Intermediate Corporate Finance
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Course Introduction
Intermediate Corporate Finance builds upon the foundational principles of financial management to explore more advanced topics in corporate finance. The course delves into capital structure decisions, dividend policy, working capital management, and corporate valuation techniques. Students will analyze risk and return trade-offs, financing alternatives, mergers and acquisitions, and the impact of financial markets on corporate strategies. Real-world case studies and quantitative analysis are utilized to deepen understanding of how financial theory is applied to solve complex business problems and to support value creation in organizations.
Recommended Textbook
Corporate Finance Core Principles and Applications 5th Edition by Stephen Ross
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Page 2
Chapter 1: Introduction to Corporate Finance
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Sample Questions
Q1) Which one of the following statements is correct concerning corporations?
A)The shareholders of a corporation select the top managers of that corporation.
B)A corporation is a distinct legal entity.
C)The stockholders are usually the managers of a corporation.
D)The ability of a corporation to raise capital is quite limited.
E)The income of a corporation is taxed as personal income of the stockholders.
Answer: B
Q2) A business entity operated and taxed like a partnership,but with limited liability for the owners,is called a
A)limited liability company.
B)general partnership.
C)limited proprietorship.
D)sole proprietorship.
E)corporation.
Answer: A
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Chapter 2: Financial Statements AMCQ Cash Flow
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Q1) Cash flow to stockholders must be positive when
A)the net sale of common stock exceeds the amount of dividends paid.
B)no income is distributed but new shares of stock are sold.
C)both the cash flow to assets and the cash flow to creditors are negative.
D)both the cash flow to assets and the cash flow to creditors are positive.
E)the dividends paid exceed the net new equity raised.
Answer: E
Q2) A firm has total equity of $2,011,net working capital of $175,long-term debt of $890,and current liabilities of $420.What is the amount of the net fixed assets?
A)$2,325
B)$2,974
C)$2,726
D)$3,075
E)$2,825
Answer: C
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Chapter 3: Financial Statements Analysis Amcq Financial
Models
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Sample Questions
Q1) A common-size income statement expresses dividends as 3.6 percent.This means that dividends represent 3.6 percent of A)net income.
B)total assets.
C)sales.
D)taxable earnings.
E)total owners' equity.
Answer: C
Q2) A total asset turnover measure of 0.84 means that a firm has $0.84 in A)sales for every $1 in total assets.
B)total assets for every $1 in sales.
C)total assets for every $1 in total equity.
D)total assets for every $1 in cash.
E)long-term assets for every $1 in total assets.
Answer: A
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Page 5
Chapter 4: Discounted Cash Flow Valuation
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Q1) Assume a stated rate of interest of 8 percent.Which form of compounding will produce the highest effective rate of interest?
A)Daily
B)Annual
C)Continuous
D)Monthly
E)Semiannual
Q2) Which one of the following would have the greatest value assuming each has a Year 0 cash flow of zero and a Year 1 annual cash flow of $100? Assume a discount rate of 8 percent,compounded annually.Also,assume any growth rate is positive.
A)Perpetuity
B)Annuity
C)Growing perpetuity
D)Growing annuity
E)Growing perpetuity or growing annuity,as they would have equal values
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Chapter 5: Interest Rates AMCQ Bomcq Valuation
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Q1) ______bonds pay interest that is taxed only at the federal level.
A)Municipal
B)Corporate
C)Treasury
D)Mortgage
E)Zero coupon
Q2) The yield to maturity on a bond is the rate
A)computed as the annual interest divided by the bond's market price.
B)an investor earns if the bond is sold prior to the maturity date.
C)of annual interest initially offered when the bond was issued.
D)of return currently required by the market.
E)of annual interest paid on the bond.
Q3) A zero coupon bond has a yield to maturity of 7.48 percent,semiannual compounding,a $1,000 face value,and a market quote of 41.0932.How many years is it until this bond matures?
