Finance corporate EXAM 2024 AND PRACTICE QUESTIONS |ACCURATE ANSWERS| VERIFIED, Exams of Finance

Download Finance corporate EXAM 2024 AND PRACTICE QUESTIONS |ACCURATE ANSWERS| VERIFIED and more Exams Finance in PDF only on Docsity! Finance corporate EXAM 2024 AND PRACTICE QUESTIONS |ACCURATE ANSWERS| VERIFIED FOR GUARANTEED PASS |GRADED A |NEW VERSION WITH 150+ QUESTIONS Which of the following statements is CORRECT? A. In any partnership, every partner has the same rights, privileges, and liability exposure as every other partner. B. One of the disadvantages of incorporating your business is that you could become subject to the firm's liabilities in the event of bankruptcy. C. Proprietorships and partnerships generally have a tax advantage over corporations. D. Proprietorships are subject to more regulations than corporations. E. Corporations of all types are subject to the corporate income tax - CORRECT ANS-C Relaxant Inc. operates as a partnership. Now the partners have decided to convert the business into a corporation. Which of the following statements is CORRECT? A. Assuming the firm is profitable, none of its income will be subject to federal income taxes. B. The company will probably be subject to fewer regulations and required disclosures. C. The firm's investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. D. Relaxant's shareholders (the ex-partners) will now be exposed to less liability. E. The firm will find it more difficult to raise additional capital to support its growth - CORRECT ANS-D Which of the following statements is CORRECT? A. One disadvantage of operating a business as a proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the owner level. B. It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required. C. Corporations face fewer regulations than proprietorships. D. One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership. E. If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business - CORRECT ANS-D Which of the following statements is CORRECT? A. Capital markets deal only with common stocks and other equity securities. B. The New York Stock Exchange is an auction market, and it has a physical location. C. While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. D. Home mortgage loans are traded in the money market. E. If an investor sells shares of stock through a broker, then it would be a primary market transaction - CORRECT ANS-B Which of the following statements is CORRECT? A. The NYSE operates as an auction market, whereas NASDAQ is an example of a dealer market. Which of the following could explain why a business might choose to operate as a corporation rather than as a proprietorship or a partnership? A. Less of a corporation's income is generally subject to federal taxes. B. Corporate investors are exposed to unlimited liability. C. Corporations generally find it easier to raise large amounts of capital. D. Corporations generally face fewer regulations. E. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation - CORRECT ANS-C Which of the following is an example of a capital market instrument? A. U.S. Treasury bills. B. Preferred stock. C. Banker's acceptances. D. Money market mutual funds. E. Commercial paper - CORRECT ANS-B The cash coverage ratio directly measures the ability of a company to meet its obligation to pay: A. wages to an employee. B. interest to a lender. C. a dividend to a shareholder. D. principal to a lender. E. an invoice to a supplier - CORRECT ANS-B The sources and uses of cash over a stated period of time are reflected on the: A. statement of cash flows. B. tax reconciliation statement. C. statement of operating position. D. income statement. E. balance sheet - CORRECT ANS-A Which of the following statements is CORRECT? A. If you purchase 100 shares of Disney stock from your brother-in-law, this is an example of a primary market transaction. B. As they are generally defined, money market transactions involve debt securities with maturities of less than one year. C. Only institutions, and not individuals, can engage in derivative market transactions. D. The NYSE is an example of an over-the-counter market. E. If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction - CORRECT ANS-B You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of: A. An over-the-counter market transaction. B. A secondary market transaction. C. A primary market transaction. D. A futures market transaction. E. A money market transaction - CORRECT ANS-B Money markets are markets for A. Common stocks. B. Long-term bonds. C. Foreign currencies. D. Short-term debt securities such as Treasury bills and commercial paper. E. Consumer automobile loans - CORRECT ANS-D Which of the following statements is CORRECT? A. One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one person, one vote." B. It