FINC600 Week 8 Practice Quiz
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Corporate Finance
Week 8 Practice Quiz
Question 1 of 25 4.0/
4.0 Points
Indirect costs of bankruptcy are borne
principally by:
A.Bondholders
B.Stockholders
C.Managers
D.The
federal government
Question 2 of 25 4.0/
4.0 Points
Which of the following lists events in the
chronological order from earliest to latest?
A.Record
date, declaration date, ex-dividend date
B.Declaration
date, record date, ex-dividend date
C.Declaration date, ex-dividend
date, record date
D.None
of the above
Question 3 of 25 4.0/
4.0 Points
Dividends are decided by:
I) The managers of a firm
II) The government
III) The board of directors
A.I
only
B.II
only
C.III only
D.I
and II only
Question 4 of 25 3.5/
4.0 Points
Discuss some examples of the conflicts of
interest that may arise between bondholders and stockholders when a firm is in
financial distress.
Question 5 of 25 4.0/
4.0 Points
The main advantage of debt financing for a firm
is:
I) no SEC registration is required for bond issue
II) interest expense of a firm is tax deductible
III) unlevered firms have higher value than
levered firms
A.I
only
Question 6 of 25 4.0/
4.0 Points
Capital structure of the firm can be defined as:
I) the firm's debt-equity ratio
II) the firm's mix of different securities used
to finance assets
III) the market imperfection that the firm's
manager can exploit
Question 7 of 25 4.0/
4.0 Points
If the capital markets are efficient, then the sale
or purchase of any security at the prevailing market price is:
A.Always
a positive NPV transaction
B.Generally a zero NPV
transaction
C.Is
always a negative NPV transaction
D.None
of the above
Question 8 of 25 0.0/
4.0 Points
Briefly describe the traditional position on
capital structure.
Question 9 of 25 4.0/
4.0 Points
Profitability ratios indicate:
I) How productively is the firm utilizing its
assets.
II) How liquid is the firm.
III) How profitable is the firm.
IV) How highly is the firm valued by the
investors.
Question 10 of 25 3.5/
4.0 Points
What are the primary reasons for a company to use
debt in its capital structure?
Question 11 of 25 4.0/
4.0 Points
The difference between Current Assets of a firm
and its Current Liabilities is called.
A.Net
worth
B.Net working capital
C.Gross
working capital
D.None
of the above
Question 12 of 25 3.5/
4.0 Points
What are the three basic financial statements?
Question 13 of 25 4.0/
4.0 Points
The cash budget is the primary short-term
financial planning tool. The key reasons a cash budget is created are:
I) To estimate your investment in assets
II) To estimate the size and timing of your new
cash flows
III) To prepare for potential financing needs
Question 14 of 25 4.0/
4.0 Points
Firms can repurchase shares in the following
ways:
I) Open market repurchase
II) Through a tender offer
III) Through a Dutch auction process
IV) Through direct negotiation with a major
shareholder
Question 15 of 25 4.0/
4.0 Points
Stock price cycles or patterns self-destruct as
soon as investors recognize them through:
A.stock
market regulation by the Securities and Exchange Commission (SEC)
B.price
fixing by the specialists on New York Stock Exchange
C.trading by the investors
D.none
of the above
Question 16 of 25 4.0/
4.0 Points
Which of the following is a statement of
semi-strong form efficiency?
I) If the markets are efficient in the
semi-strong form then prices will adjust immediately to public information
II) If the markets are efficient in the
semi-strong form then prices reflect all information
III) If the markets are efficient in the
semi-strong form then prices will adjust to newly published information after a
long time delay
Question 17 of 25 4.0/
4.0 Points
Net working capital is defined as:
A.The
current assets in a business
B.The difference between current
assets and current liabilities
C.The
present value of all short-term cash flows
D.The
difference between all assets and liabilities
Question 18 of 25 4.0/
4.0 Points
If a firm permanently borrows $100 million at an
interest rate of 8%, what is the present value of the interest tax shield?
(Assume that the tax rate is 30%)
A.$8.00
million
B.$5.6
million
C.$30 million
D.$26.67
million
E.None
of the above
Question 19 of 25 0.0/
4.0 Points
The difference between Total Assets of a firm and
its Total Liabilities is called.
A.Net
working capital
B.Net
current assets
C.Net worth
D.None
of the above
Question 20 of 25 0.0/
4.0 Points
Capital structure is irrelevant if:
A.the
capital markets are perfect
B.each investor holds a fully
diversified portfolio
C.each
investor holds the same proportion of debt and equity of the firm
D.all
of the above
Question 21 of 25 4.0/
4.0 Points
In order to find the present value of the tax
shields provided by debt, the discount rate used is the:
A.cost
of capital
B.cost
of equity
C.cost of debt
D.none
of the above
Question 22 of 25 3.5/
4.0 Points
What are the common ratios used to measure
liquidity of a firm?
Question 23 of 25 2.5/
4.0 Points
What is the model that is used to prepare a
pro-forma statement?
Question 24 of 25 3.5/
4.0 Points
Briefly explain the information content of share
repurchase.
Question 25 of 25 4.0/
4.0 Points
Generally, a firm is able to find positive NPV
opportunities with:
I) Financing decisions
II) Capital investment decisions
III) Short-term borrowing decisions
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