1|Page: 2024/2025 Grade A+
Advanced Corporate Finance Questions and
Correct Answers & Latest Updated
Historically merger activity increases which which mArket condition?
o :## High stock market prices
Firm A is planning to acquire Firm B. If firm A prefers to make a cash offer for the merger, it
indicates that
o :## Firm A's managers are optimistic about the post merger value of A
The market for corporate control includes
o :## Mergers, spin-offs and divestitures, leveraged buyouts (LBOs) and privatisation
If an acquisition is completed using a cash payment, then the acquisition is
o :## Taxable
Suppose that the market price of company A is $50 per share and that of company B is $20
per share. If A offers half a share of common stock for each share of B, what is the
percentage increase in wealth of B's shareholders? (Assume that the offer has no effect o
The value of A's shares)
o :## +25%
The merger between Facebook and WhatsApp universal is an example of a
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,2|Page: 2024/2025 Grade A+
o :## Horizontal merger
The "Bootstrap Game" may mislead investors regarding the prospects for a merged firm.
How are investors potentially mislead
o :## The firm acquires a target with low D/E ratio, which generates short-term earnings per
share growth without any true economic advantage
Many mergers that appear to make economic sense fail because managers cannot handle
the complex task of integrating two firms with different
o :## Production processes accounting methods and corporate cultures
What is not a sensible motive for mergers
o :## Diversification
Firm A has a value of $100 million and Firm B have a value of $70 million. Merging the two
would enable cost savings with a present value of $20million. Firm A purchases Firm B for
$75 million what is the gain from the merger.
o :## $20 million
The merger of two similar pharmaceutical firms is an example of a
o :## Horizontal merger
An analyst predicts that at the 95% confidence level a bank could lose 7% of its assets value.
Given assets of $30 million, what is the value at risk?
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
,3|Page: 2024/2025 Grade A+
o :## $2.1 million
The Z-score model was developed by Altman using
o :## Multiple discrimination analyses
Floating rate bonds have adjustable coupons to protect investors against changes in interest
rates. The rates paid may be limited by
o :## Both a floor rate that sets the minimum and a cap rate that sets the maximum
Which of the following rated bonds has the most risk?
Aaa
Aa
Baa
Ba
o :## Ba
Which of the following rated bonds has the least risk ?
AAA
AA
A
BBB
o :## AAA
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Generally you can insure corporate bonds through a(n)
o :## Credit default swap
Suppose that a bond with one year maturity a coupon rate of 5%, and face value of $1000
sells for $881.94. Calculate the promised yield on the bonds.
o :## 19.06%
A corporate bond matures in one year. The bond promises a $50 coupon and a principal
payment of $1000 at maturity. If the bi d has a 15% probability of default and payment
under default is $400. Calculate the expected payment from the bind
o :## $952.50
A corporate bind matures in one year. The bond promises a coupons of $50 and principal of
$1000 at maturity. If the bond has a 10% probability of default and payment under default is
$400. Calculate the expected payment for the bond.
o :## $985
Which of the following are examples of real options?
o :## The options to expand if an investment project succeeds, the option to wait (and learn)
before investing, the option to shrink or abandon a project, and the option to vary the mix of
output or the firms production methods
The discounted cash flow (DCF) approach should be
o :## Augmented by added analysis if a decision has significant imbedded options
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
Advanced Corporate Finance Questions and
Correct Answers & Latest Updated
Historically merger activity increases which which mArket condition?
o :## High stock market prices
Firm A is planning to acquire Firm B. If firm A prefers to make a cash offer for the merger, it
indicates that
o :## Firm A's managers are optimistic about the post merger value of A
The market for corporate control includes
o :## Mergers, spin-offs and divestitures, leveraged buyouts (LBOs) and privatisation
If an acquisition is completed using a cash payment, then the acquisition is
o :## Taxable
Suppose that the market price of company A is $50 per share and that of company B is $20
per share. If A offers half a share of common stock for each share of B, what is the
percentage increase in wealth of B's shareholders? (Assume that the offer has no effect o
The value of A's shares)
o :## +25%
The merger between Facebook and WhatsApp universal is an example of a
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
,2|Page: 2024/2025 Grade A+
o :## Horizontal merger
The "Bootstrap Game" may mislead investors regarding the prospects for a merged firm.
How are investors potentially mislead
o :## The firm acquires a target with low D/E ratio, which generates short-term earnings per
share growth without any true economic advantage
Many mergers that appear to make economic sense fail because managers cannot handle
the complex task of integrating two firms with different
o :## Production processes accounting methods and corporate cultures
What is not a sensible motive for mergers
o :## Diversification
Firm A has a value of $100 million and Firm B have a value of $70 million. Merging the two
would enable cost savings with a present value of $20million. Firm A purchases Firm B for
$75 million what is the gain from the merger.
o :## $20 million
The merger of two similar pharmaceutical firms is an example of a
o :## Horizontal merger
An analyst predicts that at the 95% confidence level a bank could lose 7% of its assets value.
Given assets of $30 million, what is the value at risk?
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
,3|Page: 2024/2025 Grade A+
o :## $2.1 million
The Z-score model was developed by Altman using
o :## Multiple discrimination analyses
Floating rate bonds have adjustable coupons to protect investors against changes in interest
rates. The rates paid may be limited by
o :## Both a floor rate that sets the minimum and a cap rate that sets the maximum
Which of the following rated bonds has the most risk?
Aaa
Aa
Baa
Ba
o :## Ba
Which of the following rated bonds has the least risk ?
AAA
AA
A
BBB
o :## AAA
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
, 4|Page: 2024/2025 Grade A+
Generally you can insure corporate bonds through a(n)
o :## Credit default swap
Suppose that a bond with one year maturity a coupon rate of 5%, and face value of $1000
sells for $881.94. Calculate the promised yield on the bonds.
o :## 19.06%
A corporate bond matures in one year. The bond promises a $50 coupon and a principal
payment of $1000 at maturity. If the bi d has a 15% probability of default and payment
under default is $400. Calculate the expected payment from the bind
o :## $952.50
A corporate bind matures in one year. The bond promises a coupons of $50 and principal of
$1000 at maturity. If the bond has a 10% probability of default and payment under default is
$400. Calculate the expected payment for the bond.
o :## $985
Which of the following are examples of real options?
o :## The options to expand if an investment project succeeds, the option to wait (and learn)
before investing, the option to shrink or abandon a project, and the option to vary the mix of
output or the firms production methods
The discounted cash flow (DCF) approach should be
o :## Augmented by added analysis if a decision has significant imbedded options
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
