FIN306 - Corporate Finance Questions &
Correct Answers
XYZ Corp had their quarterly dividend meeting on April 9. The directors declared a $0.50 per
share cash dividend for the holder's of record on Monday, May 1. XYZ's stock will sell "ex-
dividend" on - CORRECT - ANSWERS April 27
The day before XYZ's stock went "ex-dividend" it was selling for $25 per share. If the quarterly
cash dividend was $0.50,all other things being equal, the day after it went "ex-dividend" it
should sell for: - CORRECT - ANSWERS $24.50
A well known mid-Atlantic company was running into trouble with the New York Stock
Exchange (NYSE). It's stock price had fallen below $1.00 per share and a requirement to be
listed on the NYSE is that a company's stock must sell at $1.00 or higher, otherwise the stork
can be "de-listed" (This is a true story, by the way). One way the company could get back into
the good graces of the NYSE would be to : - CORRECT - ANSWERS Perform a 1 for 2
reverse stock split
Myron Gordon's "bird-in-the-hand" argument suggests that - CORRECT - ANSWERS
Stockholders are generally risk adverse and attach less risk to current dividends
The residual theory of dividends suggests that dividends are _______ to the value of the firm. -
CORRECT - ANSWERS <idk i got this wrong, its NOT residual tho>
A break point occurs when - CORRECT - ANSWERS a company hits their "budget
constraint"
_____ is the process of evaluating and selecting long-term investments consistent with the
firm's goal of wealth maximization - CORRECT - ANSWERS capital budgeting
, Consider the following cash flow pattern. In year zero: capital expense = $100,000; year 1
cash inflow =$25,000; year 2 cash inflow = $10,000; year 3 cash inflow= $50,000; year 4 cash
inflow = $60,000. This cash flow pattern is best described as a(n) - CORRECT - ANSWERS
mixed stream and a conventional cash flow
_____ projects do not compete with each other, the acceptance of one _____ the others from
consideration. - CORRECT - ANSWERS Independent; does not eliminate
A firm with limited dollars available for capital expenditures is subject to - CORRECT -
ANSWERS capital rationing
The _____ is the exact amount of time it takes the firm to recover its initial investment -
CORRECT - ANSWERS payback
All of the following are weaknesses of the payback method except - CORRECT - ANSWERS
it is easy to calculate
A firm is evaluating a proposal which has an initial investment of $35,000 and has cash
inflows of $10,000 in year one; $20,000 in year two; and $10,000 in year 3. The payback
period of the project is - CORRECT - ANSWERS between 2 & 3 years
A firm is evaluating an investment proposal which has an initial investment of $5,000 and
cash inflows presently valued at $4,000. The NPV of the investment is - CORRECT - ANSWERS
-$1,000
The _____ is the discount rate that equates the present value of the cash inflows with the
initial investment. - CORRECT - ANSWERS IRR
A firm with a cost of capital of 12.5% is evaluating 3 capital projects. The IRRs are as follows:
Project 1 = 12%
Correct Answers
XYZ Corp had their quarterly dividend meeting on April 9. The directors declared a $0.50 per
share cash dividend for the holder's of record on Monday, May 1. XYZ's stock will sell "ex-
dividend" on - CORRECT - ANSWERS April 27
The day before XYZ's stock went "ex-dividend" it was selling for $25 per share. If the quarterly
cash dividend was $0.50,all other things being equal, the day after it went "ex-dividend" it
should sell for: - CORRECT - ANSWERS $24.50
A well known mid-Atlantic company was running into trouble with the New York Stock
Exchange (NYSE). It's stock price had fallen below $1.00 per share and a requirement to be
listed on the NYSE is that a company's stock must sell at $1.00 or higher, otherwise the stork
can be "de-listed" (This is a true story, by the way). One way the company could get back into
the good graces of the NYSE would be to : - CORRECT - ANSWERS Perform a 1 for 2
reverse stock split
Myron Gordon's "bird-in-the-hand" argument suggests that - CORRECT - ANSWERS
Stockholders are generally risk adverse and attach less risk to current dividends
The residual theory of dividends suggests that dividends are _______ to the value of the firm. -
CORRECT - ANSWERS <idk i got this wrong, its NOT residual tho>
A break point occurs when - CORRECT - ANSWERS a company hits their "budget
constraint"
_____ is the process of evaluating and selecting long-term investments consistent with the
firm's goal of wealth maximization - CORRECT - ANSWERS capital budgeting
, Consider the following cash flow pattern. In year zero: capital expense = $100,000; year 1
cash inflow =$25,000; year 2 cash inflow = $10,000; year 3 cash inflow= $50,000; year 4 cash
inflow = $60,000. This cash flow pattern is best described as a(n) - CORRECT - ANSWERS
mixed stream and a conventional cash flow
_____ projects do not compete with each other, the acceptance of one _____ the others from
consideration. - CORRECT - ANSWERS Independent; does not eliminate
A firm with limited dollars available for capital expenditures is subject to - CORRECT -
ANSWERS capital rationing
The _____ is the exact amount of time it takes the firm to recover its initial investment -
CORRECT - ANSWERS payback
All of the following are weaknesses of the payback method except - CORRECT - ANSWERS
it is easy to calculate
A firm is evaluating a proposal which has an initial investment of $35,000 and has cash
inflows of $10,000 in year one; $20,000 in year two; and $10,000 in year 3. The payback
period of the project is - CORRECT - ANSWERS between 2 & 3 years
A firm is evaluating an investment proposal which has an initial investment of $5,000 and
cash inflows presently valued at $4,000. The NPV of the investment is - CORRECT - ANSWERS
-$1,000
The _____ is the discount rate that equates the present value of the cash inflows with the
initial investment. - CORRECT - ANSWERS IRR
A firm with a cost of capital of 12.5% is evaluating 3 capital projects. The IRRs are as follows:
Project 1 = 12%
