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Question 1 of 95
1. Question
The terms corporate finance and corporate financier are also associated with
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Question 2 of 95
2. Question
The term “corporate finance” and “corporate financier” may be associated with transactions in which capital is raised in order to
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Question 3 of 95
3. Question
What is the amount of time it takes to get back the amount of money originally invested?
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Question 4 of 95
4. Question
Which one of the following terms is defined as the management of a firm’s long-term investments?
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Question 5 of 95
5. Question
A business owned by a solitary individual who has unlimited liability for its debt is called a
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Question 6 of 95
6. Question
A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a
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Question 7 of 95
7. Question
A business created as a distinct legal entity and treated as a legal “person” is called a
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Question 8 of 95
8. Question
Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
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Question 9 of 95
9. Question
Decisions made by financial managers should primarily focus on increasing which one of the following?
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Question 10 of 95
10. Question
A project may be regarded as high risk project when
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Question 11 of 95
11. Question
A single, overall cost of capital is often used to evaluate projects because
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Question 12 of 95
12. Question
A quick approximation of the typical firm’s cost of equity may be calculated by
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Question 13 of 95
13. Question
Who among the following are those who lend funds and expect a fixed return irrespective of success or failure of project?
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Question 14 of 95
14. Question
The key sources of value (earning an excess return) for a company can be attributed primarily to
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Question 15 of 95
15. Question
The overall (weighted average) cost of capital is composed of a weighted average of
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Question 16 of 95
16. Question
Which of the following would be consistent with a more aggressive approach to financing working capital?
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Question 17 of 95
17. Question
Which of the following illustrates the use of a hedging (or matching) approach to financing?
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Question 18 of 95
18. Question
What varies inversely with profitability?
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Question 19 of 95
19. Question
Financing a long-lived asset with short-term financing would be
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Question 20 of 95
20. Question
Having defined working capital as current assets, it can be further classified according to
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Question 21 of 95
21. Question
How can a firm provide a margin of safety if it cannot borrow on short notice to meet its needs?
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Question 22 of 95
22. Question
Corporate governance specifies the distribution of rights and responsibilities among different participants in the organization such as
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Question 23 of 95
23. Question
The objective of any corporate governance system is to simultaneously improve corporate performance and accountability as a
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Question 24 of 95
24. Question
The framework for establishing good corporate governance and accountability was originally set up by the
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Question 25 of 95
25. Question
A company may become insolvent if it
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Question 26 of 95
26. Question
A board member is independent when
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Question 27 of 95
27. Question
The traditional approach towards the valuation of a company assumes
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Question 28 of 95
28. Question
When sequential long-term financing is involved, the choice of debt or equity influences the future financial
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Question 29 of 95
29. Question
Which of the following statements regarding the net operating income approach is incorrect?
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Question 30 of 95
30. Question
____________ costs are associated with monitoring management to ensure that it behaves properly.
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Question 31 of 95
31. Question
Which of the following is not something that you would consider when evaluating the optimal capital structure?
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Question 32 of 95
32. Question
Which one of the following statistic can be used as a quantitative measure of relative financial risk?
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Question 33 of 95
33. Question
The further a firm operates above its operating break-even point, the closer its degree of operating leverage (DOL) measure approaches
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Question 34 of 95
34. Question
Higher operating leverage is related to the use of additional
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Question 35 of 95
35. Question
The cash required during a specific period to meet interest expenses and principal payments is referred to as the
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Question 36 of 95
36. Question
Which of the following ratings apply to an investment grade quality security?
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Question 37 of 95
37. Question
A(n) __________ is a payment of additional shares to shareholders in lieu of cash.
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Question 38 of 95
38. Question
A(n) __________ occurs when there is an increase in the number of shares outstanding by reducing the par value of stock.
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Question 39 of 95
39. Question
A(n) __________ is the expected cash dividend that is normally paid to shareholders.
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Question 40 of 95
40. Question
What is a nonrecurring dividend paid to shareholders in addition to the regular dividend?
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Question 41 of 95
41. Question
A dividend reinvestment plan (DRIP) is
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Question 42 of 95
42. Question
What is an indication of the costs and benefits of investing in a particular project by a business firm and is calculated as the ratio of a project’s cash flows to the initial investment?
