CMFAS Module 4A Quiz 47

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Lectures On Corporate Finance – CMFAS Module 4a

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Question 1 of 30

1. Question
Which of the following statements is true regarding dividend imputation?
- Imputation is a note that comes with share dividends that say company tax hasn't already been paid on the dividend.
- An imputation credit is a note that comes with share dividends that say company tax has already been paid on the dividend, giving the shareholder a discount on their tax by avoiding double taxation.
- An imputation credit is doesn't comes with share dividends that say company tax has already been paid on the dividend, giving the shareholder a discount on their tax at tax time, avoiding double taxation.
- An imputation credit comes with share dividends that say company tax has already been paid on the dividend, without giving the shareholder a discount on their tax at tax time.
Correct

Incorrect

Dividend imputation is a corporate tax system in which some of the tax paid by a company may be attributed, or imputed, to the shareholders by way of a tax credit to reduce the income tax payable on a distribution.
Question 2 of 30

2. Question
How would you define financial distress?
- A company is in financial distress when they cannot take a new loan.
- A company is in financial distress when its suppliers cannot pay their merchandise.
- A company is in financial distress when they cannot meet its financial obligations or has difficulty meeting it.
- A company is in financial distress when they cannot meet pay the monthly credit.
Correct

Incorrect

Each time a company cannot meet its financial obligations is called that financial distress.
Question 3 of 30

3. Question
How do you define leveraged beta in financial terms?
- Levered beta measures part of the risk of a firm with debt and equity in its capital structure to the volatility of the market.
- Levered beta measures the effort of a firm with debt and equity in its capital structure to the volatility of the market.
- Levered beta measures the risk of a firm with debt and equity in its capital structure to the volatility of the market.
- Levered beta measures the risk of a firm credit and its capital structure to the volatility of the market.
Correct

Incorrect

Each capital structure presents a risk compared to the volatility of the market, and levered beta measures the risk of a firm with debt and equity in it.
Question 4 of 30

4. Question
Define what a levered lease means in finance?
I. When lessor borrows from a lender to obtain the initial capital to purchase the asset, using lease payments to pay interest and principal on the loan.
II. When lessor borrows from a lender to obtain the initial capital to pay the company’s debt.
III. When lessor borrows from a lender to obtain the initial capital to purchase the asset, using personal payments to pay interest and principal on the loan.
IV. When lessor borrows from a lender to obtain the secondary capital to purchase the asset, using lease payments to pay interest and principal on the loan.
- I Only
- II Only
- III & IV
- All of the above
Correct

Incorrect

A levered lease means that a lessor borrows from a lender to obtain the initial capital to purchase the asset.
Question 5 of 30

5. Question
What does a company obtain after a takeover?
- After a takeover, the acquiring company obtains control of the target company's debts, so a takeover is an indirect investment in assets.
- After a takeover, the acquiring company obtains control of the target company's assets, so a takeover is an indirect investment in assets.
- After a takeover, the acquiring company obtains some control of the target company's assets, so a takeover is an indirect investment in assets.
- After a takeover, the acquiring company obtains only partial control of the target company's assets, so a takeover is an indirect investment in assets.
Correct

Incorrect

Every time after a takeover, the acquiring firm gets control of the target assets.
Question 6 of 30

6. Question
When may a company’s directors pay dividends?
- Periodically.
- Monthly.
- Annually.
- Yearly.
Correct

Incorrect

A pro-rata payment of money by a company to its shareholders is usually made periodically.
Question 7 of 30

7. Question
Why is equity finance preferred over debt financing in terms of dividends?
I. Failure to pay interest on debt can lead to sometimes to legal consequences and can ultimately lead to a company being placed into liquidation.
II. Failure to pay interest on debt or delays in paying interest can lead to legal consequences having the company being placed into liquidation.
III. Failure to pay interest on debt can not lead to serious legal consequences and can ultimately lead to a company being placed into liquidation.
IV. Failure to pay interest on debt or delays in paying interest can lead people leaving the company.
- I Only
- II Only
- III & IV
- IV Only
Correct

