Corporate Finance Final Exam ACTUAL
Exam Questions and CORRECT Answers
Investors buy debt or equity of the Firm with cash:
Financing Decision - how should the firm raise the cash/capital to pay for the firm's assets?
External finance involves selling a financial claim - why choose debt or equity?
Debt - a contractual claim entitles investor to receive fixed interest payments at specified dates
Equity - a residual claim entitles ownership in firm
Who gets "paid" first?
Neither
Debt holders
Equity holders
Depends - CORRECT ANSWER - Depends
Investment Decision - what real assets do we want to purchase with the cash?
Operating Decision - how should the firm use assets in each period?
What is the most important relationship between Investing and Operating decisions?
Cash Outflow vs. Cash Inflow
Capital Budgeting
No relationship
Both Firm Decisions - CORRECT ANSWER - Capital Budgeting
4a) Firm reinvests cash in the Firm's Operations
4b) Firm pays out cash to investors
,Payout Decision - how should the Firm divide up operating cash flows into cash distributed to
investors and cash reinvested in the firm's operations and assets
Is this a cash inflow or outflow?
Cash Outflow
Cash Inflow
Both
Depends - CORRECT ANSWER - Depends
Firm Manager Objectives: What is the manager's primary objective?
Maximize the enterprise value of the Firm
Avoid financial distress and bankruptcy
Maximize Profit
Maximize the equity value of the Firm - CORRECT ANSWER - Maximize the equity
value of the Firm
4a) Firm reinvests cash in the Firm's Operations
4b) Firm pays out cash to investors
Payout Decision - how should the Firm divide up operating cash flows into cash distributed to
investors and cash reinvested in the firm's operations and assets
Is this a cash inflow or outflow?
Cash Outflow
Cash Outflow or Neither
Cash Inflow
Both - CORRECT ANSWER - Cash Outflow or Neither
,What are the five key strategic financial decisions that a firm must make?
Financing, Investing, Operating, Payout, Liquidity
Financing, Capital Budgeting, Payout, Add Liquidity, Draw Down Liquidity
Financing, Investing, Capital Budgeting, Payout, Liquidity
Capital Structure, Investing, Operating, Payout, Liquidity - CORRECT ANSWER -
Financing, Investing, Operating, Payout, Liquidity
Finance Interview Question: How does a $10mm increase in Depreciation flow through the three
financial statements?
Assume 30% tax rate
Net Income decreases by $10m, Cash Flow from Operations decreases by $10m, Cash is down
$10m, Retained Earnings down $10m
Net Income decreases by $3m, Cash Flow from Operations increases by $7m, Cash is up $7m,
Net PP&E down $10m, Retained Earnings down $3m
Net Income decreases by $7m, Cash Flow from Operations increases by $3m, Cash is up $3m,
Net PP&E down $10m, Retained Earnings down $7m
No answer text provided. - CORRECT ANSWER - Net Income decreases by $7m, Cash
Flow from Operations increases by $3m, Cash is up $3m, Net PP&E down $10m, Retained
Earnings down $7m
Where is Cost of Goods Sold (COGS)?
, Selling and Marketing
Research and Development
Other Costs of Revenue
General and Administrative - CORRECT ANSWER - Other Costs of Revenue
What is EBIT? How would it be calculated using this information?
Earnings Before Interest and Taxes = Operating Income
Earnings Before Interest and Taxes = Operating Income + Other, net
Earnings Before Income and Taxes = Operating Income + Other, net
Earnings Before Income and Taxes = Operating Income + Interest - CORRECT
ANSWER - Earnings Before Interest and Taxes = Operating Income + Other, net
Where is Depreciation and Amortization?
Included in another income statement line item: Other Costs of Revenue
Included in another income statement line item: General and Administrative if company
headquarters
Intuit does not have D&A
Included in another income statement line item: Other Costs of Revenue if production facilities;
General and Administrative if company headquarters - CORRECT ANSWER - Included in
another income statement line item: Other Costs of Revenue if production facilities; General and
Administrative if company headquarters
Exam Questions and CORRECT Answers
Investors buy debt or equity of the Firm with cash:
Financing Decision - how should the firm raise the cash/capital to pay for the firm's assets?
