of a seven-year lease is $150,000 per year and matches the exact cost of a loan to finance the purchase of equipment.All else equal, and given a usable life of seven years with no salvage value, what is the advantage of a lease given a discount rate of 7 percent and no taxes?
A)$0
B)$800,000
C)$1,500,000
D)$2,000,000
Q2) Briefly describe a sale and lease-back arrangement.
Q3) Discuss the differences between an operating lease and a financial lease.
Q4) What is the discount rate used for lease or buy analysis?
Q5) Which of the following is not a financial lease?
A)A direct lease
B)An operating lease
C)A sale-and-leaseback
D)All of the options are financial leases.
Q6) Discuss the critical conditions under which leasing may be advantageous.
Q7) What advantage does a sale-lease-back to a SPE have?
Q8) Briefly explain the term cross-border leases.
Q9) What happens to the NPV of leasing if the lease payments increase? Page 27
To view all questions and flashcards with answers, click on the resource link above. Page 28
Chapter 26: Managing Risk
Available Study Resources on Quizplus for this Chatper
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/59035
Sample Questions
Q1) Briefly describe a swap contract.
Q2) In addition to bearing risk, insurance companies also bear
A)administrative costs.
B)moral hazard costs.
C)adverse selection costs.
D)administrative costs, moral hazard costs, and adverse selection costs.
Q3) Suppose that the current level of the Standard & Poor's Index is 500.The prospective dividend yield on S&P 500 stocks is 2 percent, and the risk-free interest rate is 6 percent.What is the value of a one-year futures contract on the index? (Assume all dividend payments occur at the end of the year.)
A)530
B)520
C)540
D)560
Q4) Insurance companies, by issuing Cat bonds (catastrophe bonds), share their risks with
A)the government.
B)other insurance companies.
C)bond investors.
D)the government and other insurance companies.
Page 29
To view all questions and flashcards with answers, click on the resource link above.
Chapter 27: Managing Risk
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/59061
Sample Questions
Q1) The beta of a firm's equity in Switzerland is 1.25. The risk-free rate is 4 percent and market risk premium is 8.4 percent. Calculate the required rate of return for the equity of this firm.
A)10.5 percent
B)8.4 percent
C)14.5 percent
D)9.5 percent
Q2) When a currency gets stronger, the forward rate of that currency must have increased against all currencies.
A)True
B)False
Q3) The spot yen/$US exchange rate is yen119.795/$US, and the one-year forward rate is yen114.571/$US. If the annual interest rate on dollar CDs is 6 percent, what annual interest rate would you expect on yen CDs?
A)1.38 percent
B)5.32 percent
C)8.06 percent
D)17.14 percent
Q4) Briefly describe the different types of currency markets.
To view all questions and flashcards with answers, click on the resource link above. Page 30
Chapter 28: Financial Analysis
Available Study Resources on Quizplus for this Chatper
57 Verified Questions
57 Flashcards
Source URL: https://quizplus.com/quiz/59034
Sample Questions
Q1) Which of the following is an example of a liquidity ratio?
A)Times interest earned (TIE)
B)P/E ratio
C)Return on equity
D)Quick ratio
Q2) Net working capital (NWC) is calculated as
A)total assets - total liabilities.
B)current assets + current liabilities.
C)current assets - current liabilities.
D)current liabilities - current assets.
Q3) When a firm improves (lowers) its average collection period, it generally
A)requires additional cash investment in inventory.
B)releases cash locked up in accounts receivable.
C)does not alter its cash position.
D)cannot reduce its receivables.
Q4) Financial ratios can help you to ask the right questions but they rarely answer these questions on their own.
A)True
B)False
Q5) Discuss the DuPont system.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 29: Financial Planning
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/59033
Sample Questions
Q1) Discuss the process of preparing a financial plan.
Q2) Briefly describe the cash cycle.
Q3) Strategy C, as portrayed in Chapter 29, implies a short-term cash surplus.
A)True
B)False
Q4) Depreciation is not included as a source of cash because it is an expense.
A)True
B)False
Q5) Strategy A, as portrayed in Chapter 29, implies a permanent need for short-term borrowing.
A)True
B)False
Q6) A cash-flow statement categorizes cash flows into which three general categories?