is easier to transfer one's ownership interest in a partnership than in a corporation. C. Corporations of all types are subject to the corporate income tax. D. One of the disadvantages of a proprietorship is that the proprietor is exposed to unlimited liability. E. One of the advantages of the corporate form of organization is that it avoids double taxation - CORRECT ANS-D Which of the following statements is CORRECT? A. 14.97 B. 7.75 C. 10.97 D. 10.81 Feedback: Times interest earned = [$12,400/(1 − .21) + $1,600]/$1,600 E. 9.63 - CORRECT ANS-D SS Stores has total debt of $4,910 and a debt-equity ratio of 0.52. What is the value of the total assets? A. $16,128.05 B. $9,571.95 C. $7,253.40 D. $11,034.00 E. $14,352.31 Feedback: Total equity = $4,910/.52 Total assets = $4,910 + 9,442.31 - CORRECT ANS-E Coulter Supply has a total debt ratio of .46. What is the equity multiplier? A. 1.85 Feedback: Debt-equity ratio = .46/(1 − .46) Equity multiplier = 1 + .85 B. .89 C. 2.17 D. 1.17 E. 1.47 - CORRECT ANS-A The Tech Store has annual sales of $416,000, a price-earnings ratio of 18, and a profit margin of 3.7 percent. There are 12,000 shares of stock outstanding. What is the price-sales ratio? A. .86 B. 1.08 C. .97 D. .67 Feedback: EPS = [.037($416,000)]/12,000 Price-sales ratio = [18 ($1.28)]/($416,000/12,000) E. 1.15 - CORRECT ANS-D A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of: A. net income. B. sales. C. total equity. D. taxable income. E. total assets - CORRECT ANS-B The Docksider has net income for the most recent year of $24,650 and a combined tax rate of 24 percent. The firm paid $1,800 in total interest expense and deducted $2,900 in depreciation expense. What was the cash coverage ratio for the year? A. 20.48 times B. 13.69 times C. 20.63 times Feedback: EBT = $24,650/(1 −.24) EBIT = $32,434 + 1,800 Cash coverage ratio = ($34,234 + 2,900)/$1,800 D. 11.48 times E. 19.39 times - CORRECT ANS- C - CORRECT ANS- Drive-Up has sales of $31.4 million, total assets of $27.6 million, and total debt of $14.9 million. The profit margin is 3.7 percent. What is the return on equity? A. 9.15 percent Feedback: ROE = [.037($31.4m)]/($27.6m − 14.9m) B. 6.85 percent C. 13.31 percent D. 14.21 percent E. 11.08 percent - CORRECT ANS-A Corner Books has a debt-equity ratio of .57. What is the total debt ratio? A. .36 Feedback: Given the debt-equity ratio of .57, if total debt is $.57 then total equity is $1.00 and total assets are $1.57. I) NPV = C0 + [C1/(1 + r)]; II) NPV = PV required investment; III) NPV = C0/C1 A. I only B. I and II only C. III only D. None of the above - CORRECT ANS-B The following statements regarding the NPV rule and the rate of return rule are true except: A. Accept a project if its NPV > 0 B. Reject a project if the NPV < 0 C. Accept a project if its rate of return > 0 D. Accept a project if its rate of return > opportunity cost of capital - CORRECT ANS-C According to the net present value rule, an investment in a project should be made if the: A. Net present value is greater than the cost of investment B. Net present value is greater than the present value of cash flows C. Net present value is positive D. Net present value is negative - CORRECT ANS-C Which of the following statements regarding the net present value rule and the rate of return rule is not true? A. Accept a project if NPV > cost of investment B. Accept a project if NPV is positive C. Accept a project if return on investment exceeds the rate of return on an equivalent investment in the financial market D. Reject a project if NPV is negative - CORRECT ANS-A The opportunity cost of capital for a risky project is A. The expected rate of return on a government security having the same maturity as the project B. The expected rate of return on a well-diversified portfolio of common stocks C. The expected rate of return on a portfolio of securities of similar risks as the project D. None of the above - CORRECT ANS-C A perpetuity is defined as: A. Equal cash flows at equal intervals of time for a specific number of periods B. Equal cash flows at equal intervals of time forever C. Unequal cash flows at equal intervals of time forever D. None of the above - CORRECT ANS-B Which of the following is generally considered an example of a perpetuity: A. Interest payments on a 10-year bond B. Interest payments on a 30-year bond C. Consols D. None of the above - CORRECT ANS-C An annuity is defined as A. Equal cash flows at equal intervals of time for a specified period of time B. Equal cash flows at equal intervals of time forever C. Unequal cash flows at equal intervals of time forever D. None of the above - CORRECT ANS-A If you receive $1,000 payment at the end each year for the next five years, what type of cash flow do you have? A. Uneven cash flow stream B. An annuity C. An annuity