External finance involves selling a financial claim - why choose debt or equity?
Debt - a contractual claim entitles investor to receive fixed interest payments at specified dates
Equity - a residual claim entitles ownership in firm
Who gets "paid" first?
Neither
Debt holders
Equity holders
Depends - CORRECT ANSWER - Depends
Investment Decision - what real assets do we want to purchase with the cash?
Operating Decision - how should the firm use assets in each period?
What is the most important relationship between Investing and Operating decisions?
Cash Outflow vs. Cash Inflow
Capital Budgeting
No relationship
Both Firm Decisions - CORRECT ANSWER - Capital Budgeting
4a) Firm reinvests cash in the Firm's Operations
4b) Firm pays out cash to investors
,Payout Decision - how should the Firm divide up operating cash flows into cash distributed to
investors and cash reinvested in the firm's operations and assets
Is this a cash inflow or outflow?
Cash Outflow
Cash Inflow
Both
Depends - CORRECT ANSWER - Depends
Firm Manager Objectives: What is the manager's primary objective?
Maximize the enterprise value of the Firm
Avoid financial distress and bankruptcy
Maximize Profit
Maximize the equity value of the Firm - CORRECT ANSWER - Maximize the equity
value of the Firm
4a) Firm reinvests cash in the Firm's Operations
4b) Firm pays out cash to investors
Payout Decision - how should the Firm divide up operating cash flows into cash distributed to
investors and cash reinvested in the firm's operations and assets
Is this a cash inflow or outflow?
Cash Outflow
Cash Outflow or Neither
Cash Inflow
Both - CORRECT ANSWER - Cash Outflow or Neither
,What are the five key strategic financial decisions that a firm must make?
Financing, Investing, Operating, Payout, Liquidity
Financing, Capital Budgeting, Payout, Add Liquidity, Draw Down Liquidity
Financing, Investing, Capital Budgeting, Payout, Liquidity
Capital Structure, Investing, Operating, Payout, Liquidity - CORRECT ANSWER -
Financing, Investing, Operating, Payout, Liquidity
Finance Interview Question: How does a $10mm increase in Depreciation flow through the three
financial statements?
Assume 30% tax rate
Net Income decreases by $10m, Cash Flow from Operations decreases by $10m, Cash is down
$10m, Retained Earnings down $10m
Net Income decreases by $3m, Cash Flow from Operations increases by $7m, Cash is up $7m,
Net PP&E down $10m, Retained Earnings down $3m
Net Income decreases by $7m, Cash Flow from Operations increases by $3m, Cash is up $3m,
Net PP&E down $10m, Retained Earnings down $7m
No answer text provided. - CORRECT ANSWER - Net Income decreases by $7m, Cash
Flow from Operations increases by $3m, Cash is up $3m, Net PP&E down $10m, Retained
Earnings down $7m
Where is Cost of Goods Sold (COGS)?
, Selling and Marketing
Research and Development
Other Costs of Revenue
General and Administrative - CORRECT ANSWER - Other Costs of Revenue
What is EBIT? How would it be calculated using this information?
Earnings Before Interest and Taxes = Operating Income
Earnings Before Interest and Taxes = Operating Income + Other, net
Earnings Before Income and Taxes = Operating Income + Other, net
Earnings Before Income and Taxes = Operating Income + Interest - CORRECT
ANSWER - Earnings Before Interest and Taxes = Operating Income + Other, net
Where is Depreciation and Amortization?
Included in another income statement line item: Other Costs of Revenue
Included in another income statement line item: General and Administrative if company
headquarters
Intuit does not have D&A
Included in another income statement line item: Other Costs of Revenue if production facilities;
General and Administrative if company headquarters - CORRECT ANSWER - Included in
another income statement line item: Other Costs of Revenue if production facilities; General and
Administrative if company headquarters
