Managerial Finance Test Questions
Course Introduction
Managerial Finance explores the principles and techniques that managers use to make financial decisions within organizations. The course covers key areas such as financial analysis, planning, and control, funding sources, capital budgeting, risk assessment, and value creation. Students learn how to interpret financial statements, evaluate investment opportunities, determine cost of capital, and manage short-term and long-term financial resources efficiently. Emphasis is placed on applying financial concepts to real-world business scenarios to support strategic decision-making and drive organizational success.
Recommended Textbook
Corporate Finance 12th Edition by Ross
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Page 2
Chapter 1: Introduction to Corporate Finance
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Q1) The cheapest business entity to form is typically the:
A)limited liability company.
B)joint stock company.
C)general partnership.
D)limited partnership.
E)sole proprietorship.
Answer: E
Q2) Which one of these is a cash outflow from a corporation?
A)Sale of an asset
B)Tax payment
C)Sale of common stock
D)Issuance of debt
E)Profit retained by the firm
Answer: B
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Page 3
Chapter 2: Financial Statements and Cash Flow
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Q1) An increase in which one of the following will cause the operating cash flow to increase for a profitable firm?
A)Depreciation
B)Cash
C)Net working capital
D)Taxes
E)Administrative expenses
Answer: A
Q2) Earnings per share will increase when:
A)depreciation decreases.
B)the number of shares outstanding increase.
C)operating income decreases.
D)dividends per share decrease.
E)the average tax rate increases.
Answer: A
Q3) Why is cash flow management important?
Answer: Generally Accepted Accounting Principles (GAAP)allow significant subjective decisions to be made in many key areas.The use of cash flow as a metric to evaluate a company comes from the idea that there is less subjectivity involved and therefore,it is harder to spin the numbers.
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Chapter 3: Financial Statements and Cash Flow
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Sample Questions
Q1) Marcie's Mercantile wants to maintain its current dividend policy,which is a payout ratio of 35 percent.The firm does not want to increase its equity financing but is willing to maintain its current debt-equity ratio.Given these requirements,the maximum rate at which Marcie's can grow is equal to:
A)35 percent of the internal rate of growth.
B)65 percent of the internal rate of growth.
C)the internal rate of growth.
D)the sustainable rate of growth.
E)65 percent of the sustainable rate of growth.
Answer: D
Q2) Southern Markets has sales of $78,400,net income of $2,400,costs of goods sold of $43,100,and depreciation of $6,800.What is the common-size statement value of EBIT?
A)36.35 percent
B)38.08 percent
C)41.93 percent
D)32.49 percent
E)35.46 percent
Answer: A
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Page 5
Chapter 4: Discounted Cash Flow Valuation
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Sample Questions
Q1) The Smart Bank wants to be competitive based on quoted loan rates and thus must offer loans at an annual percentage rate of 7.9 percent.What is the maximum rate the bank can actually earn based on this quoted rate?
A)7.90 percent
B)8.18 percent
C)8.20 percent
D)8.22 percent
E)8.39 percent
Q2) Lois is purchasing an annuity that will pay $5,000 annually for 20 years,with the first annuity payment made on the date of purchase.What is the value of the annuity on the purchase date given a discount rate of 7 percent?
A)$54,282.98
B)$52,970.07
C)$56,677.98
D)$56,191.91
E)$66,916.21
Q3) Explain the net present value formula and also explain what the net present value represents.
NPV = Cost + PV
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Page 6
Chapter 5: Net Present Value and Other Investment Rules
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Sample Questions
Q1) A financing project has an initial cash inflow of $42,000 and cash flows of $15,600, $22,200,and $18,000 for Years 1 to 3,respectively.The required rate of return is 13 percent.What is the internal rate of return? Should the project be accepted?
A)15.26 percent; accept
B)15.26 percent; reject
C)13.44 percent; reject
D)13.44 percent; accept
E)10.33 percent; accept
Q2) A project will have more than one IRR if,and only if,the:
A)primary IRR is positive.
