TEST BANK CORORATE FINANCE EXAM QUESTIONS
AND CORRECT ANSWERS (verified answers) Q & A
2026 /INSTANT DOWNLOAD PDF
1. What is the primary goal of corporate finance?
A. Maximize employee satisfaction
B. Maximize shareholder wealth
C. Minimize taxes
D. Increase market share
Answer: B
Rationale: Corporate finance focuses on maximizing shareholder wealth through
optimal financial decisions.
2. Which of the following is a capital budgeting decision?
A. Issuing shares
B. Choosing investment projects
C. Paying dividends
D. Managing cash
Answer: B
Rationale: Capital budgeting involves evaluating long-term investment projects.
3. Net Present Value (NPV) is:
A. Future cash value
B. Difference between inflows and outflows discounted
C. Accounting profit
D. Payback period
Answer: B
,Rationale: NPV measures present value of future cash flows minus initial
investment.
4. A positive NPV indicates:
A. Reject the project
B. Accept the project
C. Break-even
D. Uncertain outcome
Answer: B
Rationale: Positive NPV adds value to the firm.
5. Which is NOT a capital structure component?
A. Debt
B. Equity
C. Retained earnings
D. Inventory
Answer: D
Rationale: Inventory is an asset, not a financing source.
6. The cost of equity is commonly estimated using:
A. FIFO
B. CAPM
C. Payback method
D. IRR
Answer: B
Rationale: CAPM estimates required return on equity.
7. The formula for CAPM includes:
, A. Risk-free rate + beta × market premium
B. EBIT × tax rate
C. Sales – expenses
D. Dividend/price
Answer: A
Rationale: CAPM calculates expected return based on risk.
8. Dividend policy determines:
A. Investment choices
B. Debt levels
C. Profit distribution
D. Asset valuation
Answer: C
Rationale: It defines how profits are distributed to shareholders.
9. The payback period measures:
A. Profitability
B. Risk only
C. Time to recover investment
D. Interest rate
Answer: C
Rationale: It measures how long cash inflows recover initial cost.
10. IRR is the rate that makes:
A. NPV negative
B. NPV zero
C. Profit maximum
D. Cash flow zero
AND CORRECT ANSWERS (verified answers) Q & A
2026 /INSTANT DOWNLOAD PDF
1. What is the primary goal of corporate finance?
A. Maximize employee satisfaction
B. Maximize shareholder wealth
C. Minimize taxes
D. Increase market share
Answer: B
Rationale: Corporate finance focuses on maximizing shareholder wealth through
optimal financial decisions.
2. Which of the following is a capital budgeting decision?
A. Issuing shares
B. Choosing investment projects
C. Paying dividends
D. Managing cash
Answer: B
Rationale: Capital budgeting involves evaluating long-term investment projects.
3. Net Present Value (NPV) is:
A. Future cash value
B. Difference between inflows and outflows discounted
C. Accounting profit
D. Payback period
Answer: B
,Rationale: NPV measures present value of future cash flows minus initial
investment.
4. A positive NPV indicates:
A. Reject the project
B. Accept the project
C. Break-even
D. Uncertain outcome
Answer: B
Rationale: Positive NPV adds value to the firm.
5. Which is NOT a capital structure component?
A. Debt
B. Equity
C. Retained earnings
D. Inventory
Answer: D
Rationale: Inventory is an asset, not a financing source.
6. The cost of equity is commonly estimated using:
A. FIFO
B. CAPM
C. Payback method
D. IRR
Answer: B
Rationale: CAPM estimates required return on equity.
7. The formula for CAPM includes:
, A. Risk-free rate + beta × market premium
B. EBIT × tax rate
C. Sales – expenses
D. Dividend/price
Answer: A
Rationale: CAPM calculates expected return based on risk.
8. Dividend policy determines:
A. Investment choices
B. Debt levels
C. Profit distribution
D. Asset valuation
Answer: C
Rationale: It defines how profits are distributed to shareholders.
9. The payback period measures:
A. Profitability
B. Risk only
C. Time to recover investment
D. Interest rate
Answer: C
Rationale: It measures how long cash inflows recover initial cost.
10. IRR is the rate that makes:
A. NPV negative
B. NPV zero
C. Profit maximum
D. Cash flow zero