Incorrect

When it comes to dividends equity finance is preferred over debt. This happens because failure to pay interest on debt an lead to legal consequences having the company being placed into liquidation.
Question 8 of 30

8. Question
Why are venture capitals attractive?
- The amount of capital needed can be too high to justify the cost of a share market float.
- The amount of capital required may be too big to justify the cost of a share market float.
- The number of assets required may be too small to justify the cost of a share market float.
- The amount of capital required may be too small to justify the cost of a share market float.
Correct

Incorrect

The venture capitals are attractive only when capital required may be too small to justify the cost of a share market float.
Question 9 of 30

9. Question
What is the second type of private equity?
- The acquisition of an unlisted public company by a group of investors who ‘privatise’ the company so that it is delisted from the stock exchange.
- The acquisition of a listed private company by a group of investors who ‘privatise’ the company so that it is delisted from the stock exchange.
- The process of selling a listed private company by a group of investors who ‘privatise’ the company so that it is delisted from the stock exchange.
- The acquisition of a listed public company by a group of investors who ‘privatise’ the company so that it is delisted from the stock exchange.
Correct

Incorrect

Private equity refers to delisting a company from the stock exchange after it was acquired by a group of investors.
Question 10 of 30

10. Question
Why do entrepreneurs prefer staged financing?
- It will be easy to convince others that funds invested in a new venture will be used profitably raising money from outside investors in the early stages of a venture is generally expensive.
- It will be difficult to convince others that funds invested in a current venture will be used profitably raising money from outside investors in the early stages of a venture is generally expensive.
- It will be difficult to convince others that funds invested in a new venture will be used profitably raising money from outside investors in the early stages of a venture is generally expensive.
- It will be difficult to convince others that funds invested in a new venture will be used profitably raising money from inside investors in the early stages of a venture is generally expensive.
Correct

Incorrect

Stage financing offers entrepreneurs the possibility of raising money from outside investors in the early stages of a venture.
Question 11 of 30

11. Question
What are the sources of finance for new ventures?
I. Entrepreneur’s personal resources.
II. Private equity funds.
III. Funds raised by an initial public.
IV. Public equity funds.
- I Only
- I & II
- II & III
- IV Only
Correct

Incorrect

There are several ways of funding a new venture, but two of the main known and practised are personal resources and private equity funds.
Question 12 of 30

12. Question
How would valuation in finance be defined?
- Valuation is the estimation of an asset's value based on variables perceived to be related to present investment returns, or based on comparisons with closely similar assets.
- Valuation is the estimation of an asset's value based on variables received to be related to future investment returns or based on comparisons with closely similar assets.
- Valuation is the estimation of an asset's value based on variables perceived to be related to future investment returns, or based on comparisons with closely similar assets.
- A valuation is a tool used for assessing asset's value based on variables perceived to be related to future investment returns, or based on comparisons with closely similar assets.
Correct

Incorrect

The estimation of an asset’s value based on variables related to future investment returns is called valuation.
Question 13 of 30

13. Question
Which are the main participants of financial markets?
I. People.
II. Households.
III. Businesses – local or national.
IV. Investors.
- I Only
- II & III
- IV Only
- All of the above
Correct

Incorrect

There are multiple participants in every financial market in each country. However, the main ones from all of them are households and businesses.
Question 14 of 30

14. Question
What are the financial intermediaries?
- National investment banks.
- International investment banks.
- Local enterprises.
- Initial start-up investment.
Correct

Incorrect

Financial intermediaries is an institution, and usually a bank that holds funds from lenders in order to make loans to borrowers.
Question 15 of 30

15. Question
What is the mortgage market?
- A fixed-rate mortgage is a partially amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan.
- A flexible-rate mortgage is a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan.
- A fixed-rate mortgage is a fully amortizing mortgage loan where the interest rate on the note increases through the term of the loan.
- A fixed-rate mortgage is a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan.
Correct