B)primary IRR is negative.
C)NPV is zero.
D)cash flow pattern exhibits more than one sign change.
E)cash flow pattern exhibits exactly one sign change.
Q3) The IRR rule is said to be a special case of the NPV rule.Explain why this is so and why IRR has some limitations NPV does not.
Q4) Explain the differences and similarities between net present value (NPV)and the profitability index (PI).
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Page 7
Chapter 6: Making Capital Investment Decisions
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Sample Questions
Q1) Bruno's is analyzing two machines to determine which one it should purchase.The company requires a rate of return of 14.6 percent and uses straight-line depreciation to a zero book value over a machine's life.Ignore bonus depreciation and taxes.Machine A has a cost of $318,000,annual operating costs of $8,700,and a life of 3 years.Machine B costs $247,000,has annual operating costs of $9,300,and a life of 2 years.Whichever machine is purchased will be replaced at the end of its useful life.Which machine should Bruno's purchase and why?
A)Machine A; because it will save the company about $13,406 a year
B)Machine A; because it will save the company about $18,100 a year
C)Machine B; because it will save the company about $16,510 a year
D)Machine B; because it will save the company about $11,609 a year
E)$154,224.08
Q2) The top-down approach to computing the operating cash flow:
A)ignores all noncash items.
B)applies only if a project produces sales.
C)can only be used if the entire cash flows of a firm are included.
D)is equal to: Sales Costs Taxes + Depreciation.
E)includes the interest expense related to a project.
Q3) Should financing costs be included as an incremental cash flow in capital budgeting analysis?
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Chapter 7: Risk Analysis, real Options, and Capital Budgeting
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Sample Questions
Q1) The accounting profit break-even point is unaffected by a firm's:
A)contribution margin.
B)depreciation method.
C)tax rate.
D)fixed costs.
E)variable cost per unit.
Q2) Sensitivity analysis is primarily designed to determine the:
A)range of possible outcomes given the expected ranges for every variable.
B)degree to which the net present value reacts to changes in a single variable.
C)net present value given the best and the worst possible expected situations.
D)degree to which a project relies on financial leverage.
E)best mix of fixed and variable costs for each project.
Q3) Including the option to expand in your project analysis will tend to:
A)extend the duration of a project but not affect the project's net present value.
B)increase the cash flows of a project but decrease the project's net present value.
C)increase the net present value of a project.
D)decrease the net present value of a project.
E)have no effect on either a project's cash flows or its net present value.
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Chapter 8: Interest Rates and Bond Valuation
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Sample Questions
Q1) All else constant,a bond will sell at ________ when the yield to maturity is ________ the coupon rate.
A)a premium; greater than B)a premium; equal to C)at par; greater than D)at par; less than E)a discount; greater than
Q2) Moon Lite Cafe has a semiannual,5 percent coupon bond with a current market price of $988.52.The bond has a par value of $1,000 and a yield to maturity of 5.68 percent.How many years is it until this bond matures?
A)1.5 years
B)1.8 years
C)2.1 years
D)2.2 years
E)1.6 years
Q3) Interest rate risk is often explained by using the concept of a teeter-totter.Explain interest rate risk and how it is related to the movements of a teeter-totter.
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Chapter 9: Stock Valuation
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Sample Questions
Q1) Martha's recently paid an annual dividend of $3.60 on its common stock.This dividend increases by 2.5 percent per year.What is the market rate of return if the stock is selling for $32.65 a share?
A)12.57 percent
B)13.45 percent
C)15.55 percent
D)16.05 percent
E)13.80 percent
Q2) The dividend yield on Alpha's common stock is 5.2 percent.The company just paid a $2.10 dividend.The rumour is that the dividend will be $2.30 next year.The dividend growth rate is expected to remain constant at the current level.What is the required rate of return on Alpha's stock?
A)14.72 percent
B)12.31 percent
C)18.29 percent
D)20.01 percent
E)24.21 percent
Q3) Explain whether it is easier to find the required return on a publicly traded stock or a publicly traded bond,and explain why.