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Question 43 of 95
43. Question
Which one of the following functions should be the responsibility of the controller rather than the treasurer?
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Question 44 of 95
44. Question
The decision to issue additional shares of stock is an example of which one of the following?
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Question 45 of 95
45. Question
Which one of the following statements is correct?
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Question 46 of 95
46. Question
Which of the following are cash flows from a corporation into the financial markets?
I. Repayment of long-term debt
II. Payment of government taxes
III. Payment of loan interest
IV. Payment of quarterly dividendCorrectIncorrect -
Question 47 of 95
47. Question
The internal Rate of Return (IRR) criterion for project acceptance, under theoretically infinite funds is: accept all projects which have
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Question 48 of 95
48. Question
With limited finance and a number of project proposals at hand, select that package of projects which has
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Question 49 of 95
49. Question
The difference between the present value of cash inflows and the present value of cash outflows associated with a project is known as
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Question 50 of 95
50. Question
If the profitability index of a project is 0.75, it means
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Question 51 of 95
51. Question
To compute the required rate of return for equity in a company using the CAPM, it is necessary to know all of the following Except
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Question 52 of 95
52. Question
In calculating the costs of the individual components of a firm’s financing, the corporate tax rate is important to which of the following component cost formulas?
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Question 53 of 95
53. Question
Some projects that a firm accepts will undoubtedly result in zero or negative returns. In light of this fact, it is best if the firm
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Question 54 of 95
54. Question
Which of the following is not a recognized approach for determining the cost of equity?
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Question 55 of 95
55. Question
What is the difference between economic profit and accounting profit?
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Question 56 of 95
56. Question
In deciding the optimal level of current assets for the firm, management is confronted with
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Question 57 of 95
57. Question
The amount of current assets required to meet a firm’s long-term minimum needs is referred to as
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Question 58 of 95
58. Question
Which of the following statements is correct for a conservative financing policy for a firm relative to a former aggressive policy?
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Question 59 of 95
59. Question
Risk, as it relates to working capital, means that there is jeopardy to the firm for not maintaining sufficient current assets to
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Question 60 of 95
60. Question
Which of the following actions will not help directors to protect themselves from non-compliance with their obligations and responsibilities?
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Question 61 of 95
61. Question
The Sarbanes–Oxley Act requires that executive officers attest to all the following except
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Question 62 of 95
62. Question
The 2012 EU Commission Communication ‘Action Plan: European company law and corporate governance’ strives to
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Question 63 of 95
63. Question
In 2006 the International Forum of Independent Audit Regulators (IFIAR) was established to
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Question 64 of 95
64. Question
The corporate governance structure of a company reflects the individual companies
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Question 65 of 95
65. Question
According to the concept of financial signaling, management behavior results in new debt issues being regarded as
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Question 66 of 95
66. Question
The cost of capital for a firm when we allow for taxes, bankruptcy, and agency costs
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Question 67 of 95
67. Question
The discount rate used to determine the present value of a stream of expected future cash flows is referred to as the
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Question 68 of 95
68. Question
Allowing for bankruptcy costs and an increasing probability of bankruptcy with increasing financial leverage, we should expect __________ than would be the case without bankruptcy costs.
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Question 69 of 95
69. Question
The existence of __________ on the balance sheet generates tax advantages that directly influence the capital structure of the firm.
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Question 70 of 95
70. Question
If I believe in the basic principle of a risk-reward relationship, my conclusion regarding security ratings and yields between an Aaa bond and a Baa bond would be that
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Question 71 of 95
71. Question
In the context of operating leverage break-even analysis, if selling price per unit rises and all other variables remain constant, the operating break-even point in units will
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Question 72 of 95
72. Question
A firm has a DOL of 3.5 at Q units. What does this tell us about the firm?
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Question 73 of 95
73. Question
A firm has a DFL of 3.5 at X dollars. What does this tell us about the firm?
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Question 74 of 95
74. Question
Which of the following statements is not correct regarding the calculation of the degree of total leverage (DTL)?
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Question 75 of 95
75. Question
If an individual stockholder reinvests dividends under a company’s dividend reinvestment plan, the reinvested dividends are
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Question 76 of 95
76. Question
Investors may be willing to pay a premium for stable dividends because of the informational content of __________, the desire of investors for __________, and certain __________.
