Exam questions Corporate Finance
1: uptown industries just decided to save $3,000 a quarter for the next 3 years. The money will earn a
quoted rate of 2.75%, compounded quarterly, and the first deposit will be made today. If the
company had wanted to deposit one lump sum today, rather than make quarterly deposits, how
much would it have had to deposit to have the same amount saved at the end of 3 years.
a. 34,441.56
b. 34,678.35
c. 33,428.87
d. 33,687.23
e. None
2: jeanette expects to live 30 years after she retires. At the end of the first year of her retirement she
wants to withdraw $35,000 from her savings. Each year thereafter, she wants to increase the annual
withdrawal by 3.5% if she can earn 5.5% on her savings, how much would she need to have in
retirement savings on the day she retires?
a. 862,001.34
b. 648,909.18
c. 764,458.87
d. 919,028.56
e. 832,004.01
3: suppose a financial manager buys call options on 45,000 barrels of oil with an exersice price of $30
per barrel. She simultaneously sells a put option on 45,000 barrels of oil with an exercise price of $30
per barrel. Her net profit per barrel is … if the price per barrel is $29 and …. If the price per barrel is
$35.
a. -5, 1
b. -1, 0
c. 0,-1
d. 0, 1
e. -1, 5
4: which of the following statement is true for a project with a $20,000 initial cost. Cash inflow of
$6,667 per year for 6 years. And a discount rate of 15?
a. He payback period is 3 years
b. The NPV is 2,094
c. His IRR is 17.85%
d. His profitability index is 0.104
e. None
,5: imagine a corporation has 30,000 shares outstanding selling for $100 each. How much would it
cost to assure yourself a seat on the board if 4 directors are up for election with cumulative voting.
a. $600,000
b. $600,100
c. $750,000
d. $750,100
e. None
6: assume an annuity will pay $1,000 a year for 5 years with the first payment occurring 4 years from
today. When you compute the present value of that annuity using the PV formula, the PV will be as of
which point in time?
a. Today
b. 1 year from today
c. 2
d. 3
e. 4
7: Jessica’s Boutique has cash of $218, accounts receivables of $457, accounts payable of $398, and
inventory of $647. What is the value of the quick ratio?
a. 0.55
b. 1.05
c. 1.70
d. 1.32
e. 1.52
8: suppose you observe the following situation:
Security Beta Expected return
Unilever 0.8 12%
Aegon 1.1 16%
Assume these securities are correctly priced, based on the CAPM, what is the return on the market?
a. 13.99%
b. 14.42%
c. 13.33%
d. 14.78%
e. None
9: if a project is assigned a required rate of return of 0, then:
a. The timing of the project’s cash flows has no relevance on the value of the project
b. The project will be accepted
c. The project will be rejected
, d. The project can never add value for the shareholders
e. None
10: plasti-tech is financed 60% with equity and 40% with debt. Currently its debt has a pretax cost of
debt of 12%. Plasti-tech’s common stock trades at $15.00 per share and its most recent dividend was
$1.00. future dividends are expected grow by 4%. If the tax rate is 21%, what is plasti-tech’s WACC?
a. 7.39%
b. 9.57%
c. 10.35%
d. 11.20%
e. None
11: regarding the relationship between the efficient markets hypothesis (EMH) and the beta. Which
statement is true:
a. The firm of market efficiency (weak, semi-strong, strong) has no influence the average beta
of a market
b. In a weak form efficient market the beta will more accurately represent actual earnings risk
than in a strong form efficient market.
c. In a strong form efficient market the beta will more accurately represent actual earnings
risk than in a weak form efficient market.
d. The higher the average beta of a market the higher the efficiency in the market.
e. None
12: what could cause a downward sloping term structure of interest rates?
a. a real rate of return demanded by investors that is equal over time
b. an expectation of a higher rate of inflation in the future
c. an expectation of a lower rate of inflation in the future
d. an increasing interest rate risk premium with maturity
e. none
13: which one of the following is a positively sloped linear function that is created when expected
returns are graphed against security betas?