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Page 11
Chapter 10: Lessons From Market History
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Sample Questions
Q1) One year ago,you purchased a stock at a price of $32.50.The stock pays quarterly dividends of $.40 per share.Today,the stock is worth $34.60 per share.What is the total dollar return per share to date from this investment?
A)$3.40
B)$3.70
C)$2.10
D)$2.50
E)$3.80
Q2) What are the arithmetic and geometric average returns (Answer in that order.)for a stock with annual returns of 4 percent,9 percent, 6 percent,and 18 percent?
A)5.89 percent; 6.25 percent
B)6.25 percent; 5.89 percent
C)6.25 percent; 8.33 percent
D)8.33 percent; 5.89 percent
E)8.33 percent; 8.33 percent
Q3) What does the historical record reveal about the relationship between the returns on U.S.Treasury bills and the rate of inflation as measured by the consumer price index? Is this relationship what investors would tend to expect? Why or why not?
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Page 12
Chapter 11: Return, risk, and the Capital Asset Pricing Model
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Q1) Stock M has a beta of 1.2.The market risk premium is 7.8 percent and the risk-free rate is 3.6 percent.Assume you compile a portfolio equally invested in Stock M,Stock N,and a risk-free security; the portfolio has a beta equal to the overall market.What is the expected return on the portfolio?
A)11.2 percent
B)10.8 percent
C)10.4 percent
D)11.4 percent
E)11.7 percent
Q2) The stock of Big Joe's has a beta of 1.38 and an expected return of 16.26 percent.The risk-free rate of return is 3.42 percent.What is the expected return on the market?
A)7.60 percent
B)8.04 percent
C)9.30 percent
D)12.72 percent
E)12.16 percent
Q3) According to the CAPM,the expected return on a risky asset depends on three components.Describe each component,and explain its role in determining expected return.
Page 13
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Chapter 12: An Alternative View of Risk and Return: the Arbitrage
Pricing Theory
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Sample Questions
Q1) Outdoor Products stock has an expected return of 12.6 percent and betas of: <sub>GNP</sub> = 1.52; <sub>I</sub> = 1.06; and <sub>Ex</sub> = 1.28.This expectation is based on a three-factor model with expected values of: GNP growth of 3.2 percent; inflation of 2.9 percent; and export growth of 2.2 percent.However,actual growth in these factors turns out to be 3.6 percent,3.2 percent,and 2.5 percent,respectively.Calculate the stock's total return if the company unexpectedly announces they had an industrial accident and the operating facilities will close down temporarily which will reduce the return by 7 percent (from 10 percent down to 3 percent).
A) 4.05 percent
B)6.91 percent
C)3.57 percent
D)7.42 percent
E) 1.85 percent
Q2) A criticism of the CAPM is that it:
A)ignores the rate of return on the market portfolio.
B)ignores the risk-free rate.
C)requires a single measure of systematic risk.
D)utilizes too many factors.
E)contradicts the single-factor APT model.
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Chapter 13: Risk, cost of Capital, and Valuation
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Sample Questions
Q1) The beta of a security is calculated as: (________ of a security's return with the return on the market portfolio/________).
A)Variance; Covariance of the market return
B)Covariance; Variance of the market return
C)Covariance; Standard deviation of the market return
D)Variance; Covariance of the security return
E)Covariance; Variance of the security return
Q2) Explain a)the factors that determine a security's beta and b)how asset beta relates to equity beta.
Q3) Winslow and Sons is expected to pay an annual dividend of $1.35 per share one year from now with future increases of 2.5 percent annually.The stock currently sells for $14.70 a share.What is the cost of equity?
A)13.48 percent
B)12.29 percent
C)12.60 percent
D)11.68 percent
E)13.23 percent
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Chapter 14: Efficient Capital Markets and Behavioral Challenges
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Sample Questions
Q1) Studies of the performance of professionally managed mutual funds find that these funds:
A)all have a tendency to consistently outperform the overall market.
