Corporates Finance Quiz
Corporates Finance Quiz
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CO A) Which of the following is/are an advantage(s) of incorporation?
| Access to capital markets | |
| Limited liability |
| Unlimited life | |
| All of the above |
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Question 2 10 pts
(TCO A) You overhear your manager saying that she plans to book an ocean-view room on her upcoming trip to Miami for a meeting. You know that the interior rooms are much less expensive, but that your manager is traveling at the company’s expense. This use of additional funds comes about as a result of:
| an agency problem. | |
| an adverse selection problem. |
| a moral hazard. | |
| a publicity problem. |
CO A) Which of the following is/are an advantage(s) of incorporation?
| Access to capital markets | |
| Limited liability |
| Unlimited life | |
| All of the above |
TCO A) If Company A and Company B are in the same industry and use the same production method, and Company A’s asset turnover is higher than that of Company B, then all else equal, we can conclude that
| Company A is more efficient than Company B. | |
| Company A has a lower dollar amount of assets than Company B. |
| Company A has higher sales than Company B. | |
| Company A has a lower ROE than Company B. |
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Question 4 10 pts
(TCO B) If we use future value rather than present value to decide whether to make an investment,
| we will make a bad decision, since the future value will always be higher if the discount rate is positive. | |
| we will make a bad decision, since the future value will always be lower if the discount rate is positive. |
| we will make the same decision using either future value or present value. | |
| there is not enough information given to answer the question. |
(TCO D) Which of the following statements is FALSE?
| Bonds are securities sold by governments and corporations to raise money from investors today in exchange for promised future payments. | |
| By convention, the coupon rate is expressed as an effective annual rate. |
| Bonds typically make two types of payments to their holders. | |
| The time remaining until the repayment date is known as the term of the bond. |
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Question 6 10 pts
(TCO D) Which of the following statements is FALSE?
| As firms mature, their earnings exceed their investment needs and they begin to pay dividends. | |
| Total return equals earnings multiplied by the dividend payout rate. |
| Cutting the firm’s dividend to increase investment will raise the stock price if, and only if, the new investments have a positive NPV. | |
| We cannot use the constant dividend growth model to value the stock of a firm with rapid or changing growth. |
TCO B) A certain investment will pay $10,000 in 25 years. If the annual return on comparable investments is 7%, what is this investment currently worth? Show your work.
TCO B) You start saving $100 per month in an account that pays 4% interest, compounded monthly. You make the payment at the beginning of each month and interest is applied at the end of each month. How much money will you have in the account in 6 years? Show your work.
TCO D) A particular bond has 8 years to maturity. It has a face value of $1,000. It has a YTM of 7% and the coupons are paid semiannually at a 9% annual rate. What does the bond currently sell for? Show your work.
TCO D) A bond currently sells for $1,000 and has a par of $1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 6% and the interest payments are made semiannually. What is its YTM? Show your work.
TCO D) A stock pays an annual dividend of $2.50 and that dividend is not expected to change. Similar stocks pay a return of 8%. What is P0? Show your work.
(TCO D) A stock has just paid a dividend and declared an annual dividend of $20.00 to be paid one year from today. The dividend is expected to grow at a 7% annual rate. The return on equity for similar stocks is 12%. What is P0? Show your work.
TCO A) Suppose that Novak Company experienced a reduction in its ROE over the last year. This fall could be attributed to what factor? Explain in details.
