Corporate Financial Management 5th Edition

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which statement best describes the role of financial intermediaries? 1) A) They facilitate the flow of funds from primary investors to ultimate borrowers at low cost. B) They facilitate the flow of funds to primary investors from ultimate borrowers at low

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) To decide a price for a future issue, and the allocation of shares, financial advisers may contact major investors and ask them to place bids over a period of a few days. What term is used for

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following most accurately describes a debenture? 1) A) It is a contract in which a lender provides finance to a firm in return for promises of interest payment and capital repayment at maturity. The debenture can be

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) ________ is a short-term, unsecured promissory note issued by firms with a high credit standing. These notes are primarily issued by commercial finance companies. 1) A) A line of credit B) A self-liquidating loan C) Commercial paper D) A revolving line of credit Answer:CExplanation:A)B)C)D) Answer:CExplanation:A)B)C)D) Answer: C Explanation: A) B) C) D) 2) Which three statements relate

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A firm has a cash conversion cycle of 80 days, an average collection period of 25 days, and an average age of inventory of 70 days. Its operating cycle is ________ days. 1) A) 60 B) 105 C) 130 D) 95 Answer:DExplanation:A)B)C)D) Answer:DExplanation:A)B)C)D) Answer: D Explanation: A) B) C) D) 2) The purpose of managing current assets

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Following the theory of the "efficient market hypothesis" all of the following are true EXCEPT 1) A) securities are typically in equilibrium, meaning they are fairly priced and their expected returns equal their required returns. B) since stocks are fully and fairly

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A manager states that "We must be creating wealth. To do so we're creating steady growth in earnings." What would you reply? 1) A) "That only creates wealth if the rate of return on the additional investment is greater than

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What will be the result if a company which achieves a negative performance spread shrinks? 1) A) Value opportunity forgone B) Value destruction C) Value maintenance D) Value creation Answer:DExplanation:A)B)C)D) Answer:DExplanation:A)B)C)D) Answer: D Explanation: A) B) C) D) 2) What key benefit results from using value-creation profile charts to review current SBU activities? 2) A) They identify ways of

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What are the two parts that make up investment in plant, vehicles, buildings, etc? 1) A) Investment that adds to the stock of assets B) Annual investment to replace worn out equipment C) Capitalisation, calculated as a fixed proportion of depreciation over the

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What metric x is calculated using the formula Dividend per share (Share price at the end of the period - Initial share price) Initial share price 1) A) Dividend ratio B) Mean shareholder return C) Economic profit D) Total shareholder return Answer:DExplanation:A)B)C)D) Answer:DExplanation:A)B)C)D) Answer: D Explanation: A) B) C) D) 2) What factor, divided by initial share

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What is RP in the formula kD= rf+ RP ? 1) A) Risk-free rate B) Market rate C) Risk premium D) Cost of debt capital Answer:CExplanation:A)B)C)D) Answer:CExplanation:A)B)C)D) Answer: C Explanation: A) B) C) D) 2) The cost of equity capital, kE, is calculated using the formula kE= rf+ RP. What does rf represent? 2) A) Cost of debt capital B) Risk

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which three of the following statements are true? 1) A) Investing type decisions may result in misinterpretation of IRR results. B) NPV is appropriate for financing-type decisions. C) In financing-type decisions the use of the IRR criterion may be misleading. D) NPV is appropriate for

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What is meant by 'golden handcuffs'? 1) A) Financial incentives to encourage managers to stay with the firm B) Financial incentives to encourage shareholders to stay with the firm C) Contractual factors that force effective managers to stay with the firm D) Financial incentives to

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What is a company said to have if it has cash and/or more spare debt capacity? 1) A) Indirect costs B) Financial slack C) Financial risk D) Signals Answer:BExplanation:A)B)C)D) Answer:BExplanation:A)B)C)D) Answer: B Explanation: A) B) C) D) 2) Which two terms best fit the blanks in the following statement: "When compared with equity finance, debt finance is

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements correctly describes what dividends a company may pay? 1) A) They may pay dividends at a level to be decided by the board. B) They may not pay dividends. C) They may pay dividends up to the point

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) ________ may result in expansion of operations in an existing product line and elimination of a competitor. 1) A) Vertical merger B) Horizontal merger C) Congeneric merger D) Conglomerate merger Answer:BExplanation:A)B)C)D) Answer:BExplanation:A)B)C)D) Answer: B Explanation: A) B) C) D) 2) A ________ occurs when the operations of the acquiring and target firms are combined in order to achieve

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) All of the following are true of calls and puts EXCEPT 1) A) options are issued by businesses. B) the financial manager of a company has very little need to deal with options. C) the presence of options trading in the firm's stock

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) As a foreign exchange hedging tool, options have all of the following characteristics EXCEPT 1) A) specifies price. B) the right to buy or sell an amount of foreign currency. C) specifies time period. D) represents an obligation to buy or sell. Answer:DExplanation:A)B)C)D) Answer:DExplanation:A)B)C)D) Answer: D Explanation: A) B) C) D) 2) The risk attached to

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In which two ways may double counting occur when considering interest on borrowing to finance a project? 1) A) As discounted cash flow and as an element in profits B) As cash flow and as an element in profits C) As cash flow and

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Payback is considered an unsophisticated capital budgeting because it 1) A) gives explicit consideration to the timing of cash flows and therefore the time value of money. B) gives explicit consideration to the timing of cash flows and therefore the time

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In which type of cash flow are all future cash flows expressed in the prices expected to rule when the cash flow occurs? 1) A) Inflation-linked cash flow B) Money cash flow C) Real cash flow D) Money rate of cash flow Answer:BExplanation:A)B)C)D) Answer:BExplanation:A)B)C)D) Answer: B Explanation: A) B) C) D) 2) Which statement best describes the

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which two of the following conditions could mean that Project X will be preferred to Project Y, under the Mean-variance rule. 1) A) The variance of X is equal to or less than that of Y. B) The variance of X is

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) An investor buys shares for 10 and sells them after two years for 15. At the end of each of the two years the dividends paid are 10p and 20p respectively. What is the rate of return? 1) A) 15% B) 34% C) 6% D) 24% Answer:DExplanation:A)B)C)D) Answer:DExplanation:A)B)C)D) Answer: D Explanation: A) B) C) D) 2) What

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the formula E(ri) = rf+ E(rm- rf), what does the term E(rm- rf) represent? 1) A) The change in share value B) The average risk premium for shares C) The risk free rate D) The increase in share value Answer:BExplanation:A)B)C)D) Answer:BExplanation:A)B)C)D) Answer: B Explanation: A) B) C) D) 2) Which two of the following highlight

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) When calculating economic profit using the performance spread method, the invested capital is subtracted from the performance spread to economic profit. Which of the following shows how performance spread is calculated? 1) A) Return on capital + WACC B) WACC - Return on