B)perform in a manner consistent with semistrong form efficiency.
C)all have a tendency to underperform the market consistently year after year.
D)perform in a manner that definitely refutes both strong and semistrong form efficiency.
E)indicate that stock prices consistently adhere to a daily continuation pattern.
Q2) The abnormal return in an event study is described as the:
A)total return earned on a security on the day of an announcement.
B)daily return on a security minus the daily return on the overall market.
C)average return on a security for the 7-day period surrounding an announcement.
D)average return on a security for the 7-day period surrounding an announcement minus the average return on the security for the past year.
E)daily return on a security on the announcement date minus the risk-free rate of return.
Q3) Explain the risk that often accompanies the behavioral concept of familiarity.
Q4) Define the three forms of market efficiency.
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Chapter 15: Long-Term Financing
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Q1) Which type of bond is a city or state most likely to use as a means of offsetting their cost of damages caused by a hurricane?
A)Convertible bond
B)NoNo bond
C)Cat bond
D)Put bond
E)CoCo bond
Q2) There are three seats on the board of directors of MMT,Inc.,up for election.The firm has 175,000 shares of stock outstanding and uses cumulative voting.Each share is granted one vote per open seat.You currently own 10,000 shares that have a market value of $23 each.How much must you spend,if anything,to acquire sufficient shares to guarantee your election to the board? Assume no one else votes for you.
A)$1,111,690
B)$776,273
C)$830,814
D)$1,006,273
E)$688,230
Q3) Explain the main differences between debt and equity.
Q4) Identify three key duties of a bond trustee.
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Chapter 16: Capital Structure: Basic Concepts
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Q1) In an EPS-EBI graphical relationship,the slope of the debt ray is steeper than the equity ray.The debt ray has a lower intercept because:
A)more shares are outstanding for the same level of EBI.
B)the break-even point is higher with debt.
C)a fixed interest charge must be paid even at low earnings.
D)the amount of interest per share has only a positive effect on the intercept.
E)the break-even point is lower with debt.
Q2) Aspen's Distributors has a levered cost of equity of 13.84 percent and an unlevered cost of capital of 12.5 percent.The company has $5,000 in debt that is selling at par.The levered value of the firm is $14,600 and the tax rate is 25 percent.What is the pretax cost of debt?
A)7.92 percent
B)9.07 percent
C)8.16 percent
D)8.84 percent
E)9.00 percent
Q3) Explain why the weighted average cost of capital is invariant to the firm's debt-equity ratio in the absence of corporate taxes.
Q4) Explain homemade leverage and why it matters.
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Chapter 17: Capital Structure: Limits to the Use of Debt
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Q1) Assuming the interest on the debt is fully tax deductible,when firms issue more debt,the present value of the tax shield on debt ________ while the present value of the financial distress costs ________.
A)decreases; decreases
B)increases; increases
C)decreases; remains constant
D)decreases; increases E)increases; remains constant
Q2) Which one of these is most related to a positive covenant?
A)Limiting the amount of the firm's dividends
B)Avoiding a merger while a debt remains unpaid
C)Furnishing financial statements to the firm's lenders
D)Not issuing any additional long-term debt
E)Not selling any major assets without lender approval
Q3) Which one of the following is not empirically correct?
A)Some firms use no debt.
B)The capital structure of a firm can vary significantly over time.
C)Capital structures are fairly constant across industries.
D)Debt levels across industries vary widely.
E)Debt ratios in most countries are considerably less than 100 percent.
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Chapter 18: Valuation and Capital Budgeting for the Levered Firm
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Q1) Vargo's has a target debt-to-value ratio of .6.The pretax cost of debt is 8.4 percent,the tax rate is 21 percent,and the unlevered cost of equity 13.2 percent.A project the firm is considering has a cash flow to the levered equityholders of $48,700 and an initial unborrowed cost of $216,000.What is the NPV of the project?
