Corporate Financial Decision Making Exam
Review
Course Introduction
Corporate Financial Decision Making explores the principles and frameworks that guide financial managers in making strategic decisions within corporations. The course covers topics such as capital budgeting, risk assessment, cost of capital, capital structure, dividend policy, and working capital management. Through case studies and practical exercises, students will learn how financial decisions impact organizational value, assess financial performance using quantitative tools, and understand the implications of both short-term and long-term financial strategies. The course also examines the influence of market forces, regulatory environments, and ethical considerations on corporate financial choices.
Recommended Textbook
Fundamentals of Corporate Finance 3rd Australian Edition by Berk DeMarzo
Available Study Resources on Quizplus
23 Chapters
2076 Verified Questions
2076 Flashcards
Source URL: https://quizplus.com/study-set/3433
Page 2
Chapter 1: Corporate Finance and the Financial Manager
Available Study Resources on Quizplus for this Chatper
80 Verified Questions
80 Flashcards
Source URL: https://quizplus.com/quiz/68188
Sample Questions
Q1) Financial decisions require that you weigh alternatives in strictly monetary terms.
A)True
B)False
Answer: False
Q2) If a broker will buy a company share from you at $3.85 and sell it to you at $3.87, the bid price would be $3.85.
A)True
B)False
Answer: True
Q3) Why is a stock exchange like NASDAQ considered a 'secondary market'?
A)Shares sold on it are exchanged between investors without any involvement of the issuing corporation.
B)NASDAQ is called a secondary market because NYSE is considered a primary market. C)The exchange has rules that attempt to ensure that bid and ask prices do not get too far apart.
D)It trades the second largest volume of shares in the world.
Answer: A
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Introduction to Financial Statement Analysis
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/68189
Sample Questions
Q1) A 30-year mortgage loan is a
A)Long-term Liability.
B)Current Asset.
C)Long-term Asset.
D)Current Liability.
Answer: A
Q2) Consider the above statement of cash flows. If all amounts shown above are in millions of dollars, what was AOS Industries' retained earnings figure for 2018?
A)$2.1 million
B)$1.7 million
C)$1.3 million
D)$5.4 million
Answer: B
Q3) Is it possible to learn the true financial health of a corporation like HIH where the financial statements are deceptive?
Answer: Generally speaking, if an informed reader makes a detailed study of the entire contents of a financial statement, it is possible to identify warning signs that the health of the business may not be good.
To view all questions and flashcards with answers, click on the resource link above.
4
Chapter 3: Time Value of Money: an Introduction
Available Study Resources on Quizplus for this Chatper
107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/68190
Sample Questions
Q1) A company decides to close down its plastics division. It has on hand 20 tonnes of styrene monomer, a raw material that has a market price of $700 per tonne, which had been originally purchased at $650 per tonne. Given that the company has no use for the styrene monomer, and that it would cost the company $5 000 to store it, what is the value of the 20 tonnes of styrene monomer to the company?
A)$14 000
B)$13 000
C)$0
D)-$5 000
Answer: A
Q2) 'If equivalent investment opportunities trade simultaneously in different competitive markets, then they must trade for the same price in both markets.' What do we call the above statement?
A)the Net Present Value rule
B)the Valuation Principle
C)the Law of One Price
D)the time value of money
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
Chapter 4: Time Value of Money: Valuing Cash Flow
Streams
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/68191
Sample Questions
Q1) A business promises to pay the investor of $2 000 today with a payment of $500 in one year's time, $1 000 in two years' time and $1 000 in three years' time. What is the net present value of this business opportunity if the interest rate is 5% per year?
A)$247.06
B)$256.88
C)$253.78
D)$261.07
Q2) If a few intermediate cash flows in valuing a stream of cash flows are zero, can we delete those points on the timeline and squeeze the timeline to show only nonzero cash flows?
Q3) $12 500 is invested in a certain business at the start of a year, in return the investor will receive $3 000 at the end of each of the next five years. What is the net present value of this business opportunity if the interest rate is 5% per year?
