Corporate Finance Questions and Correct Answers & Latest Updated

The higher the degree of financial leverage employed by a firm, the o :## Higher the probability that the firm will encounter financial distress. When net working capital is negative o :## The PE ratio falls within which of the following classifications of financial ratios? o :## Market value ...

The over all goal of the financial manager is to ____ o :## Maximize the company's stock market price Which of the below is the goal that according to most financial professionals corporate managers ought to pursue? o :## Maximize shareholder wealth Which of the following is an example of ali...

Projects that are calculated as having negative NPVs should be o :## rejected or abandoned If adoption of a new product decreases the sales of an old product, what happens? o :## incremental benefits of the new product may be overestimated a cost should be considered sunk when it o :## has no e...

Bonds that grant the issuer the right to extinguish the debt prior to maturity are referred to as which type of bond? A) Put bond B) Debenture C) Callable bond D) Subordinated bond E) Covenant bond o :## C There are 3 directors' seats up for election. If you own 1,000 shares of stock and h...

a company that utilizes the MACRS system of depreciation o :## will have a greater taxs shield in year two of a project than it would have if the firm had opted for straight-line depreciation a project has a discounted payback period that is equal to the required payback period. Given this whi...

Present Value is defined as: A. Future cash flows discounted to the present at an appropriate discount rate B. Inverse of future cash flows C. Present cash flow compounded into the future D. None of the above o :## A The rate of return is also called: I) discount rate; II) hurdle rate; I...

Financial managers should strive to maximize the current value per share of the existing stock because: o :## the current stockholders are the owners of the corporation. Which one of the following actions by a financial manager creates an agency problem? o :## agreeing to expand the company at ...

Capital Budgeting Process (+1 year): Steps o :## Step 1. Generate Ideas (most important step) o Step 2. Analyze individual proposals (CF forecast) o Step 3. Plan the capital budget (plan capital budget, strategic within company) o Step 4. Monitor and post-audit (follow up) Capital Budgeting P...

A cost that should be ignored when evaluating a project because that cost has already been incurred and cannot be recouped is referred to as a(n) o :## sunk cost. A cost-cutting project will decrease costs by $37,400 a year. The annual depreciation on the project's fixed assets will be $4,700...

A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith, Inc. What is the return that these individuals require on this investment called? o :## Cost of equity Textile Mills borrows money at a rate of 13.5 percent. This interest rate is refer...

A small business received a five-year $1,000,000 loan at a subsidized rate of 3% per year. The firm will pay 3% annual interest payment each year and the principal at the end of five years. If market interest rates on similar loans are 6% per year, what is the NPV of the loan? (Ignore taxes. ...

Which of the following portfolios has the least risk? A. A portfolio of Treasury bills B. A portfolio of long-term U.S. government bonds C. A portfolio of U.S. common stocks of small firms D. A portfolio of U.S. common stocks of large firms o :## A. a portfolio of treasury bills For long-term ...

On the basis of this information, what is LeCompte's optimal capital structure, and what is the firm's cost of capital at this optimal capital structure? Group of answer choices Ws = 0.8; wd = 0.2; WACC = 10.78% Ws = 0.7: wa = 0.3; WACC = 9.11% Ws = 0.9; wa = 0.1; WACC = 11.73% Ws = 0.5; wd...

The specified date on which the principal amount of a bond is repaid is called the bond's: A. coupon B. face value C. maturity D. yield to maturity E. coupon rate o :## C. A bond with a face value of $1000 that sells for less than $1000 in the market is called a _______ bond. A. par B. d...