due D. None of the above - CORRECT ANS-B You are considering investing in a retirement fund that requires you to deposit $5,000 per year, and you want to know how much the fund will be worth when you retire. What financial technique should you use to calculate this value? A. Future value of a single payment B. Future value of an annuity C. Present value of an annuity D. None of the above - CORRECT ANS-B The discount rate is used for calculating the NPV is: A. Determined by the financial markets B. Found by the government II) UK, III) Canada, IV) Germany V) Japan A. I, II, III, & IV B. I, II, III, & V C. II, III, & IV only D. None of the above - CORRECT ANS-B Which of the following statements about the relationship between interest rates and bond prices is true? I) There is an inverse relationship between bond prices and interest rates. II) There is a direct relationship between bond prices and interest rates. III) The price of short-term bonds fluctuates more than the price of long-term bonds for a given change in interest rates. (Assuming that coupon rate is the same for both) IV) The price of long-term bonds fluctuates more than the price of short-term bonds for a given change in interest rates. (Assuming that the coupon rate is the same for both) A. I and IV only B. I and III only C. II and III only D. None of the given statements are true - CORRECT ANS-A Volatility of a bond is given by: I) Duration/ (1 + yield) II) Slope of the curve relating the bond price to the interest rate III) Yield to maturity A. I only B. II only C. III only D. I and II only - CORRECT ANS-D The term structure of interest rates can be described as the: A. Relationship between the spot interest rates and the bond prices B. Relationship between spot interest rates and stock prices C. Relationship between spot interest rates and maturity of a bond D. None of the above - CORRECT ANS-C Which of the following statements is true? I) The spot interest rate is a weighted average of yields to maturity II) Yield to maturity is the weighted average of spot interest rates and estimated forward rates III) The yield to maturity is always higher than the spot rates A. I only B. II only C. III only D. I and III only - CORRECT ANS-B A forward rate prevailing from period three through to period four can be: I) readily observed in the market place II) extracted from spot interest rate with 3 and 4 years to maturity III) extracted from 1 and 2 year spot interest rates A. I only B. II only C. III only D. I and III only - CORRECT ANS-B Interest represented by "r2" is: A. Spot rate on a one-year investment (APR) B. Spot rate on a two-year investment (APR) C. Expected spot rate 2 years from today D. Expected spot rate one year from today - CORRECT ANS-B How can one invest today at the 2-year forward rate of interest? I) By buying a 2-year bond and selling a 1-year bond with the same coupon II) By buying a 1-year bond and selling a 2-year bond with the same coupon III) By buying a 1-year bond and then after a year reinvesting in a further 1-year bond A. I only B. II only C. III only In which of the following stock exchange specialists act as the auctioneers: A. New York Stock Exchange B. London Stock Exchange C. Tokyo Stock Exchange D. Frankfurt Stock Exchange - CORRECT ANS-A In which of the following exchanges a computer acts as the auctioneer: I) New York Stock Exchange, II) London Stock Exchange, III) Tokyo Stock Exchange IV) Frankfurt Stock Exchange A. I, II, III, and IV B. I, III, and IV only C. I, II, and III only D. II, III, and IV only - CORRECT ANS-D The value of a common stock today depends on: A. Number of shares outstanding and the number of shareholders B. The expected future dividends and the discount rate C. The Wall Street analysts D. Present value of the future earnings per share - CORRECT ANS-B The constant dividend growth formula P0 = Div1/(r - g) assumes: I) the dividends are growing at a constant rate g forever. II) r > g III) g is never negative. A. I only B. II only C. I and II only D. III only - CORRECT ANS-C The expected rate of return or the cost of equity capital is estimated as follows: A. Dividend yield - expected rate of growth in dividends B. Dividend yield + expected rate of growth in dividends C. Dividend yield/expected rate of growth in dividends D. (Dividend yield) * (expected rate of growth in dividends) - CORRECT ANS-B Dividend growth rate for a stable firm can be estimated as: A. Plow back rate/the return on equity (ROE) B. Plow back rate * the return on equity (ROE) C. Plow back rate + the return on equity (ROE) D. Plow back rate - the return on equity (ROE) - CORRECT ANS-B The growth rate in dividends is a function of two ratios. They are: A. ROA and ROE. B. Dividend yield and growth rate in dividends. C. ROE and the Retention Ratio. D. Book value per share