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Lectures On Corporate Finance – CMFAS Module 4a
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Question 1 of 30
1. Question
What are the primary areas of main-line finance disciplines?
Correct
Incorrect
There are several areas of main-line finance disciplines. However, the correct one from below is corporate finance.
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Question 2 of 30
2. Question
Which are the advantages of having a sole proprietorship?
I. Having control of your business.
II. A simplified and less expensive business organization.
III. Minimal reporting requirements.
IV. Simplified tax reporting.Correct
Incorrect
There are numerous advantages of having a sole proprietorship but some of the main ones are easy control over the business, a less expensive business organization, simple tax reporting and minimal reporting requirements.
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Question 3 of 30
3. Question
If the amount of debt increases than which of the following regarding the present value is true?
Correct
Incorrect
Each time the amount of debt increases, regarding the present value, the net tax-shield benefits of debt increases.
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Question 4 of 30
4. Question
Which of the following is true regarding the traditional approach towards the valuation of a company?
Correct
Incorrect
In the traditional approach towards the valuation of a company, management can increase the total value through the judicious use of financial leverage.
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Question 5 of 30
5. Question
Which one of the following statements is correct?
I. The payback period ignores the time value of money.
II. The payback period doesn’t ignore the time value of money.
III. The payback rule is biased in favour of long-term projects.
IV. The payback rule is biased in favour of short-term investments.Correct
Incorrect
In finance, the time value of money is ignored by the payback.
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Question 6 of 30
6. Question
Considering that the internal rate of return is unreliable as an indicator of whether or not an investment should be accepted. Which one of the following is correct?
Correct
Incorrect
When making an investment one of the most useful tools used is looking of the investment is mutually exclusive with another investment under consideration.
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Question 7 of 30
7. Question
Which one of the following statements is correct?
Correct
Incorrect
In finance, the net present value is positive only when the internal rate of return is greater than the required return.
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Question 8 of 30
8. Question
You are asked to analyze investment in order to determine if it is acceptable. However, you are not being given sufficient time to analyze the project using various methods. Which method would you use?
Correct
Incorrect
Net present value is the most useful method in this case in order to determine the initial capital investment needed for a business.
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Question 9 of 30
9. Question
What is the goal of financial management?
I. To minimize the current value per share of the existing stock.
II. To maximize the current value per share of the existing stock.
III. To minimize the past value per share of the existing stock.
IV. To maximize the current value per share of the future stock.Correct
Incorrect
Financial management has one main goal and that is to always maximize the current value per share of the existing stock.
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Question 10 of 30
10. Question
How would you define the agency relationship?
Correct
Incorrect
Stockholders don’t usually run directly the company, they hire managers to run the company, and in finance, this is called agency relationship.
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Question 11 of 30
11. Question
Which of the following would be consistent with a more aggressive approach to financing working capital?
Correct
Incorrect
The aggressive approach is a high-risk strategy of working capital. Short-term finances are a reasonable part of the permanent working capital.
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Question 12 of 30
12. Question
What are the advantages of having a corporation?
Correct
Incorrect
One of the advantages of having a corporation include limited liability for its shareholders.
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Question 13 of 30
13. Question
Which one of the following is the primary advantage of payback analysis?
I. Long-term bias.
II. Arbitrary cutoff point.
III. Ease of use.
IV. Research and development bias.Correct
Incorrect
The most known primary advantage of payback analysis is the ease of use and research and development bias.
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Question 14 of 30
14. Question
In the financial system who are the primary fund providers to the government and business?
Correct
Incorrect
The households funds are the primary funds providing to the government and businesses.
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Question 15 of 30
15. Question
Which one of the following indicates that a project should be rejected?
Correct
Incorrect
By dividing the present value of future cash flows by the initial cost of the project you can see the profitability index. If this is less than 1.0, then the investment should be avoided.
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Question 16 of 30
16. Question
The basic present value equation has several parts. Which are these?
I. The present value (PV).
II. The future value (FV).
III. The discount rate (r).
IV. The life of the investment (n).Correct
Incorrect
There are several parts which define the present value equation. These are the present and future value, the discount rate and the life of the investment.
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Question 17 of 30
17. Question
How would you define what is discounting?
Correct
Incorrect
Each time the present value of an amount is to be received in the future, this comes under the name discounting.
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Question 18 of 30
18. Question
What is the Exchange Rate between the present value and the future value?
Correct
Incorrect
The name of the Exchange Rate between the present value and the future value is called in finance interest rate.
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Question 19 of 30
19. Question
What is it called when the first payment occurs at the end of the period?
I. Coordination annuity.
II. Ordinary annuity.
III. Frequency annuity.
IV. Common annuity.Correct
Incorrect
Annuity occurs when payment is due immediately at the beginning of each period.
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Question 20 of 30
20. Question
Each time an investment is reinvested has a name. Which of the following is the correct one?
Correct
Incorrect
The amount of money invested which is again reinvested in another business has the name of compound interest.
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Question 21 of 30
21. Question
If a dollar in hand today is worth more than a dollar at some time in the future, how would you define this?
I. The present value of money.
II. Past value of money.
III. Future value of money.
IV. Time value of money.Correct
Incorrect
Over time, money changes its value. We call this the time value of money.
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Question 22 of 30
22. Question
What are bonds in finance?
Correct
Incorrect
In finance, a bond is a long-term instrument of indebtedness of the bond issuer to the holders.
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Question 23 of 30
23. Question
How could a certificate of deposit be defined?
I. Interest earning money deposited as an investment in a company.
II. Interest earning money deposited at a bank or another financial intermediary.
III. Interest earning time deposit at a bank or another financial intermediary.
IV. Interest earning money deposited at a bank from another country.Correct
Incorrect
A certificate of deposit is a time deposit, a financial product commonly sold by banks, thrift institutions, and credit unions.
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Question 24 of 30
24. Question
How do you define par value in financial terms?
Correct
Incorrect
The term par value can be defined easily as being the normal or face value of a stock or bond.
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Question 25 of 30
25. Question
What are federal funds?
I. Overnight loans from one bank to another.
II. Unsecured loans.
III. Borrowings between banks and other entities.
IV. Secured loans.Correct
Incorrect
Federal funds happen when overnight borrowings between banks and other entities.
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Question 26 of 30
26. Question
Common equity can be found often through finance terms. Which of the following statement do you consider to be true?
Correct
Incorrect
Common stock occurs when paid-in capital and retained earnings are payable by a sum of companies.
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Question 27 of 30
27. Question
Sometimes firms borrow money. Why would they do that if it involves extra risk?
Correct
Incorrect
Sometimes companies borrow extra money in order for the company to increase the rate of return earned by its shareholders.
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Question 28 of 30
28. Question
If a levered company is overvalued, what can an investor in that company’s shares do?
Correct
Incorrect
An investor in that company’s shares can always replicate his risk. It can also adjust the debt-equity ratio by borrowing personally.
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Question 29 of 30
29. Question
What does arbitrage ensure?
I. Ensure that perfect substitutes will sell at different prices in the same market at the same time.
II. Ensure that perfect substitutes will sell at multiple prices in the same market at the same time.
III. Ensure that perfect substitutes will not sell at different prices in the same market at the same time.
IV. Ensure that perfect substitutes will sell at the same prices in the same market at the same time.Correct
Incorrect
In the same market at the same time arbitrage always ensure that perfect substitutes will not sell at different prices.
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Question 30 of 30
30. Question
What happens when the market value of the two companies are different?
Correct
Incorrect
One of the main advantages of having the market share difference between the two companies is that investors will enter the market to take advantage of the arbitrage opportunity. This way will force the values of the two companies to be the same.