FSA TEST QUESTIONS WITH
CORRECT ANSWERS
When calculating the cost of debt capital you must multiply the average borrowing rate
by - Answer-1 - Marginal income tax rate
The weighted average cost of capital is used when valuing the payoffs - Answer-to both
equity and debt holders
The dividend discount valuation model equates the current stock price to - Answer-all
future expected dividends discounted by the cost of equity capital
There are many types of equity valuation models they differ mainly in - Answer-the
choice of what is forecast
The advantage of the dividend discount model is that - Answer-it is simple
A company can increase free cash flows to the firm by doing which of the following? -
Answer-decreasing investments in receivables, inventories, and plant assets
The average borrowing rate for interest bearing debt is calculated as - Answer-interest
expense divided by average-interest bearing debt
Which best describes par value for a stock? - Answer-An arbitrary amount set by the
company for each share of stock
Which one of the following items is not a component of contributed capital? - Answer-
Retained Earnings
In June 2014, Pena Inc. announced 3 for 1 stock split. On the split date, Pena had
about 56.4 million shares outstanding. After the split the number of shares outstanding
was - Answer-163.8 million
If a company issues 2,500 shares of common stock at a market price of $32 per share,
which of the following is the correct balance sheet effect? - Answer-increase cash by
$80,000 and increase contributed capital by $80,000
The 2014 financial statements of Wolff Corporation report that the company paid
dividends of 14,500,000 to its preferred shareholders before paying dividends to its
common shareholders. This practice is called - Answer-dividend preference
CORRECT ANSWERS
When calculating the cost of debt capital you must multiply the average borrowing rate
by - Answer-1 - Marginal income tax rate
The weighted average cost of capital is used when valuing the payoffs - Answer-to both
equity and debt holders
The dividend discount valuation model equates the current stock price to - Answer-all
future expected dividends discounted by the cost of equity capital
There are many types of equity valuation models they differ mainly in - Answer-the
choice of what is forecast
The advantage of the dividend discount model is that - Answer-it is simple
A company can increase free cash flows to the firm by doing which of the following? -
Answer-decreasing investments in receivables, inventories, and plant assets
The average borrowing rate for interest bearing debt is calculated as - Answer-interest
expense divided by average-interest bearing debt
Which best describes par value for a stock? - Answer-An arbitrary amount set by the
company for each share of stock
Which one of the following items is not a component of contributed capital? - Answer-
Retained Earnings
In June 2014, Pena Inc. announced 3 for 1 stock split. On the split date, Pena had
about 56.4 million shares outstanding. After the split the number of shares outstanding
was - Answer-163.8 million
If a company issues 2,500 shares of common stock at a market price of $32 per share,
which of the following is the correct balance sheet effect? - Answer-increase cash by
$80,000 and increase contributed capital by $80,000
The 2014 financial statements of Wolff Corporation report that the company paid
dividends of 14,500,000 to its preferred shareholders before paying dividends to its
common shareholders. This practice is called - Answer-dividend preference