A)$41,836
B)$48,208
C)$62,342
D)$61,003
E)$38,367
Q2) The flow-to-equity (FTE)approach in capital budgeting is defined as the:
A)discounting of all project cash flows at the overall cost of capital.
B)scale enhancing discount process.
C)discounting of a project's levered cash flows to the equityholders at the required return on equity.
D)dividends and capital gains that will be available to flow to shareholders of a firm.
E)discounting of a project's unlevered cash flows to the equityholders at the WACC.
Q3) Explain why the flow to equity approach uses levered,not unlevered,cash flows.
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Page 20
Chapter 19: Dividends and Other Payouts
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Q1) A firm can repurchase its shares in all the following ways except through:
A)a tender offer.
B)a reverse stock split.
C)a targeted repurchase.
D)open market purchases.
E)a Dutch auction.
Q2) A change in dividend policy does not affect the value of a share of stock as long as:
A)the dividend payout ratio remains constant.
B)all future dividends are changed by the same amount.
C)all the distributable cash flow is paid out.
D)there is an offsetting change in stock repurchases.
E)shareholders are given ample warning.
Q3) All else equal,a stock dividend will ________ the number of shares outstanding and ________ the value per share.
A)increase; increase
B)increase; decrease
C)not change; increase
D)decrease; increase
E)decrease; decrease
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21
Chapter 20: Raising Capital
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Q1) Green Shoe options generally last ________ days and benefit ________.
A)30; the issuer
B)30; the underwriting syndicate
C)60; the underwriting syndicate
D)60; the issuer
E)90; both the issuer and the underwriting syndicate
Q2) A firm commitment arrangement with an investment banker occurs when the: A)syndicate is in place to handle the issue.
B)spread between the buying and selling price is less than one percent.
C)issue is solidly accepted in the market as evidenced by a large price increase.
D)investment banker buys the securities for less than the offering price and accepts the risk of not being able to sell them.
E)investment banker sells as much of the security as the market can bear without a price decrease.
Q3) Discuss what a Dutch auction is and how it works.
Q4) Discuss the stages of venture capital financing,defining each in detail.
Q5) Identify and explain the key differences between public issues of debt and direct private long-term debt financing.
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Chapter 21: Leasing
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Q1) As of 2019,operating leases:
A)appear as offsetting items on the lessee's balance sheet.
B)are fully expensed at the time the lease is established.
C)are excluded from the lessee's financial reports.
D)are treated the same as a purchase.
E)are disclosed in the financial statement footnotes.
Q2) One key reason why the IRS is concerned about the structure of lease contracts is because:
A)firms that lease generally pay no taxes.
B)leasing usually leads to bankruptcy.
C)leases can be set up solely to avoid taxes.
D)leasing leads to off-balance-sheet-financing.
E)lease payments can never be deducted as a business expense.
Q3) If the lessor borrows the majority of the purchase price of a leased asset,the lease is called a:
A)leveraged lease.
B)sale-and-leaseback arrangement.
C)capital lease.
D)nonrecourse lease.
E)bargain purchase lease.
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Chapter 22: Options and Corporate Finance
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Q1) You can realize the same value as that derived from stock ownership if you:
A)sell a put option and invest at the risk-free rate of return.
B)buy a call option and write a put option on a stock and also borrow funds at the risk-free rate.
C)sell a put,buy a call,and buy a zero-coupon bond.
D)lend out funds at the risk-free rate of return and sell a put option on the stock.
E)borrow funds at the risk-free rate of return and invest the proceeds in equivalent amounts of put and call options.
Q2) Tru-U stock is selling for $41 a share.A 6-month call on Tru-U stock with a strike price of $45 is priced at $1.60.Risk-free assets are currently returning .29 percent per month.What is the price of a 6-month put on Tru-U stock with a strike price of $45?
A)$2.98
B)$3.00
C)$4.63
D)$4.82
E)$4.90
Q3) How do options apply to capital budgeting? Explain and provide an example.