and EPS. - CORRECT ANS-C Which of the following formulas regarding earnings to price ratio is true: A. EPS/Po = r[1 + (PVGO/Po] B. EPS/Po = r[1 - (PVGO/Po)] C. EPS/Po = [r + (PVGO/Po)] D. EPS/Po = [r + (1 + (PVGO/Po)]/r - CORRECT ANS-B Generally high growth stocks pay: A. Low or no dividends B. High dividends C. Erratic dividends D. Both A and C - CORRECT ANS-A A high proportion of the value of a growth stock comes from: A. Past dividend payments B. Past earnings C. PVGO (Present Value of the Growth Opportunities) D. Both A and B - CORRECT ANS-C Which of the following stocks is (are) an income stock(s)? C. The book rate of return method D. The internal rate of return method - CORRECT ANS- Which of the following investment rules has value adding-up property? A. The payback period method B. Net present value method C. The book rate of return method D. The internal rate of return method - CORRECT ANS-B You are given a job to make a decision on project X, which is composed of three independent projects A, B, and C which have NPVs of + $70, -$40 and + $100, respectively. How would you go about making the decision about whether to accept or reject the project? A. Accept the firm's joint project as it has a positive NPV B. Reject the joint project C. Break up the project into its components: accept A and C and reject B D. None of the above - CORRECT ANS-C The net present value of a project depends upon: A. company's choice of accounting method B. manager's tastes and preferences C. project's cash flows and opportunity cost of capital D. all of the above - CORRECT ANS-C Which of the following investment rules may not use all possible cash flows in its calculations? A. NPV B. Payback period C. IRR D. All of the above - CORRECT ANS-B The payback period rule accepts all projects for which the payback period is: A. Greater than the cut-off value B. Less than the cut-off value C. Is positive D. An integer - CORRECT ANS-B The payback period rule: A. Varies the cut-off point with the interest rate. B. Determines a cut-off point so that all projects accepted by the NPV rule will be accepted by the payback period rule. C. Requires an arbitrary choice of a cut-off point. D. Both A and C. - CORRECT ANS-C The main advantage of the payback rule is: A. Adjustment for uncertainty of early cash flows B. It is simple to use C. Does not discount cash flows D. Both A and C - CORRECT ANS-B The following are disadvantages of using the payback rule except: A. The payback rule ignores all cash flow after the cutoff date B. The payback rule does not use the time value of money C. The payback period is easy to calculate and use D. The payback rule does not have the value additive property - CORRECT ANS-C Which of the following statements regarding the discounted payback period rule is true? A. The discounted payback rule uses the time value of money concept. B. The discounted payback rule is better than the NPV rule. C. The discounted payback rule considers all cash flows. D. The discounted payback rule exhibits the value additive property. - CORRECT ANS-A Internal rate of return (IRR) method is also called: A. Discounted payback period method B. Discounted cash-flow (DCF) rate of return method C. Modified internal rate of return (MIRR) method D. None of the above - CORRECT ANS-B The quickest way to calculate the internal rate of return (IRR) of a project is by: A. Trial and error method B. Using the graphical method A. Future value of cash flows to investment B. Net present value of cash flows to investment C. Net present value of cash flows to IRR D. Present value of cash flows to IRR - CORRECT ANS-B Benefit-cost ratio is defined as the ratio of: A. Net present value cash flow to initial investment B. Present value of cash flow to initial investment C. Net present value of cash flow to IRR D. Present value of cash flow to IRR - CORRECT ANS-B The profitability index can be used for ranking projects under: A. Soft capital rationing B. Hard capital rationing C. Capital rationing at t = 0 D. Both A and B - CORRECT ANS-C Important points to remember while estimating cash flows of projects are: I) only cash flow is relevant II) always estimate cash flows on an incremental basis III) be consistent in the treatment of inflation A. I only B. I and II only C. II, and III only D. I,II, and III - CORRECT ANS-D Preferably, cash flows for a project are estimated as: A. Cash flows before taxes B. Cash flows after taxes C. Accounting profits before taxes D. Accounting profits after taxes - CORRECT ANS-B When a firm has the opportunity to add a project that will utilize excess factory capacity (that is currently not being used), which costs should be used to determine if the added project should be undertaken? A. Opportunity cost B. Sunk cost C. Incremental costs D. None of the above - CORRECT ANS-C