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Question 77 of 95
77. Question
What method of stock repurchase occurs when the buyer purchases securities through a brokerage house?
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Question 78 of 95
78. Question
The Board of Directors announces the amount and date of the next dividend on the __________ date; while the __________ date is the first date on which the purchaser of a stock is no longer entitled to the recently declared dividend.
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Question 79 of 95
79. Question
According to the authors of your text, the repurchase of stock is considered __________ decision rather than __________ decision.
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Question 80 of 95
80. Question
Which of the following should a financial manager consider when analyzing a capital budgeting project?
I. Project start up costs
II. Timing of all projected cash flows
III. Dependability of future cash flows
IV. Dollar amount of each projected cash flowCorrectIncorrect -
Question 81 of 95
81. Question
A company is considering the following three investment proposals
A) Investment required: $80,000, present value of future cash inflows: $96,000
B) Investment required: $75,000, present value of future cash inflows: $120,000
C) Investment required: $100,000, present value of future cash inflows: $150,000
How would you rank the above investment proposals using profitability index method?CorrectIncorrect -
Question 82 of 95
82. Question
The net present value of four projects is given below:
Project A: $25,000
Project B: $10,000
Project C: $22,000
Project D: $15,000
The four projects given above require the same amount of investment. How would you rank them using net present value (NPV) method?CorrectIncorrect -
Question 83 of 95
83. Question
If interest expense of a company is $300,000 and tax rate is 40%, the after-tax cost of interest is
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Question 84 of 95
84. Question
The Tchotchke Knick-Knack Company relies on preferred stock, bonds, and common stock for its long-term financing. Rank in ascending order (i.e., 1 = lowest, while 3 = highest) the likely after-tax component costs of the Tchotchke Company’s long-term financing.
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Question 85 of 95
85. Question
David Ding is evaluating two conventional, independent capital budgeting projects (X and Y) by making use of the risk-adjusted discount rate (RADR) method of analysis. Projects X and Y have internal rates of return of 16 percent and 12 percent, respectively. The RADR appropriate to Project X is 18 percent, while Project Y’s RADR is only 10 percent. The company’s overall, weighted-average cost of capital is 14 percent. David should
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Question 86 of 95
86. Question
Your firm has a philosophy that is analogous to the hedging (maturity matching) approach. Which of the following is the most appropriate non-spontaneous form for financing the excess seasonal current asset needs?
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Question 87 of 95
87. Question
Under a conservative financing policy a firm would use long-term financing to finance some of the temporary current assets. What should the firm do when a “dip” in temporary current assets causes total assets to fall below the total long-term financing?
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Question 88 of 95
88. Question
Under which one of the following theory both internal and external corporate governance mechanisms are intended to induce managerial actions that maximize profit and shareholder value?
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Question 89 of 95
89. Question
What is the value of the tax shield if the value of the firm is $5 million, its value if unlevered would be $4.78 million, and the present value of bankruptcy and agency costs is $360,000?
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Question 90 of 95
90. Question
What is the market value of common equity under the NOI approach? The firm has an expected net operating income of $5,000 with $4,000 of debt (market value). Assume that the overall capitalization rate is 20%.
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Question 91 of 95
91. Question
Two firms that are virtually identical except for their capital structure are selling in the market at different values. According to M&M
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Question 92 of 95
92. Question
Calculate the break-even point for sales revenues given the following information. The firm has $1,000,000 in fixed costs. The firm anticipates that variable costs will be $1 for every $5 in sales.
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Question 93 of 95
93. Question
Calculate the degree of financial leverage (DFL) for a firm when its EBIT is $2,000,000. The firm has $3,000,000 in debt that costs 10% annually. The firm also has a 9%, $1,000,000 preferred stock issue outstanding. The firm pays 40% in taxes.
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Question 94 of 95
94. Question
Financial signaling has been raised as an argument in the battle over the relevancy of dividends. Which of the following statements concerning dividends is most likely to be voiced by someone using the financial signaling argument?
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Question 95 of 95
95. Question
The shareholders of your firm anticipate receiving a regular dividend that is consistent with past dividend policies. What benefit occurs to shareholders if the firm repurchases shares with the same total quantity of money that would have been spent on dividends? Assume that the P/E ratio is maintained with either scenario.
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