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Chapter 23: Options and Corporate Finance: Extensions and Applications
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Q1) The call option on a dividend-paying stock compared to a comparable non-dividend paying stock is:
A)more valuable because of the dividend payments.
B)equal in value.
C)less valuable because cash dividends lower the stock price.
D)equal to the cost of the non-dividend paying stock option.
E)either equal to or greater than the value of the non-dividend paying stock option.
Q2) If an infinite number of intervals is applied to the binomial option pricing model,then the value of a call is equal to:
A)the risk-free rate of return.
B)zero.
C)the exercise price.
D)the Black-Scholes model's call value.
E)the stock price.
Q3) Why would a company pay an executive in options as opposed to salary?
Q4) In what instances is the binomial option pricing model superior to the Black-Scholes option pricing model?
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Chapter 24: Warrants and Convertibles
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Q1) Which one of the following occurs whenever a warrant is exercised?
A)The issuer receives the greater of the exercise price or the stock price
B)The number of shares outstanding increases
C)Currently outstanding shares are exchanged between individual shareholders
D)A new warrant is issued to replace the exercised warrant
E)The issuer pays the lower of the exercise price or the stock price
Q2) A warrant bestows on its owner the:
A)obligation to sell securities directly to the issuer at a fixed price for a stated period of time.
B)right to purchase securities directly from the issuer at a fixed price for a stated period of time.
C)obligation to purchase securities directly from the issuer at a fixed price for a stated period of time.
D)right to sell securities directly to the issuer at a fixed price for a stated period of time.
E)right to sell securities directly to the issuer at the prior day's closing price for a stated period of time.
Q3) Why are warrants and convertibles issued?
Q4) Explain how a noncallable convertible bond's value is determined.
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Chapter 25: Derivatives and Hedging Risk
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Q1) A bond manager who wishes to hold the bonds with the greatest potential price volatility should acquire:
A)short-term,high-coupon bonds.
B)long-term,low-coupon bonds.
C)long-term,zero-coupon bonds.
D)short-term,zero-coupon bonds.
E)short-term,low-coupon bonds.
Q2) Caps and floors are used in conjunction with derivatives to:
A)limit any impact from interest rate changes.
B)increase the rate of return to the derivative holder.
C)increase the volatility of the at-risk asset.
D)offset the costs associated with establishing the derivative position.
E)lower acquisition costs irrespective of financing costs.
Q3) Assume a firm has a floating-rate loan and purchases a 10 percent cap on that loan.As a result,the firm will receive payments equal to:
A).10 × Assets.
B).10 × Annual interest payment.
C)(LIBOR .10)× Principal loan amount.
D)(LIBOR + .10)× Principal loan amount.
E).10 × Principal loan amount.
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Chapter 26: Short-Term Finance and Planning
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Q1) As the owner of Better Built Products,you plan to implement a system whereby customers who pay their bills within 30 days will receive a rebate of 2 percent on their purchases.Those who pay within 5 days will receive a rebate of 3 percent.Explain the impact of this proposal on the firm.
Q2) Jordan and Sons has an inventory period of 48.6 days,an accounts payable period of 36.2 days,and an accounts receivable period of 29.3 days.Management is considering offering a discount of 5 percent if its credit customers pay for their purchases within 10 days.This discount is expected to reduce the receivables period by 17 days.If the discount is offered,the operating cycle will decrease from ________ days to ________ days.
A)28.3; 11.3
B)77.9; 60.9
C)28.3; 45.3
D)77.9; 94.9
E)54.2; 37.2
Q3) List and describe three basic types of secured inventory loans.What are the advantages and disadvantages of each type of loan?
Q4) Identify the three primary characteristics of a restrictive short-term financial policy. To view all questions and flashcards with answers, click on the resource link above.
28
Chapter 27: Cash Management
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Q1) Probably the most sensible cash management policy would be to maintain:
A)sufficient cash on hand to meet all ordinary business needs plus some excess cash to invest in marketable securities as a precautionary measure.
