FIN 301 Exam Questions with Latest
Update
A firm's capital structure is comprised of only the firm's long-term sources of financing
while the firm's financial structure includes both short- and long-term debt and equity
financing. - Answer-True
A corporation's optimal capital structure is usually the one that will lead to the
maximization of the weighted average cost of capital. - Answer-False
Financial leverage is derived from the fixed costs of a firm's financing and can have the
effect of magnifying the change in earnings before interest and tax on the change in
earnings per share. - Answer-True
Capital rationing is a financial management process for allocating available funds to
acceptable capital budgeting projects. - Answer-True
Many business managers prefer to use the payback period as a capital budgeting
decision criterion because it is easy to calculate and it tells you how many years it will
take to recover initial investment. - Answer-True
The Profitability Index or Benefit-Cost ratio is a profitability ratio utilized to determine a
firm's overall operating efficiency. - Answer-False
Net Present Value (NPV) is theoretically preferred to the Internal Rate of Return (IRR)
and Payback (PB) methods as a capital budgeting decision-making method. - Answer-
True
A sunk cost is a cost that has previously been incurred by a firm and which cannot be
recovered whether a given project now being considered by the company is accepted or
not. - Answer-True
A firm's cost of capital is affected by the firm's capital structure. - Answer-True
The cost of capital must be less than the return on a firm's assets in order to increase
the value of the firm. - Answer-True
A typical preferred stock is a stock which has no maturity date and which generally pays
a fixed dividend into perpetuity. - Answer-True
Common stock dividends cannot be paid by firms with net losses as shown on the firm's
income (or profit and loss) statement. - Answer-False
Update
A firm's capital structure is comprised of only the firm's long-term sources of financing
while the firm's financial structure includes both short- and long-term debt and equity
financing. - Answer-True
A corporation's optimal capital structure is usually the one that will lead to the
maximization of the weighted average cost of capital. - Answer-False
Financial leverage is derived from the fixed costs of a firm's financing and can have the
effect of magnifying the change in earnings before interest and tax on the change in
earnings per share. - Answer-True
Capital rationing is a financial management process for allocating available funds to
acceptable capital budgeting projects. - Answer-True
Many business managers prefer to use the payback period as a capital budgeting
decision criterion because it is easy to calculate and it tells you how many years it will
take to recover initial investment. - Answer-True
The Profitability Index or Benefit-Cost ratio is a profitability ratio utilized to determine a
firm's overall operating efficiency. - Answer-False
Net Present Value (NPV) is theoretically preferred to the Internal Rate of Return (IRR)
and Payback (PB) methods as a capital budgeting decision-making method. - Answer-
True
A sunk cost is a cost that has previously been incurred by a firm and which cannot be
recovered whether a given project now being considered by the company is accepted or
not. - Answer-True
A firm's cost of capital is affected by the firm's capital structure. - Answer-True
The cost of capital must be less than the return on a firm's assets in order to increase
the value of the firm. - Answer-True
A typical preferred stock is a stock which has no maturity date and which generally pays
a fixed dividend into perpetuity. - Answer-True
Common stock dividends cannot be paid by firms with net losses as shown on the firm's
income (or profit and loss) statement. - Answer-False