A)24.22 years
B)23.18 years
C)12.11 years
D)24.66 years
E)12.33 years
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Chapter 6: Stock Valuation
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Sample Questions
Q1) Denver Machinery has 140,800 shares of stock outstanding,and each share receives one vote for each open seat on the board of directors.There are five open seats at this time.How many shares must you control to guarantee your personal election to the board if the firm uses cumulative voting?
A)17,001 shares
B)28,001 shares
C)28,160 shares
D)23,468 shares
E)19,251 shares
Q2) New Tours last annual dividend was $2 a share.The company plans to lower the dividend by $.30 each year for the next 3 years.In Year 5,it will pay a final liquidating dividend of $17 a share.If the required return is 22 percent,what is the current per share value of this stock?
A)$9.23
B)$13.08
C)$10.61
D)$14.13
E)$8.86
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Chapter 7: Net Present Value AMCQ Other Investment Rules
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Q1) The payback method is a convenient and useful tool because
A)it provides a quick estimate of how rapidly an initial investment will be recouped.
B)it considers all of a project's relevant cash flows.
C)it considers the time value of money.
D)the required payback period for all of a firm's projects must be identical.
E)it only considers the cash flows within the current period of 12 months.
Q2) The discounted payback period of a project will decrease whenever the A)initial cash outlay for the project is increased.
B)amount of each projected cash inflow is decreased.
C)discount rate applied to the project is decreased.
D)time period of the project is increased.
E)costs of the fixed assets utilized in the project increase.
Q3) The two most commonly used methods of capital budgeting analysis are the
A)internal rate of return and net present value methods.
B)net present value and payback methods.
C)profitability index and the internal rate of return methods.
D)net present value and discounted payback methods.
E)average accounting return and discounted payback methods.
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Chapter 8: Making Capital Investment Decisions
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Sample Questions
Q1) A project will produce operating cash flows of $39,000 a year for 4 years.During the life of the project,inventory will be lowered by $9,000,accounts receivable will increase by $14,000,and accounts payable will increase by $11,000.The project requires $118,000 of new equipment that will be depreciated straight-line to a zero book value over 4 years.At the end of the project,net working capital will return to its normal level and the equipment will be sold for $21,000,aftertaxes.What is the net present value given a required return of 13 percent?
A)$14,322.49
B)$13,483.48
C)$18,117.05
D)$13,204.16
E)$12,804.42
Q2) When determining a minimum bid price,you should assume the
A)net present value is zero.
B)net profit is zero.
C)discount rate equals the risk-free rate.
D)depreciation is based on the straight-line method.
E)fixed assets are unaffected.
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Chapter 9: Risk Analysis, Real Options, AMCQ Capital Budgeting
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Q1) Rizzo's is considering a project with a life of 5 years and an initial cost of $131,000.The discount rate for the project is 14 percent.The firm expects to sell 2,100 units a year.The cash flow per unit is $23.The firm will have the option to abandon this project after 3 years at which time it expects it could sell the project for $49,000.At what level of sales should the firm be willing to abandon this project?
A)1,087 units
B)1,294 units
C)1,479 units
D)1,619 units
E)1,502 units
Q2) At a production level of 7,500 units,a project has earnings before interest and taxes of $48,310.Depreciation is $9,700,and fixed costs are $12,200.What is the variable cost per unit if the sales price per unit is $29.50?
A)$21.43
B)$24.07
C)$17.76
D)$18.92
E)$20.14
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Chapter 10: Risk Amcq Return: Lessons From Market History
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Sample Questions
Q1) A stock had returns of 11 percent,26 percent,8 percent,and 38 percent annually for the past 4 years.What is the mean and variance of these returns?
A)1)75%;.057319
B)1)75%;.076425
C)3)50%;.057319
D)3)50%;.062833
E)3)50%;.076425
Q2) On average,for the period 1926 to 2015
A)U)S.Treasury bills had a negative risk premium.
B)small-company stocks underperformed large-company stocks.
C)large-company stocks had a higher risk premium than long-term corporate bonds.
D)intermediate-term government bonds produced higher returns than long-term government bonds.
E)large-company stocks had a higher risk premium than small-company stocks.
