Corporate Finance Exam Prep UPDATED
ACTUAL Exam Questions and CORRECT
Answers
What is the beta of a firm whose equity has an expected return of 21.30%, the risk-free rate is
7%, and the expected return on the stock market is 18%? - CORRECT ANSWER -
(21.3%-7%) / (18%-7%)
14.3% / 11%
=1.3
Two reasons for the agency problem in modern corporations is:
A. Dispersion of ownership
B. Managers know how to manage better than stockholders
C. Separation of ownership and control of the firm
D. A & C - CORRECT ANSWER - D. A & C
Dispersion of ownership
&
Separation of Ownership and control of the firm
Capital budgeting includes the evaluation of which of the following?
A. Size of future cash flows only
B. Size and timing of future cash flows
C. Timing and risk of future cash flows
D. Risk and size of future cash flows only
E. Size, timing, and risk of future cash flows - CORRECT ANSWER - E. Size, timing, and
risk of future cash flows
,According to corporate finance, the financial manager is responsible for:
A. Capital budgeting
B. The financial decision
C. Dividend policy
D. All of the above - CORRECT ANSWER - D. All of the above
Capital Budgeting,
The financial decision,
& Dividend policy
The primary goal of a corporate finance manager is to maximize:
A. Current profits
B. Market share
C. Number of shares outstanding
D. Value of the firm
E. Revenue growth - CORRECT ANSWER - D. Value of the Firm
6. Which of the following direct incentives may align management goals with shareholder
interests?
I. Employee stock options
II. Threat of a takeover
III. Management bonuses tied to performance goals
IV. Threat of a proxy fight
A. I and III only
B. II and IV only
, C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV - CORRECT ANSWER - A. I and III only:
I. Employee stock options
III. Management bonuses
7. The group of stakeholders of a firm includes:
A. Anyone with a direct or indirect interest in the firm as an ongoing business concern.
B. Anyone with control of the firm. - CORRECT ANSWER - A. Anyone with a direct or
indirect interest in the firm as an ongoing business concern
8. The net present value of any investment represents the difference between the investments:
A. cash inflows and outflows.
B. cost and its net profit.
C. cost and its market value.
D. cash flows and its profits.
E. assets and liabilities. - CORRECT ANSWER - A. Cash inflows and outflows
9. The payback period is the length of time it takes an investment to generate sufficient cash
flows to
enable the project to:
A. produce a positive annual cash flow.
B. produce a positive cash flow from assets.
C. offset its fixed expenses.
D. offset its total expenses.
E. recoup its initial cost. - CORRECT ANSWER - E. Recoup its initial cost
ACTUAL Exam Questions and CORRECT
Answers
What is the beta of a firm whose equity has an expected return of 21.30%, the risk-free rate is
7%, and the expected return on the stock market is 18%? - CORRECT ANSWER -
(21.3%-7%) / (18%-7%)
14.3% / 11%
=1.3
Two reasons for the agency problem in modern corporations is:
A. Dispersion of ownership
B. Managers know how to manage better than stockholders
C. Separation of ownership and control of the firm
D. A & C - CORRECT ANSWER - D. A & C
Dispersion of ownership
&
Separation of Ownership and control of the firm
Capital budgeting includes the evaluation of which of the following?
A. Size of future cash flows only
B. Size and timing of future cash flows
C. Timing and risk of future cash flows
D. Risk and size of future cash flows only
E. Size, timing, and risk of future cash flows - CORRECT ANSWER - E. Size, timing, and
risk of future cash flows
,According to corporate finance, the financial manager is responsible for:
A. Capital budgeting
B. The financial decision
C. Dividend policy
D. All of the above - CORRECT ANSWER - D. All of the above
Capital Budgeting,
The financial decision,
& Dividend policy
The primary goal of a corporate finance manager is to maximize:
A. Current profits
B. Market share
C. Number of shares outstanding
D. Value of the firm
E. Revenue growth - CORRECT ANSWER - D. Value of the Firm
6. Which of the following direct incentives may align management goals with shareholder
interests?
I. Employee stock options
II. Threat of a takeover
III. Management bonuses tied to performance goals
IV. Threat of a proxy fight
A. I and III only
B. II and IV only
, C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV - CORRECT ANSWER - A. I and III only:
I. Employee stock options
III. Management bonuses
7. The group of stakeholders of a firm includes:
A. Anyone with a direct or indirect interest in the firm as an ongoing business concern.
B. Anyone with control of the firm. - CORRECT ANSWER - A. Anyone with a direct or
indirect interest in the firm as an ongoing business concern
8. The net present value of any investment represents the difference between the investments:
A. cash inflows and outflows.
B. cost and its net profit.
C. cost and its market value.
D. cash flows and its profits.
E. assets and liabilities. - CORRECT ANSWER - A. Cash inflows and outflows
9. The payback period is the length of time it takes an investment to generate sufficient cash
flows to
enable the project to:
A. produce a positive annual cash flow.
B. produce a positive cash flow from assets.
C. offset its fixed expenses.
D. offset its total expenses.
E. recoup its initial cost. - CORRECT ANSWER - E. Recoup its initial cost