A)$137.09
B)$443.88
C)$385.10
D)$488.43
Q4) Can we apply the growing perpetuity equation for negative growth as well?
Page 6
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Interest Rates
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/68192
Sample Questions
Q1) What care, if any, should be taken when cash flows occur in periodicities that are shorter than a year - e.g. quarterly or monthly cash flows?
Q2) Which of the following formulas gives you the growth in purchasing power?
A)(1 + inflation rate)/(1 + nominal rate)
B)growth of money/growth of prices
C)(1 + real rate)/(1 + nominal rate)
D)growth of money + growth of prices
Q3) The present value (PV)of receiving $1 000 per year with certainty at the end of the next three years is closest to:
A)$2 723
B)$2 744
C)$2 737
D)$2 733
Q4) A house costs $138 000. It is to be paid off in exactly 10 years, with monthly payments of $1 675. What is the APR of this loan?
A)7.52%
B)8.33%
C)8.00%
D)7.80%
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Bond Valuation
Available Study Resources on Quizplus for this Chatper
100 Verified Questions
100 Flashcards
Source URL: https://quizplus.com/quiz/68193
Sample Questions
Q1) Before it matures, the price of any bond is always less than its face value.
A)True
B)False
Q2) A company issues a 10-year bond at par with a coupon rate of 6% paid semi-annually. The YTM at the beginning of the third year of the bond (8 years left to maturity)is 7.8%. What was the percentage change in the price of the bond over the past two years?
A)11.81%
B)-10.56%
C)-43.04%
D)75.55%
Q3) The current zero-coupon yield curve for risk-free bonds is shown above. What is the risk-free interest rate on a 3-year maturity?
A)3.25%
B)3.15%
C)3.00%
D)6.34%
Q4) A bond is said to mature on the date when the issuer repays its notional value.
A)True
B)False
Page 8
To view all questions and flashcards with answers, click on the resource link above.
Chapter 7: Share Valuation: the Dividend-Discount Model
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/68194
Sample Questions
Q1) An 'ordinary share' is a share in the ownership of a corporation, which carries rights to share in the profits of the firm through future dividend payments.
A)True
B)False
Q2) The above screen shot from Google Finance shows the basic stock information for Wesfarmers Ltd. ("WES")after the close of the ASX on 11 September 2017. What is the highest price WES has traded at in the last 12 months?
A)$41.50
B)$45.49
C)$41.45
D)$41.32
Q3) What is a major assumption about the 'growth rate' in the dividend-discount model?
Q4) Can the dividend-discount model handle negative growth rates?
Q5) Dividends are periodic cash flows given out by the firm to shareholders. It is not necessary for a firm to declare dividends but mature firms tend to pay out dividends.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 9
Chapter 8: Investment Decision Rules
Available Study Resources on Quizplus for this Chatper
113 Verified Questions
113 Flashcards
Source URL: https://quizplus.com/quiz/68195
Sample Questions
Q1) If your new shopping centre will have 160 square metres of retail space available to be leased, to which businesses should you lease and why?
Q2) The payback period for project B is closest to:
A)2.4 years
B)2.0 years
C)2.2 years
D)2.5 years
Q3) If your new shopping centre will have 150 square metres of retail space available to be leased, to which businesses should you lease and why?
Q4) The net present value (NPV)of project B is closest to:
A)3.3
B)2.0
C)4.5
D)5.0
Q5) Under what situation can the net present value (NPV)profile be upward sloping?
Q6) The Net Present Value rule implies that we should compare a project's net present value (NPV)to zero.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Fundamentals of Capital Budgeting
Available Study Resources on Quizplus for this Chatper
96 Verified Questions
96 Flashcards
Source URL: https://quizplus.com/quiz/68196
Sample Questions
Q1) Interest and other financing-related expenses are excluded when determining a project's unlevered net income.