a. Reward-to-risk matrix
b. Portfolio weight graph
c. Normal distribution
d. Security market line
e. Market real return
14: according to theory, studying historical share price movement to identify mispriced equities:
a. Is effective as long as the market is only semi-strong form efficient
1: uptown industries just decided to save $3,000 a quarter for the next 3 years. The money will earn a
quoted rate of 2.75%, compounded quarterly, and the first deposit will be made today. If the
company had wanted to deposit one lump sum today, rather than make quarterly deposits, how
much would it have had to deposit to have the same amount saved at the end of 3 years.
a. 34,441.56
b. 34,678.35
c. 33,428.87
d. 33,687.23
e. None
2: jeanette expects to live 30 years after she retires. At the end of the first year of her retirement she
wants to withdraw $35,000 from her savings. Each year thereafter, she wants to increase the annual
withdrawal by 3.5% if she can earn 5.5% on her savings, how much would she need to have in
retirement savings on the day she retires?
a. 862,001.34
b. 648,909.18
c. 764,458.87
d. 919,028.56
e. 832,004.01
3: suppose a financial manager buys call options on 45,000 barrels of oil with an exersice price of $30
per barrel. She simultaneously sells a put option on 45,000 barrels of oil with an exercise price of $30
per barrel. Her net profit per barrel is … if the price per barrel is $29 and …. If the price per barrel is
$35.
a. -5, 1
b. -1, 0
c. 0,-1
d. 0, 1
e. -1, 5
4: which of the following statement is true for a project with a $20,000 initial cost. Cash inflow of
$6,667 per year for 6 years. And a discount rate of 15?
a. He payback period is 3 years
b. The NPV is 2,094
c. His IRR is 17.85%
d. His profitability index is 0.104
e. None
,5: imagine a corporation has 30,000 shares outstanding selling for $100 each. How much would it
cost to assure yourself a seat on the board if 4 directors are up for election with cumulative voting.
a. $600,000
b. $600,100
c. $750,000
d. $750,100
e. None
6: assume an annuity will pay $1,000 a year for 5 years with the first payment occurring 4 years from
today. When you compute the present value of that annuity using the PV formula, the PV will be as of
which point in time?
a. Today
b. 1 year from today
c. 2
d. 3
e. 4
7: Jessica’s Boutique has cash of $218, accounts receivables of $457, accounts payable of $398, and
inventory of $647. What is the value of the quick ratio?
a. 0.55
b. 1.05
c. 1.70
d. 1.32
e. 1.52
8: suppose you observe the following situation:
Security Beta Expected return
Unilever 0.8 12%
Aegon 1.1 16%
Assume these securities are correctly priced, based on the CAPM, what is the return on the market?
a. 13.99%
b. 14.42%
c. 13.33%
d. 14.78%
e. None
9: if a project is assigned a required rate of return of 0, then:
a. The timing of the project’s cash flows has no relevance on the value of the project
b. The project will be accepted
c. The project will be rejected
, d. The project can never add value for the shareholders
e. None
10: plasti-tech is financed 60% with equity and 40% with debt. Currently its debt has a pretax cost of
debt of 12%. Plasti-tech’s common stock trades at $15.00 per share and its most recent dividend was
$1.00. future dividends are expected grow by 4%. If the tax rate is 21%, what is plasti-tech’s WACC?
a. 7.39%
b. 9.57%
c. 10.35%
d. 11.20%
e. None
11: regarding the relationship between the efficient markets hypothesis (EMH) and the beta. Which
statement is true:
a. The firm of market efficiency (weak, semi-strong, strong) has no influence the average beta
of a market
b. In a weak form efficient market the beta will more accurately represent actual earnings risk
than in a strong form efficient market.
c. In a strong form efficient market the beta will more accurately represent actual earnings
risk than in a weak form efficient market.
d. The higher the average beta of a market the higher the efficiency in the market.
e. None
12: what could cause a downward sloping term structure of interest rates?
a. a real rate of return demanded by investors that is equal over time
b. an expectation of a higher rate of inflation in the future
c. an expectation of a lower rate of inflation in the future
d. an increasing interest rate risk premium with maturity
e. none
13: which one of the following is a positively sloped linear function that is created when expected
returns are graphed against security betas?
a. Reward-to-risk matrix
b. Portfolio weight graph
c. Normal distribution
d. Security market line
e. Market real return
14: according to theory, studying historical share price movement to identify mispriced equities:
a. Is effective as long as the market is only semi-strong form efficient