A)Working capital, short-term cash flows, and long-term cash flows
B)Operating activities, investing activities, and financing activities
C)Cash accounts, bank accounts, and transfer accounts
D)Inventory, accounts receivable, and accounts payable
Q7) How does one calculate external capital required?
Q8) How do firms finance investments in current assets?
To view all questions and flashcards with answers, click on the resource link above. Page 32
Chapter 30: Working Capital Management
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/59032
Sample Questions
Q1) In the United States, export credit insurance is provided by the Export-Import Bank in association with a group of insurance companies known as the Foreign Credit Insurance Association (FCIA).
A)True
B)False
Q2) "Eurodollars" or "international dollars" are
A)dollars deposited in banks outside the United States.
B)dollars deposited in the United States by foreigners.
C)dollars held by foreign governments.
D)euros or international currency deposited in U.S.branches of foreign banks.
Q3) Discuss two important ways of speeding up collection.
Q4) A customer has ordered goods generating a present value of $800.The present value of production costs is $600.Under what conditions should you extend credit if there is no possibility of repeat orders?
A)If the probability of payment exceeds 0.67
B)If the probability of payment exceeds 0.80
C)If the probability of payment exceeds 0.75
D)If the probability of payment exceeds 0.90
Q5) Briefly describe the most widely used commercial credit instruments.
Q6) Discuss the general principles that should be used for credit decisions.
Page 33
To view all questions and flashcards with answers, click on the resource link above.
Chapter 31: Mergers
Available Study Resources on Quizplus for this Chatper
78 Verified Questions
78 Flashcards
Source URL: https://quizplus.com/quiz/59031
Sample Questions
Q1) A poison pill defense may be implemented by
A)giving stock away.
B)selling firm assets.
C)issuing rights at a cheap price.
D)adding seats to the board of directors.
Q2) The following are sensible reasons for mergers:
A)economies of scale.
B)economies of scale, economics of vertical integration, and complementary resources.
C)economies of scale, complementary resources, preventing the target firm from wasting surplus funds, and eliminating target firm inefficiencies.
D)economies of scale, economics of vertical integration, complementary resources, preventing the target firm from wasting surplus funds, eliminating the target firm inefficiencies, and industry consolidation.
Q3) It appears that target companies capture most of the gains in hostile takeovers.
A)True
B)False
Q4) Briefly explain the term economies of scale.
Q5) Briefly explain what is meant by the economic gain from a merger?
To view all questions and flashcards with answers, click on the resource link above. Page 34
Chapter 32: Corporate Restructuring
Available Study Resources on Quizplus for this Chatper
70 Verified Questions
70 Flashcards
Source URL: https://quizplus.com/quiz/59030
Sample Questions
Q1) Describe the main differences between private-equity partnerships and public conglomerates.
Q2) Explain how private-equity partnerships are organized.
Q3) Which of the following are methods by which a company's structure can be modified?
A)LBOs and privatizations
B)Privatizations
C)LBOs and spin-offs, and carve-outs
D)LBOs, privatizations, spin-offs and carve-outs, and bankruptcies
Q4) Private-equity partnerships are designed to run portfolio companies indefinitely.
A)True
B)False
Q5) Briefly describe the role of the Securities and Exchange Commission (SEC) in bankruptcy reorganizations.
Q6) Most privatizations resemble
A)spin-offs.
B)carve-outs.
C)LBOs.
D)both spin-offs and carve-outs.
35
To view all questions and flashcards with answers, click on the resource link above.
Chapter 33: Governance and Corporate Control Around the World
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/59029
Sample Questions
Q1) The ultimate owners of a publicly traded corporation are A)individuals.
B)insurance companies.
C)banks.
D)other corporations.
Q2) Consider a four-tier pyramid and a single operating company.Assume that 51 percent of the votes confer control at each tier.What is the minimum percentage ownership (approximately) at the highest level in the pyramid that will enable control of the operating company?
A)13 percent
B)26 percent
C)50 percent
D)51 percent
Q3) The idea that a corporation's financial goal is to "maximize stockholder value" is more prevalent in
A)the United States and the UK.
B)the UK and France.
C)France and Japan.
D)the UK and Japan.
Q4) Under which circumstances would a conglomerate be effective?
To view all questions and flashcards with answers, click on the resource link above. Page 36