Scribd Logo
Upload

Welcome to Scribd!

    • 206 views

    Corporate Finance Practice Questions Mid

    Uploaded by

    Frasat Iqbal
    This document contains 40 multiple choice practice questions for a corporate finance mid-semester exam. The questions cover various topics in corporate finance including net present value calculations, bond pricing, dividend valuation models, capital budgeting techniques, and financial ratios. The key provided at the end lists the correct answer for each question.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Corporate Finance Practice Questions Mid

    Uploaded by

    Frasat Iqbal
    206 views9 pages
    This document contains 40 multiple choice practice questions for a corporate finance mid-semester exam. The questions cover various topics in corporate finance including net present value calculations, bond pricing, dividend valuation models, capital budgeting techniques, and financial ratios. The key provided at the end lists the correct answer for each question.

    Original Title

    Corporate Finance Practice Questions Mid (1)

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document contains 40 multiple choice practice questions for a corporate finance mid-semester exam. The questions cover various topics in corporate finance including net present value calculations, bond pricing, dividend valuation models, capital budgeting techniques, and financial ratios. The key provided at the end lists the correct answer for each question.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    206 views9 pages

    Corporate Finance Practice Questions Mid

    Uploaded by

    Frasat Iqbal
    This document contains 40 multiple choice practice questions for a corporate finance mid-semester exam. The questions cover various topics in corporate finance including net present value calculations, bond pricing, dividend valuation models, capital budgeting techniques, and financial ratios. The key provided at the end lists the correct answer for each question.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 9

    Corporate Finance

    Practice Questions for Mid-Semester Exam


    Question 1: For a project with conventional cash flows, if Present Value Index is
    greater than 1, then the:
    A: IRR is equal to the firms cost of capital
    B: IRR is equal to the firms required rate of return
    C: NPV is greater than zero
    D: Accounting rate of return exceeds the IRR
    E: NPV is negative
    Question 2: A invests in a property that pays him 14% annually. If A invests $325,
    calculate A's simple interest component at the end of 24 months?
    A: $119
    B: $109
    C: $91
    D: $90
    E: $93
    Question 3: All other things being equal, the lower the coupon rate:
    A: the longer the time to maturity
    B: the higher the price
    C: the lower the price
    D: the greater the interest rate risk
    E: none of the above
    Question 4: Calculate the NPV if the outflow is $50 000 and the inflows are:
    Year 1 $10 000
    Year 2 $20 000
    Year 3 $50 000
    Year 4 -$5 000
    The appropriate discount rate is 18%.
    A: $961
    B: $691
    C: $1 961
    D: $1 691
    E: $1 196
    Question 5: The current value of future cash flows discounted at the discount rate is:
    A: future value
    B: future value interest factor
    C: present value interest factor
    D: compounding value
    E: present value
    1

    Question 6: There is an inverse relationship between interest rates and:


    A: coupon
    B: bond prices
    C: term to maturity
    D: face value
    E: both A and D
    Question 7: An increase in an asset account:
    A: is a source of cash
    B: is a use of cash
    C: does not affect cash
    D: is an increase in the liability account
    E: none of the above
    Question 8: Assume that a project generates cash flows of $2 000 in years 1 and 2,
    $4 000 in the next two years, and $5 000 in the last year. The initial investment is
    $10 000. The discount rate is 10%. What is the NPV?
    A: $12 313
    B: $10 000
    C: $ 2 313
    D: $ 2 133
    E: $22 313
    Question 9: You are interested in buying a property that will cost you $10 million. You
    have $2.3 million. If you earn interest at the rate of 5% per year, how long will you
    have to wait before you buy this property?
    A: 30.21 years
    B: 30.10 years
    C: 30.12 years
    D: 30.00 years
    E: 29.12 years
    Question 10: The primary goal of financial management is to:
    A: maximise current sales
    B: maximise the value of shares
    C: minimise costs
    D: avoid bankruptcy
    E: all of the above