B)about 90 percent of the firm's ordinary cash needs in cash and delay payment on the remaining 10 percent.
C)enough cash on hand to meet any potential demand for cash.
D)a zero-cash balance and transfer funds semi-monthly to pay bills.
E)twice the amount of cash on hand that would be typically indicated based on the firm's normal cash flows.
Q2) Explain repurchase agreements and the role they can play in a firm's everyday operations.
Q3) When a firm writes a check,there is an immediate decrease in the ________ balance,but no immediate change in the ________ balance.
A)bank; collected
B)ledger; book
C)bank; ledger
D)book; bank
E)available; book
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Chapter 28: Credit and Inventory Management
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Q1) Selling goods and services on credit is:
A)an investment in a customer.
B)never necessary unless customers cannot pay for the goods.
C)a decision independent of customers.
D)permissible only if your bank lends the money.
E)never a wise decision.
Q2) Cash discounts:
A)increase the amount of credit offered.
B)increase profit margins on sales.
C)speed up the collection of receivables.
D)were first offered in the early 1900s.
E)are a cost-free means of increasing sales.
Q3) Which one of the following statements is false?
A)An aging schedule includes only overdue accounts.
B)Aging schedules are used to monitor accounts receivable.
C)If sales are seasonal,the percentages shown on an aging schedule will vary during the year.
D)Collection efforts may involve legal action.
E)Investments in accounts receivable equal average daily sales times average collection period.
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Chapter 29: Mergers,acquisitions,and Divestitures
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Q1) A merger in which an entirely new firm is created and both the acquired and acquiring firms cease to exist is called a:
A)divestiture.
B)consolidation.
C)tender offer.
D)spinoff.
E)conglomeration.
Q2) Which one of the following combinations of firms would benefit the most through the use of complementary resources?
A)A ski resort and a travel trailer sales outlet
B)A golf resort and a ski resort
C)A hotel and a home improvement center
D)A swimming pool distributor and a kitchen designer
E)A fast food restaurant and a dry cleaner
Q3) ________ can provide a potential tax gain from an acquisition.
A)A reduction in the level of debt
B)An increase in surplus funds
C)The combining of multi-state operations
D)A decreased use of leverage
E)Increased diseconomies of scale
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Chapter 30: Financial Distress
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Q1) In a Chapter 11 bankruptcy,a class of creditors is considered to have accepted the bankruptcy plan when:
A)two-thirds of the class in dollar amount agree.
B)at least 51 percent of the class in number agree.
C)at least 90 percent of the members of the class agree.
D)at least 51 percent of the class in dollar amount and two-thirds of the class in number agree.
E)one-half of the class in number and two-thirds of the class in dollar amount agree.
Q2) Two primary methods of a financial restructuring are:
A)a private workout and a Chapter 7 bankruptcy.
B)a Chapter 7 and a Chapter 11 bankruptcy.
C)replacing debt with equity and a private workout.
D)a private workout and a Chapter 11 bankruptcy.
E)a stock repurchase and a Chapter 11 bankruptcy.
Q3) Why would a firm's creditors voluntarily agree to a prepackaged reorganization that offers those creditors less than they are owed?
Q4) There are a number of ways firms can deal with financial distress.Identify at least 5 of these.
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Page 32
Chapter 31: International Corporate Finance
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Q1) Spot trades must be settled:
A)on the trade date.
B)within one business day.
C)within two business days.
D)within three business days.
E)within one week of the trade date.
Q2) The condition stating that the interest rate differential between two countries is approximately equal to the percentage forward premium or discount is called:
A)the unbiased forward rates condition.
B)uncovered interest rate parity.
C)the international Fisher effect.
D)purchasing power parity.
E)interest rate parity.
Q3) When the Mexican peso is quoted as Ps13.93,this quote is a(n):
A)indirect rate.
B)direct rate.
C)cross rate.
D)triangle rate.
E)linear rate.
Q4) What is triangle arbitrage?
Page 33
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