Incorrect

We can call mortgage market, that interest rate that remains the same through the term of the loan, while is a fully amortizing mortgage loan.
Question 16 of 30

16. Question
What are bond markets?
I. Is a financial market where participants can issue new debt.
II. Is a financial market where participants can issue existing debt.
III. Is a financial market where participants cannot issue new debt.
IV. Is a financial market where investors can issue new debt.
- I Only
- I & II
- II & III
- IV Only
Correct

Incorrect

The bond markets could be defined as a debt instrument created for the purpose of raising capital, where participants can issue new debt.
Question 17 of 30

17. Question
What is a derivative in financial terms?
- A derivative is part of a contract between three parties whose value is based on an agreed-upon underlying financial asset.
- A derivative is a contract between two or more parties whose value is based on the capital market.
- A derivative is a contract between only two parties whose value is based on an agreed-upon underlying financial asset.
- A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset.
Correct

Incorrect

It is called a derivative, that particular contract only between two or more parties whose value is based on an agreed-upon underlying financial asset.
Question 18 of 30

18. Question
What does hedge mean?
- A hedge is an instrument helping to reduce the risk of adverse price movements in an asset.
- A hedge is an investment to reduce the risk of adverse price movements in an asset.
- A hedge is an investment to increase the risk of adverse price movements in an asset.
- A hedge is an instrument helping to raise the risk of adverse price movements in an asset.
Correct

Incorrect

In finance, a hedge is when a company strategically using financial instruments or market strategies to offset the risk of any adverse price movements.
Question 19 of 30

19. Question
Which of the following regarding the options market is true?
I. Options are individual instruments that are derivatives based on the value of underlying securities such as stocks.
II. Options are financial instruments that can not be derivatives based on the value of underlying securities such as stocks.
III. Options are financial instruments that are derivatives based on the value of underlying securities however, not stocks.
IV. Options are financial instruments that are derivatives based on the value of underlying securities such as stocks.
- I Only
- II Only
- III Only
- IV Only
Correct

Incorrect

Based on the value of underlying securities such as stocks, options are financial instruments that are derivatives of this.
Question 20 of 30

20. Question
Which of the following best describes why the valuation principle is a key concept in making financial decisions?
- It shows how to make the costs and benefits of a decision comparable so that we can weigh them properly.
- It shows how to make the costs and benefits of a decision comparable so that we can invest properly in them.
- It shows how to make the costs and benefits of a decision unchangeable.
- It shows how to get more benefits of a decision comparable so that we can weigh them properly.
Correct

Incorrect

Valuation principle happens when a company wants to weight a decision such as how to make the costs and benefits of a decision comparable.
Question 21 of 30

21. Question
Which of the following types of firms does not have limited liability?
- Sole proprietorships.
- Unlimited company.
- Hybrid businesses.
- Manufacturing businesses.
Correct

Incorrect

Sole proprietorships are the only type of firm from the examples which doesn’t have limited liability. And this is because the company is liable for any liabilities or debts the business incurs.
Question 22 of 30

22. Question
What is the major advantage corporations have over other business entities?
I. Liability protection.
II. Treated as a separate legal entity.
III. Shares can be freely traded.
IV. Easier to raise capital.
- I Only
- II & III
- III & IV
- All of the above
Correct

Incorrect

There are several advantages corporations have over other business entities, however, one of the most important is liability protection, separate legal entity, shares can be freely traded and way much easier to raise capital for the company.
Question 23 of 30

23. Question
Which of the following is the major duty of a financial manager?
- Providing feedback to stakeholders.
- Investment decisions.
- Employment decisions.
- Training employees.
Correct

Incorrect

There are multiple duties a financial manager has within a company. However, the most important one is the deciding upon investment.
Question 24 of 30

24. Question
What is a competitive market?
- A market in which a good can be bought and sold at the same price.
- A market in which an asset can be offered to a company as an investment.
- A market in which a good can be bought without being sold again.
- A market in which a good can be sold lower than its original price.
Correct