    Question 11: A Limited has just paid a dividend of $0.30 per share. The dividend
    grows at a steady rate of 8% per year. Based on this information what will be the
    dividend in five years?
    A: $0.144
    B: $0.141
    C: $0.444
    D: $0.441
    E: $0.044

    Question 12: The next dividend for A Limited will be $0.40 per share. Investors
    require a 16% return on companies such as A Limited. As dividend increases by 6%
    every year. Based on the dividend growth model what is the value of A Limiteds
    shares today?
    A: $2.50
    B: $0.40
    C: $5.05
    D: $4.00
    E: cannot be calculated
    Question 13: The discount rate that makes the NPV of an investment zero is known as
    the:
    A: discounted rate of return
    B: average rate of return
    C: required rate of return
    D: internal rate of return
    E: target rate of return

    Question 14: The difference between a firms current assets and current liabilities is
    called:
    A: accounting profits
    B: excess profits
    C: net working capital
    D: both A and C
    E: all of the above

    Question 15: A Limited has just issued a bond with a $100 face value and a coupon
    rate of 8%. If the bond has a life of 20 years, pays annual coupons and the YTM is
    7.5%, what will the bond sell for?
    A: $102
    B: $105.10
    C: $108.70
    D: $116.20
    E: $101.50
    3

    Question 16: Price/earnings ratio is defined as:


    A: price per share/book value per share
    B: price per share/market value per share
    C: price per share/earnings per share
    D: earnings per share/price per share
    E: price per share/market value per share
    Question 17: You are interested in buying a property that will cost you $10 million.
    You have $2.3 million. If you earn interest at the rate of 16% per year, how long will
    you have to wait before you buy this property?
    A: 12 years
    B: 11 years
    C: 10 years
    D: 8.96 years
    E: 9.10 years
    Question 18: A conventional cash flow is a cash flow where the first cash flow:
    A: is positive and all other cash flows are negative
    B: is negative and all other cash flows are also negative
    C: is negative and all other cash flows are positive
    D: is positive and all other cash flows are also positive
    E: there is no such thing as a conventional cash flow

    Question 19: A Limited has just issued a bond with a $100 face value and a coupon
    rate of 8%. If the bond has a life of 20 years, pays annual coupons and the YTM is
    7.5% what is the present value of the bonds face value?
    A: $100
    B: $105.09
    C: $80.05
    D: $25.34
    E: $23.54

    Question 20: Total return has two components: one of them is the dividend yield and
    the other is:
    A: required return
    B: current price
    C: capital gains yield
    D: cash dividend rate
    E: future dividend

    Question 21: The present value index is defined as:


    A: initial outlay/net cash flows
    B: value of net cash flows/initial outlay
    C: present value of net cash flows/initial outlay
    D: present value of cash flows/initial outlay
    E: none of the above
    Question 22: You are considering a one-year investment. If you invest $1250 you will
    get back $1350. What rate is this investment paying?
    A: 7.5%
    B: 6.5%
    C: 8.5%
    D: 8.0%
    E: 9.0%
    Question 23: Alternative investment projects are known as:
    A: independent projects
    B: mutually exclusive projects
    C: positively correlated projects
    D: negatively correlated projects
    E: higher opportunity cost project
    Question 24: A bank is offering 12% compounded quarterly. If you put $100 in an
    account, how much will you have at the end of one year?
    A: $115.12
    B: $112.15
    C: $112.50
    D: $112.55
    E: $126.68
    Question 25: The ----------- method ignores the time value of money and cash flows
    beyond a specified point in time, and is largely useful only in evaluating short-term
    projects.
    A: NPV
    B: IRR
    C: ARR
    D: pay back
    E: present value index
    Question 26: Return on assets is defined as:
    A: net profit/total current assets
    B: net profit/total non-current assets
    C: net profit/total assets
    D: net profit/total equity
    5

