C214 OA FINANCIAL MANAGEMENT
COMPLETE SOLUTION SCRIPT 2026
QUESTIONS WITH ANSWERS GRADED A+
⩥ When is a company that has strong operating revenues and competent
management a good investment?
A. When the intrinsic value of the price per share is higher than the
current stock price
B. When the intrinsic value of the price per share is lower than the
current stock price
C. When the current stock price is currently equal to the intrinsic value
D. When the current stock price is overvalued relative to the intrinsic
value.
Answer: a
⩥ Thinking about levels of market efficiency quadrants. Which
investment option should be selected assuming a prudent investor wants
to maximize their expected return E(R)? Quad 1; Quad 2; Quad 3; Quad
4
A. A
B. B
C. C
D. D
,E. E.
Answer: a
⩥ Which security type includes the right to vote for a board of directors?
A. Preferred stock
B. Money market funds
C. Bonds
D. Common stock.
Answer: d
⩥ Economists forecast the probability of recession at 22%. During
periods of recession, returns for a company have been -2%. Returns for
the company have been 18% during an expansionary period. What is the
forecast probability of an expansionary period?
A. 80%
B. 78%
C. 76%
D. 82%.
Answer: b
⩥ What makes the "efficient frontier" efficient?
A. It always produces the minimum risk
B. It disregards risk to produce the maximum return
,C. It provides the highest level of risk for a given return
D. It maximizes the ratio of expected return to risk.
Answer: d
⩥ What are 3 components required in calculating weighted average cost
of capital (WACC)?
A. The market cap of the company
B. The desired growth rate
C. The amount and required return for common equity, preferred equity
and debt
D. The marginal tax rate
E. The value of preferred stock and debt
F. The firm's market value
G. The combined total expected growth rate.
Answer: d, e, f
⩥ What advantage does the Gordon growth model have compared to the
capital asset pricing model (CAPM)?
A. It requires assumptions about growth that benefit fast growing
companies
B. It provides an easier to understand and relatively accurate forecast
when growth rates are stable
C. It is highly accurate in predicting future growth
, D. It requires the use of accurate known factors, such as future growth
rates.
Answer: b
⩥ How does the weighted average cost of capital affect a company's
growth opportunities?
A. The higher the cost of capital, the greater the growth opportunities
B. Only the cost of debit will affect growth opportunities
C. The lower the cost of capital, the lower the growth opportunities
D. The lower the cost of capital, the greater the growth opportunities.
Answer: d
⩥ Under which three conditions would a firm decide to reduce the
growth rate?
A. When investors are dissatisfied with the dividend payout ratio
B. When additional investor capital is not available
C. When capacity has been reached
D. When customers are dissatisfied with the company's products
E. When the company's borrowing limits have reached the maximum
allowed by the lender.
Answer: b, c, d
COMPLETE SOLUTION SCRIPT 2026
QUESTIONS WITH ANSWERS GRADED A+
⩥ When is a company that has strong operating revenues and competent
management a good investment?
A. When the intrinsic value of the price per share is higher than the
current stock price
B. When the intrinsic value of the price per share is lower than the
current stock price
C. When the current stock price is currently equal to the intrinsic value
D. When the current stock price is overvalued relative to the intrinsic
value.
Answer: a
⩥ Thinking about levels of market efficiency quadrants. Which
investment option should be selected assuming a prudent investor wants
to maximize their expected return E(R)? Quad 1; Quad 2; Quad 3; Quad
4
A. A
B. B
C. C
D. D
,E. E.
Answer: a
⩥ Which security type includes the right to vote for a board of directors?
A. Preferred stock
B. Money market funds
C. Bonds
D. Common stock.
Answer: d
⩥ Economists forecast the probability of recession at 22%. During
periods of recession, returns for a company have been -2%. Returns for
the company have been 18% during an expansionary period. What is the
forecast probability of an expansionary period?
A. 80%
B. 78%
C. 76%
D. 82%.
Answer: b
⩥ What makes the "efficient frontier" efficient?
A. It always produces the minimum risk
B. It disregards risk to produce the maximum return
,C. It provides the highest level of risk for a given return
D. It maximizes the ratio of expected return to risk.
Answer: d
⩥ What are 3 components required in calculating weighted average cost
of capital (WACC)?
A. The market cap of the company
B. The desired growth rate
C. The amount and required return for common equity, preferred equity
and debt
D. The marginal tax rate
E. The value of preferred stock and debt
F. The firm's market value
G. The combined total expected growth rate.
Answer: d, e, f
⩥ What advantage does the Gordon growth model have compared to the
capital asset pricing model (CAPM)?
A. It requires assumptions about growth that benefit fast growing
companies
B. It provides an easier to understand and relatively accurate forecast
when growth rates are stable
C. It is highly accurate in predicting future growth
, D. It requires the use of accurate known factors, such as future growth
rates.
Answer: b
⩥ How does the weighted average cost of capital affect a company's
growth opportunities?
A. The higher the cost of capital, the greater the growth opportunities
B. Only the cost of debit will affect growth opportunities
C. The lower the cost of capital, the lower the growth opportunities
D. The lower the cost of capital, the greater the growth opportunities.
Answer: d
⩥ Under which three conditions would a firm decide to reduce the
growth rate?
A. When investors are dissatisfied with the dividend payout ratio
B. When additional investor capital is not available
C. When capacity has been reached
D. When customers are dissatisfied with the company's products
E. When the company's borrowing limits have reached the maximum
allowed by the lender.
Answer: b, c, d
