Unit 4 – Quiz

The terms corporate finance and corporate financier are also associated with

The term “corporate finance” and “corporate financier” may be associated with transactions in which capital is raised in order to

What is the amount of time it takes to get back the amount of money originally invested?

Which one of the following terms is defined as the management of a firm’s long-term investments?

A business owned by a solitary individual who has unlimited liability for its debt is called a

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a

A business created as a distinct legal entity and treated as a legal “person” is called a

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?

Decisions made by financial managers should primarily focus on increasing which one of the following?

A project may be regarded as high risk project when

A single, overall cost of capital is often used to evaluate projects because

A quick approximation of the typical firm’s cost of equity may be calculated by

Who among the following are those who lend funds and expect a fixed return irrespective of success or failure of project?

The key sources of value (earning an excess return) for a company can be attributed primarily to

The overall (weighted average) cost of capital is composed of a weighted average of

Which of the following would be consistent with a more aggressive approach to financing working capital?

Which of the following illustrates the use of a hedging (or matching) approach to financing?

What varies inversely with profitability?

Financing a long-lived asset with short-term financing would be

Having defined working capital as current assets, it can be further classified according to

How can a firm provide a margin of safety if it cannot borrow on short notice to meet its needs?

Corporate governance specifies the distribution of rights and responsibilities among different participants in the organization such as

The objective of any corporate governance system is to simultaneously improve corporate performance and accountability as a

The framework for establishing good corporate governance and accountability was originally set up by the

A company may become insolvent if it

A board member is independent when

The traditional approach towards the valuation of a company assumes

When sequential long-term financing is involved, the choice of debt or equity influences the future financial

Which of the following statements regarding the net operating income approach is incorrect?

____________ costs are associated with monitoring management to ensure that it behaves properly.

Which of the following is not something that you would consider when evaluating the optimal capital structure?

Which one of the following statistic can be used as a quantitative measure of relative financial risk?

The further a firm operates above its operating break-even point, the closer its degree of operating leverage (DOL) measure approaches

Higher operating leverage is related to the use of additional

The cash required during a specific period to meet interest expenses and principal payments is referred to as the

Which of the following ratings apply to an investment grade quality security?

A(n) __________ is a payment of additional shares to shareholders in lieu of cash.

A(n) __________ occurs when there is an increase in the number of shares outstanding by reducing the par value of stock.

A(n) __________ is the expected cash dividend that is normally paid to shareholders.

What is a nonrecurring dividend paid to shareholders in addition to the regular dividend?

A dividend reinvestment plan (DRIP) is

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?

Which one of the following functions should be the responsibility of the controller rather than the treasurer?

The decision to issue additional shares of stock is an example of which one of the following?

Which one of the following statements is correct?

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 dividend

The internal Rate of Return (IRR) criterion for project acceptance, under theoretically infinite funds is: accept all projects which have

With limited finance and a number of project proposals at hand, select that package of projects which has

The difference between the present value of cash inflows and the present value of cash outflows associated with a project is known as

If the profitability index of a project is 0.75, it means

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

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?

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

Which of the following is not a recognized approach for determining the cost of equity?

What is the difference between economic profit and accounting profit?

In deciding the optimal level of current assets for the firm, management is confronted with

The amount of current assets required to meet a firm’s long-term minimum needs is referred to as

Which of the following statements is correct for a conservative financing policy for a firm relative to a former aggressive policy?

Risk, as it relates to working capital, means that there is jeopardy to the firm for not maintaining sufficient current assets to

Which of the following actions will not help directors to protect themselves from non-compliance with their obligations and responsibilities?

The Sarbanes–Oxley Act requires that executive officers attest to all the following except

The 2012 EU Commission Communication ‘Action Plan: European company law and corporate governance’ strives to

In 2006 the International Forum of Independent Audit Regulators (IFIAR) was established to

The corporate governance structure of a company reflects the individual companies

According to the concept of financial signaling, management behavior results in new debt issues being regarded as

The cost of capital for a firm when we allow for taxes, bankruptcy, and agency costs

The discount rate used to determine the present value of a stream of expected future cash flows is referred to as the

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.

The existence of __________ on the balance sheet generates tax advantages that directly influence the capital structure of the firm.

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

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

A firm has a DOL of 3.5 at Q units. What does this tell us about the firm?

A firm has a DFL of 3.5 at X dollars. What does this tell us about the firm?

Which of the following statements is not correct regarding the calculation of the degree of total leverage (DTL)?

If an individual stockholder reinvests dividends under a company’s dividend reinvestment plan, the reinvested dividends are

Investors may be willing to pay a premium for stable dividends because of the informational content of __________, the desire of investors for __________, and certain __________.

What method of stock repurchase occurs when the buyer purchases securities through a brokerage house?

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.

According to the authors of your text, the repurchase of stock is considered __________ decision rather than __________ decision.

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 flow

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?

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?

If interest expense of a company is $300,000 and tax rate is 40%, the after-tax cost of interest is

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.

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

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?

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?

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?

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?

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%.

Two firms that are virtually identical except for their capital structure are selling in the market at different values. According to M&M

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.

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.

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?

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.