    E: none of the above


    Question 27: Calculate the NPV if the outflow is $100 000 and the inflows are $40
    000 for the next three years. Assuming the appropriate discount rate to be 15%, what
    is the NPV?
    A: -$8 671
    B: -$4 032
    C: $8 064
    D: $9 075
    E: $15 000
    Question 28: Your grandmother placed $10,000 in a fund for you so that you can
    withdraw $25,000 in 10 years. What is the rate of return?
    A: 6.9%
    B: 9.6%
    C: 9.5%
    D: 8.9%
    E: 9.4%
    Question 29: Which of the following cannot be calculated?
    A: the present value of a perpetuity
    B: the interest rate on a perpetuity given the present value and payment amount
    C: the present value of an annuity due
    D: the future value of an annuity due
    E: the future value of a perpetuity

    Question 30: The possibility of conflict between shareholders and management of the
    firm is called:
    A: corporate breakdown
    B: an agency problem
    C: management breakdown
    D: legal liability
    E: financial distress
    Question 31: Interest earned on only the original principal amount invested is:
    A: present value interest
    B: simple interest
    C: time value of money
    D: beginning interest
    E: none of the above

    Question 32: Assume that A contributes $2000 every year into a retirement account
    paying 8%. If A retires in 30 years, how much will he have?
    A: $212,576
    B: $262,576
    C: $226,576
    D: $262,567
    E: $226,567
    Question 33: A Limited currently pays a cash dividend of $0.50 per share. You believe
    that the dividend will be increased by 4% each year indefinitely. How big will the
    dividend be in eight years?
    A: $0.86
    B: $0.66
    C: $0.65
    D: $0.68
    E: not enough information available
    Question 34: Suppose you need $400 to buy textbooks next year. You can earn 7% on
    your money. How much do you have to invest today?
    A: $337.85
    B: $367.83
    C: $337.83
    D: $373.83
    E: cannot be calculated

    Question 35: Profit is often expressed on a per share basis and called:
    A: price to earnings ratio
    B: earnings per share
    C: retained earnings per share
    D: none of the above
    E: dividends per share

    Question 36: Peggy Grey's Cookies has net income of $360. The firm pays out 40
    percent of the net income to its shareholders as dividends. During the year, the
    company raised $80 worth of new equity. What is the cash flow to stockholders?
    A: $64
    B: $136
    C: $144
    D: $224
    E: $296

    Question 37: Bill Bailey and Sons pays no dividend at the present time. The company
    plans to start paying an annual dividend in the amount of $.30 a share for two years
    commencing two years from today. After that time, the company plans on paying a
    constant $1 a share dividend indefinitely. How much are you willing to pay to buy a
    share of this stock if your required return is 14 percent?
    A: $4.82
    B: $5.25
    C: $5.39
    D: $5.46
    E: $5.58

    Question 38: Tool Makers, Inc. uses tool and die machines to produce equipment for
    other firms. The initial cost of one customized tool and die machine is $850,000. This
    machine costs $10,000 a year to operate. Each machine has a life of 3 years before it
    is replaced. What is the equivalent annual cost of this machine if the required return is
    9 percent? (Round your answer to whole dollars)
    A: $325,794
    B: $340,002
    C: $345,797
    D: $347,648
    E: $351,619
    Question 39: Jupiter Explorers has $6,400 in sales. The profit margin is 4 percent.
    There are 6,400 shares of stock outstanding. The market price per share is $1.20.
    What is the price-earnings ratio?
    A: 13
    B: 14
    C: 21
    D: 30
    E: 48
    Question 40: Patti's has net income of $1,800, a price-earnings ratio of 12, and
    earnings per share of $1.20. How many shares of stock are outstanding?
    A: $1,200
    B: $1,400
    C: $1,500
    D: $1,600
    E: $1,800

    Key:
    1. C
    2. C
    3. D
    4. B
    5. E
    6. B
    7. B
    8. C
    9. C
    10. B
    11. D
    12. D
    13. D
    14. C
    15. B
    16. C
    17. C
    18. C
    19. E
    20. C
    21. D
    22. D
    23. B
    24. D
    25. D
    26. C
    27. A
    28. B
    29. E
    30. B
    31. B
    32. E
    33. D
    34. D
    35. B
    36. A
    37. B
    38. C
    39. D
    40. C

    You might also like