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Chapter 11: Return Amcq Risk: the Capital Asset Pricing
Model Capm
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Q1) If a stock portfolio is well diversified,then the portfolio variance
A)must be equal to or greater than the variance of the least risky stock in the portfolio.
B)will be a weighted average of the variances of the individual securities in the portfolio.
C)will equal the variance of the most volatile stock in the portfolio.
D)will be an arithmetic average of the variances of the individual securities in the portfolio.
E)may be less than the variance of the least risky stock in the portfolio.
Q2) Angelo anticipates earning a rate of return of 11.4 percent on his portfolio next year.The 11.4 percent is referred to as the A)expected return.
B)future return.
C)holding period return.
D)actual return.
E)average return.
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13
Chapter 12: Risk, cost of Capital, AMCQ Valuation
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Sample Questions
Q1) Assume the S&P 500 has a dividend yield of 3.2 percent.Analysts expect overall dividends to grow at 5.4 percent annually.Treasury bills yield 2.1 percent.The expected market rate of return is ________ percent,and the market risk premium is ________ percent.
A)10.7;1.1
B)10.7;6.5
C)8)6;6.5
D)8)6;1.1
E)5)3;1.1
Q2) Companies A and B are identical except for their capital structures.Company A is an all-equity company while Company B is levered.Given this,you can assume that Company B's equity beta is ________ Company A's beta and its debt beta is assumed to be ________.
A)greater than;equal to zero
B)greater than;equal to one
C)equal to;equal to the market beta
D)less than: equal to zero
E)less than;equal to one
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Chapter 13: Efficient Capital Markets Amcq Behavioral Challenges
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Q1) Which one of the following statements is correct concerning market efficiency?
A)New information will gradually be reflected in a stock's price to avoid any sudden change in the price of the stock in an efficient market.
B)In an efficient market,some market participants will have an advantage over others.
C)If a market is efficient,arbitrage opportunities should be common.
D)Real asset markets are more efficient than financial markets.
E)A firm will generally receive a fair price when it sells shares of stock in an efficient market.
Q2) Markets tend to be efficient when
A)arbitrage is unlawful.
B)amateurs dominate the market.
C)all investors are required to be rational.
D)professional arbitrage exceeds amateur speculation.
E)prices adjust to new information slowly.
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15
Chapter 14: Capital Structure: Basic Concepts
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Q1) MM Proposition I,with tax,supports the theory that
A)the value of an unlevered firm is equal to the value of a levered firm plus the interest tax shield.
B)the value of a firm is inversely related to the amount of leverage used by the firm.
C)there is a positive linear relationship between the debt-to-equity ratio and firm value.
D)a firm's cost of capital is the same regardless of the mix of debt and equity used by the firm.
E)a firm's weighted average cost of capital increases as the debt-equity ratio of the firm increases.
Q2) A firm has a debt-equity ratio of 1.Its cost of equity is 17.4 percent and its pretax cost of debt is 7.2 percent.Assume there are no taxes or other imperfections.What would be its cost of equity if the debt-equity ratio were zero?
A)8)8%
B)10.9%
C)12.3%
D)13.1%
E)11.6%
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Page 16
Chapter 15: Capital Structure: Limits to the Use of Debt
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Sample Questions
Q1) For next year,the probability the economy will do well is 82 percent,and Importers Unlimited will have a firm value of $68,000.If the economy tanks,the firm's value will decline to $43,000.The firm owes its bondholders $50,000.What is the value of this firm to its shareholders if the firm will close after next year?
A)$14,760
B)$13,380
C)$18,000
D)$16,410
E)$13,520
Q2) A firm that has a negative net worth is said to be
A)experiencing accounting insolvency.
B)in legal bankruptcy.
C)experiencing technical insolvency.
D)experiencing a business failure.
E)in Chapter 11 bankruptcy reorganization.
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17
Chapter 16: Dividemcqs AMCQ Other Payouts
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Q1) If all clientele groups are currently satisfied,then
A)all future cash dividends should be in the form of stock dividends.
B)changes in a single company's dividend policy will have no effect on the company's market value.
