Corporate Finance Practice Questions
Short Questions (2–4 Marks)
1. What are the objectives of Corporate Finance?
2. Explain the concept of Wealth Maximization.
3. Differentiate between Profit Maximization and Wealth Maximization.
4. What is Time Value of Money?
5. State the importance of Capital Budgeting.
6. What do you mean by Cost of Capital?
7. Explain the meaning of Financial Leverage.
8. What is Working Capital Management?
9. Define Payback Period Method.
10. What is Profitability Index?
Long / Numerical Questions
1. A person wants to accumulate ■5,00,000 after 10 years. How much should be invested every year at 8% interest?
2. A project costs ■2,00,000 and generates annual cash inflows of ■50,000 for 6 years. Calculate the Payback
Period.
3. A company is considering a machine costing ■1,00,000 with a life of 5 years and no scrap value. Expected profits
after tax are: ■10,000, ■15,000, ■20,000, ■25,000, ■30,000. Calculate the Accounting Rate of Return (ARR).
4. Calculate the Present Value of ■1,00,000 receivable after 5 years at a discount rate of 10%.
5. Using Profitability Index, identify the best project from the following table:
Project Initial Investment Present Value of Cash Inflows
A ■1,00,000 ■1,20,000
B ■2,00,000 ■2,10,000
C ■1,50,000 ■1,95,000
6. Calculate the Cost of Debt if: Debenture value = ■1,000, Interest rate = 10%, Tax rate = 30%, Net proceeds =
■950.
7. A company has EBIT of ■5,00,000 and interest expense of ■1,00,000. Calculate Financial Leverage.
8. Explain Capital Structure and factors affecting it.
Short Questions (2–4 Marks)
1. What are the objectives of Corporate Finance?
2. Explain the concept of Wealth Maximization.
3. Differentiate between Profit Maximization and Wealth Maximization.
4. What is Time Value of Money?
5. State the importance of Capital Budgeting.
6. What do you mean by Cost of Capital?
7. Explain the meaning of Financial Leverage.
8. What is Working Capital Management?
9. Define Payback Period Method.
10. What is Profitability Index?
Long / Numerical Questions
1. A person wants to accumulate ■5,00,000 after 10 years. How much should be invested every year at 8% interest?
2. A project costs ■2,00,000 and generates annual cash inflows of ■50,000 for 6 years. Calculate the Payback
Period.
3. A company is considering a machine costing ■1,00,000 with a life of 5 years and no scrap value. Expected profits
after tax are: ■10,000, ■15,000, ■20,000, ■25,000, ■30,000. Calculate the Accounting Rate of Return (ARR).
4. Calculate the Present Value of ■1,00,000 receivable after 5 years at a discount rate of 10%.
5. Using Profitability Index, identify the best project from the following table:
Project Initial Investment Present Value of Cash Inflows
A ■1,00,000 ■1,20,000
B ■2,00,000 ■2,10,000
C ■1,50,000 ■1,95,000
6. Calculate the Cost of Debt if: Debenture value = ■1,000, Interest rate = 10%, Tax rate = 30%, Net proceeds =
■950.
7. A company has EBIT of ■5,00,000 and interest expense of ■1,00,000. Calculate Financial Leverage.
8. Explain Capital Structure and factors affecting it.