A)True
B)False
Q2) A small manufacturer that makes clothes pegs and other household products buys new injection moulding equipment for a cost of $500 000. This will allow the manufacturer to make more pegs in the same amount of time with an estimated increase in sales of 15%. If the manufacturer currently makes 75 tonnes of pegs per year, which sell at $18 000 per tonne, what will be the increase in revenue next year from the new equipment?
A)$80 500
B)$20 700
C)$202 500
D)$857 000
Q3) Capital budgeting decisions use the Net Present Value rule so that those decisions maximise net present value (NPV).
A)True
B)False
Q4) What is 'break-even analysis'?
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Share Valuation: a Second Look
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/68197
Sample Questions
Q1) Which of the following statements is FALSE?
A)We can interpret the enterprise value as the net cost of acquiring the firm's equity, taking its cash, and paying off all debts.
B)Free cash flow measures the cash generated by the firm after payments to debt or equity holders are considered.
C)We estimate a firm's current enterprise value by computing the present value (PV)of the firm's free cash flow.
D)The more cash the firm uses to repurchase shares, the less it has available to pay dividends.
Q2) Individual investors trade conservatively, given the difficulty of finding over- and under-valued stocks.
A)True
B)False
Q3) The Dividend-Discount Model is the simplest model to use if you want to value a firm that consistently pays out its earnings as dividends.
A)True
B)False
Q4) Which is the best valuation technique when using comparables?
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: Risk and Return in Capital Markets
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/68198
Sample Questions
Q1) The standard deviation for the return on an individual firm is closest to:
A)15.0%
B)10.0%
C)23.0%
D)5.25%
Q2) Assume that the average annual historical return for shares that comprise the Australian All Ordinaries index is 10%, and the standard deviation of returns is 20%. Based on these numbers, what is a 95% prediction interval for 2016 returns?
A)-15%, 25%
B)-30%, 50%
C)-20%, 40%
D)-30%, 40%
Q3) Versa Co share prices gave a realised return of 30%, -20%, -10%, and 5% over four successive quarters. What is the annual realised return for Versa Co for the year?
A)-5.00%
B)5.00%
C)-1.27%
D)-1.72%
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: Systematic Risk and the Equity Risk Premium
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/68199
Sample Questions
Q1) CSL, a pharmaceutical company, has a beta of 1.2, and Woolworths has a beta of 0.8. The risk-free rate of interest is 4% and the market risk premium is 7%. What is the expected return on a portfolio with 40% of its money in CSL and the balance in Woolworths?
A)11.85%
B)9.91%
C)10.01%
D)10.72%
Q2) The market portfolio is the portfolio of all risky investments held:
A)in descending weights.
B)in ascending weights.
C)based on previous year performance.
D)in proportion to their value.
Q3) The security market line is a graph of the expected return of a security as a function of systematic risk (beta).
A)True
B)False
Q4) What diversification, if any, is achieved if two shares in a portfolio are perfectly positively correlated?
Q5) Is it possible for a share to have high total risk but low systematic risk?
Page 14
To view all questions and flashcards with answers, click on the resource link above.
Chapter 13: The Cost of Capital
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/68200
Sample Questions
Q1) When a firm is evaluating the purchase of a business that is unrelated to its current business, it is appropriate to use the current WACC of the firm that is purchasing the business.
A)True
B)False
Q2) Many financial managers use market risk premiums that are closer to 5%, which is lower than historical averages, because investors require a ________ risk premium for holding risky securities than in the past.
A)similar
B)lower
C)higher
D)None of the above.
Q3) When we use the WACC to assess a project, we assume that the ________ ratio does not change.
A)volatility to systematic risk
B)debt-to-equity
C)risk to reward
D)reward to systematic risk
To view all questions and flashcards with answers, click on the resource link above.
15
Chapter 14: Raising Capital
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/68201
Sample Questions
Q1) Which of the following statements is FALSE?
A)In Australia, most SEOs are cash offers.
B)If a firm's management is concerned that its equity may be underpriced in the market, by using a rights offering the firm can continue to issue equity without imposing a loss on its current shareholders.