C)companies can increase their market value by increasing their current dividends.
D)all future cash distributions should be in the form of stock repurchases.
E)all investors are taxed equally on their dividend income and capital gains.
Q2) How frequently do dividend-paying firms in the United States generally pay regular cash dividends?
A)Annually
B)Semiannually
C)Quarterly
D)Monthly
E)Biannually
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Chapter 17: Options Amcq Corporate Finance
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Q1) If you express a firm in terms of put options,the
A)current value of the firm is the exercise price.
B)option will always be in the money.
C)stockholders will be considered as the firm's owners.
D)bondholders determine whether or not the option will be exercised.
E)bondholders are the buyers of the put.
Q2) You own an October 12 call and an October 12 put on SC stock.If the call finishes in the money,then the put will
A)also finish in the money.
B)finish out of the money.
C)finish at the money.
D)either finish at the money or out of the money.
E)either finish at the money or in the money.
Q3) Benny's is reviewing a $462,000 project that is expected to increase the firm's equity by $141,300 What is the project's delta?
A)0)2889
B)0)3058
C)0)2948
D)0)3103
E)0)2701
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Chapter 18: Short-Term Finance Amcq Planning
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Q1) Which one of the following will decrease the operating cycle?
A)Paying accounts payable faster
B)Discontinuing the discount given for early payment of an accounts receivable
C)Decreasing the inventory turnover rate
D)Collecting accounts receivable faster
E)Increasing the accounts payable turnover rate
Q2) Which one of these statements is correct?
A)A firm might be able to charge higher prices if it switches from a flexible to a restrictive short-term financial policy.
B)If a firm adopts a restrictive short-term financial policy,its current assets will be greater than if it adopts a flexible policy.
C)If a firm switches from a flexible short-term financial policy to a restrictive policy,it is likely to see an increase in its uncollectible accounts receivable.
D)If a firm switches from a restrictive short-term financial policy to a flexible policy,its operating cycle will most likely decrease.
E)Future cash flows are expected to be higher if a firm adopts a flexible,rather than a restrictive,short-term financial policy.
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Page 20
Chapter 19: Raising Capital
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Q1) A stock with a file price range of ________,a final offer price of ________,and a first-day closing price of ________ is the best example of the partial adjustment phenomenon.
A)$14 $16;$15;$16
B)$10 $12;$16;$15
C)$16 $18;$15;$12
D)$10 $12;$24;$24
E)$11-$13;$22;$29
Q2) What is the legal document called that is provided to potential investors and describes a new security offering?
A)Prospectus
B)Security agreement
C)Formal filing
D)Registration statement
E)Public statement
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21
Chapter 20: International Corporate Finance
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Q1) The theory that real interest rates are equal across countries is called
A)purchasing power parity.
B)the international Fisher effect.
C)the unbiased forward rates condition.
D)uncovered interest parity.
E)interest rate parity.
Q2) Up-Town Markets exchanged their floating-rate payments with Downtown Markets' fixed-rate payments.This exchange is referred to as a A)gilt exchange.
B)forward rate.
C)cross-rate.
D)spot exchange.
E)swap.
Q3) International bonds issued in a single country and denominated in that country's currency are called
A)Treasury bonds.
B)Eurobonds.
C)foreign bonds.
D)Brady bonds.
E)gilts.
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Chapter 21: Mergers Amcq Acquisitions Web Only
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Q1) Which one of these should be the primary appeal of unused debt capacity to a bidder firm?
A)Ability to borrow additional funds to increase management bonuses
B)Source of funding for negative net present value projects
C)Increased funding for the payment of unsustainable dividends
D)Tax savings resulting from increased interest expense on additional debt
E)Debt funding for a golden parachute
Q2) Dog Treats has 7,500 shares of stock outstanding at a market price per share of $13.FIDO has 22,000 shares outstanding that sell for $26 a share.By merging,$12,600 of synergy can be created.What would be the postmerger value of the combined firm if FIDO pays $100,000 to acquire Dog Treats?
A)$569,500
B)$582,100
C)$556,100
D)$669,500
E)$682,100
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