Incorrect

A market can be called competitive only when the goods are bought at a lower price than their selling price.
Question 25 of 30

25. Question
Which of the following best describes the value of comodity?
- The value of a commodity is determined by its competitive market price. When the value of the benefits exceeds the costs the decision will increase the market value of the assets.
- The value of a commodity is determined by its competitive market price. When the value of the benefits exceeds the costs the decision will increase the market value of the firm.
- The value of a commodity is determined by its own price. When the value of the benefits exceeds the costs the decision will increase the market value of the firm.
- The value of a commodity is determined by its competitive market price. When the value of the benefits exceeds the costs the decision will decrease the market value of the firm.
Correct

Incorrect

Every time the value of the benefits exceeds the costs the decision this will make the market value of any company to increase. In finance, this is called the value of a commodity.
Question 26 of 30

26. Question
Which of the following best explains why you cannot use the price of rolled oats at a local supermarket as the competitive market value of rolled oats?
- You can buy the oats at the price posted by the store, but the store will not sell the oats again.
- You can buy the oats at the price posted by the store, but the store will not buy oats from you at the same price.
- You can buy the oats at the price posted by the store, but the store will buy oats from you at the same price.
- You can buy the oats at the price posted by the store, but the store will not sell oats from you at the same price.
Correct

Incorrect

You cannot use the price of rolled oats at a local supermarket as the competitive market value of rolled oats, because the store will not buy oats from you at the same price.
Question 27 of 30

27. Question
Which of the following is true about perpetuities?
I. Perpetuity generates cash flows every period infinitely, the cash flow generated doesn’t equal the PV times the interest rate.
II. Perpetuity generates cash flows from time to time, the cash flow generated equals the PV times the interest rate.
III. Perpetuity generates cash flows which is not equal to the PV times the interest rate.
IV. Perpetuity generates cash flows every period infinitely, the cash flow generated equals the PV times the interest rate.
- I Only
- II Only
- III Only
- IV Only
Correct

Incorrect

When it comes to perpetuities, the cash flow generated equals the PV times the interest rate. In the same time, it generates cash flows every period infinitely.
Question 28 of 30

28. Question
What is the most common type of firms around the world?
- Individual proprietorship.
- Proprietorship with multiple stockholders.
- Separated proprietorship.
- Sole proprietorship.
Correct

Incorrect

Even if each country has its own legislation, the type of firms around the worlds are similar. The most common one is the sole proprietorships.
Question 29 of 30

29. Question
How can a company raise its stock price?
I. Can announce that it will change its organizational structure.
II. Announce an accretive merger or an acquisition that will increase EPS.
III. Increase in the existing dividend.
IV. Any potential good news about the company can raise the stock price.
- I Only
- II & III
- IV Only
- All of the above
Correct

Incorrect

There are several options for a company to raise its stock price and one of the most common ones is for the company to announce what changes to the organizational structure will occur.
Question 30 of 30

30. Question
What is the difference between technical analysis and fundamental analysis?
- Technical analysis is the process of picking stocks based on current trends and stock movements. Fundamental analysis is examining a company's fundamentals, financial statements, industry and then picking stocks that are undervalued.
- Technical analysis is the process of picking stocks based on historical trends and stock movements. Fundamental analysis is examining a company's fundamentals, financial statements, industry and then picking stocks that are undervalued.
- Technical analysis is the process of picking stocks based on historical trends and stock movements. Fundamental analysis is examining a company's fundamentals, financial statements, industry and then picking stocks that are revalued.
- Technical analysis is the process of picking stocks based only on historical trends. Fundamental analysis is examining a company's fundamentals and then picking stocks that are revalued.
Correct

Incorrect

Fundamental analysis is taking in consideration the industry but also the financial statements of the company and then picking stocks that are undervalued. While the technical analysis is the process of picking stocks based on historical trends and stock movements.

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