C)Secondary shares are shares sold by existing shareholders, including the company's founder.
D)In a rights offer, the firm offers the new shares only to existing shareholders.
Q2) Rights offers protect existing shareholders from underpricing.
A)True
B)False
Q3) Suppose you sold the 1.25 million shares to the angel investor for $500 000. What was the post-money valuation of your shares immediately following the angel investor's investment?
A)$2.0 million
B)$500 000
C)$1.0 million
D)$2.5 million
To view all questions and flashcards with answers, click on the resource link above.
16
Chapter 15: Debt Financing
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/68202
Sample Questions
Q1) What kind of corporate debt must be secured by real property?
A)Mortgage bonds
B)Notes
C)Debentures
D)Asset-backed bonds
Q2) A 'call provision' is an option to the issuer to repurchase the bonds at a predetermined price.
A)True
B)False
Q3) Private debt can be in the form of bonds.
A)True
B)False
Q4) 'Notes' are unsecured debt with typical maturities less than seven years.
A)True
B)False
Q5) Covenants in a bond contract restrict the actions that management of a firm can take that would benefit the debt holders of the firm at the expense of the equity holders of that firm.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Capital Structure
Available Study Resources on Quizplus for this Chatper
109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/68203
Sample Questions
Q1) A project will give a one-time cash flow of $20 000 after one year. If the project risk requires a return of 8%, what is the levered value of the firm with perfect capital markets?
A)$18 519
B)$19 882
C)$19 915
D)More information is needed
Q2) Issuing debt provides incentives for managers to run the firm efficiently because A)debt increases the funds available to managers to run the firm.
B)shareholders prefer to decline new projects to save cash, even if their NPVs are positive.
C)ownership may remain more concentrated, improving monitoring of management. D)managers may take actions that benefit shareholders but harm creditors and lower the value of the firm.
Q3) Financial managers prefer to choose the same debt level no matter which industry they operate in.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
18
Chapter 17: Payout Policy
Available Study Resources on Quizplus for this Chatper
101 Verified Questions
101 Flashcards
Source URL: https://quizplus.com/quiz/68204
Sample Questions
Q1) Another to method to repurchase shares is the ________, in which the firm lists different prices at which it is prepared to buy shares, and shareholders in turn indicate how many shares they are willing to sell at each price.
A)open market repurchase
B)selective buyback
C)equal access buyback
D)Dutch auction
Q2) A firm may announce its intention to buy its own shares in the open market like any other investor, also known as a(n)
A)open market repurchase.
B)off-market buyback.
C)selective buyback.
D)scale-back.
Q3) Firms may retain large amounts of cash to cover future potential needs that allows a firm to avoid
A)clientele effects.
B)transaction costs and financial distress costs.
C)tax payments.
D)None of the above.
To view all questions and flashcards with answers, click on the resource link above.
Page 19
Chapter 18: Financial Modelling and Pro-Forma Analysis
Available Study Resources on Quizplus for this Chatper
102 Verified Questions
102 Flashcards
Source URL: https://quizplus.com/quiz/68205
Sample Questions
Q1) 'Internal growth rate' indicates whether a planned investment will increase or decrease firm value.
A)True
B)False
Q2) The amount of net working capital for Ideko in 2015 was closest to:
A)$42 420
B)$26 420
C)$35 195
D)$22 170
Q3) What is the free cash flow to equity holders for a firm with free cash flow of $9 000, after-tax interest expense of $3 000, and an increase in debt of $1 000?
A)$7 000
B)$8 000
C)$9 000
D)$6 000
Q4) 'Net new financing' is computed as the difference between projected assets and projected equity.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Working Capital Management
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/68206
Sample Questions
Q1) Which of the following statements is FALSE?
A)Suppliers may react to a firm whose payments are always late by imposing terms of cash on delivery (COD)or cash before delivery (CBD).
B)Some firms ignore the payment due period and pay later, in a practice referred to as 'pushing the accounts payable'.
C)Similar to the situation with its accounts receivable, a firm should monitor its accounts payable to ensure that it is making its payments at an optimal time.
D)If the accounts payable outstanding is 40 days and the terms are 2/10 net 30, the firm can conclude that it generally pays late and may be risking supplier difficulties.
Q2) What is the effective annual cost of credit terms of 3/15 net 30, if the firm stretches the accounts payable to 60 days?
A)3.35%
B)28.03%
C)12.65%
D)1.7%
To view all questions and flashcards with answers, click on the resource link above.
Chapter 20: Option Applications and Corporate Finance
Available Study Resources on Quizplus for this Chatper
95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/68207
Sample Questions
Q1) Which of the following statements is FALSE?
A)Put options increase in value as the share price falls.
B)A put option cannot be worth more than its exercise price.
C)A European option cannot be worth less than its American counterpart.
D)The intrinsic value of an option is the value it would have if it expired immediately.
Q2) Which of the following statements is FALSE?
A)A 'put option' gives the owner the right to sell the asset.
B)A 'call option' gives the owner the right to buy the asset.
C)A 'financial options contract' gives the writer the right (but not the obligation)to purchase or sell an asset at a fixed price at some future date.
D)A 'share option' gives the holder the option to buy or sell a share on or before a given date for a given price.
Q3) The ________ is the total number of contracts of a particular option that have been written and not yet closed.
A)turnover
B)local turnover
C)open interest
D)mark interest
To view all questions and flashcards with answers, click on the resource link above.
22
Chapter 21: Mergers and Acquisitions
Available Study Resources on Quizplus for this Chatper
43 Verified Questions
43 Flashcards
Source URL: https://quizplus.com/quiz/68208
Sample Questions
Q1) Which of the following statements regarding mergers and diversification is FALSE?
A)Like a large portfolio, large firms bear less idiosyncratic risk, so often mergers are justified on the basis that the combined firm is less risky.
B)Because it may be easier to measure performance accurately in a conglomerate, agency costs may be reduced and resources may be more efficiently allocated.
C)Because most shareholders will already be holding a well-diversified portfolio, they get no further benefit from the firm diversifying through acquisition.
D)Because employees are obligated to hold idiosyncratic risk, they benefit when the firm reduces that risk by conglomerating.
Q2) On average, when a bid is announced, the share price of the target rises.
A)True
B)False
Q3) The 1980s era was known as the 'conglomerate wave' because firms typically acquired firms in unrelated businesses.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 22: International Corporate Finance
Available Study Resources on Quizplus for this Chatper
107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/68209
Sample Questions
Q1) Your firm needs to pay its British supplier £1 000 000. If the exchange rate is AU$1.61/ £, how many dollars will you need to pay the British supplier?
A)$385 787
B)$1 610 000
C)$621 118
D)$1 000 000
Q2) A 'currency options contract' is written between a firm and a bank and it fixes the currency exchange rate for a transaction that will occur at a future date.
A)True
B)False
Q3) Using the covered interest parity condition, the calculated one-year forward rate F<sub>1 </sub>is closest to:
A)$1.8961/£
B)$1.9161/£
C)$1.8764/£
D)$1.8568/£
To view all questions and flashcards with answers, click on the resource link above. Page 24
Chapter 23: Insurance and Risk Management
Available Study Resources on Quizplus for this Chatper
38 Verified Questions
38 Flashcards
Source URL: https://quizplus.com/quiz/68210
Sample Questions
Q1) A floating interest rate adjusts to current market conditions.
A)True
B)False
Q2) Assuming that your firm will purchase insurance, what is the minimum-size deductible that would leave your firm with an incentive to implement the new safety policies? Show your calculations.
Q3) To cover the costs that result if some aspect of the business causes harm to a third party or someone else's property, a firm would purchase
A)business liability insurance.
B)business interruption insurance.
C)property insurance.
D)key personnel insurance.
To view all questions and flashcards with answers, click on the resource link above. Page 25