Corporate Finance Exam Newest /Corporate Finance Exam Preparation
CORPORATE FINANCE EXAM NEWEST /CORPORATE FINANCE EXAM
PREPARATION / CORPORATE FINANCE PRACTICE EXAM WITH 200
COMPLETE QUESTIONS AND CORRECT DETAILED ANSWERS |ALREADY
GRADED A+|BRAND NEW VERSION!!
Companies HD and LD are both profitable, and have the same total assets, total
invested capital, sales, return on assets, and profit margin. Both firms finance
using only debt and common equity. However Company HD has the higher total
debt to total capital ratio. Which of the following statements is correct?
A. Company HD has a lower total assets turnover than company LD
B. Company HD has a lower equity multiplier than Company LD
C. Company HD has a higher fixed assets turnover than Company LD.
D. Company HD has a higher ROE than Company LD.
E. Company HD has a lower operating income (EBIT) than company LD. - Correct
Answer-D
Taggart Technologies is considering issuing new common stock and using the
proceeds to reduce its outstanding debt. The stock issue would have no effect on
total assets, the interest rate Taggart pays, EBIT, or the tax rate. Which of the
following is likely to occur if the company goes ahead with the stock issue?
a. The ROA will decline.
b. Taxable income will decline.
c. The tax bill will increase.
d. Net income will decrease.
e. The times-interest-earned ratio will decrease. - Correct Answer-C
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, Corporate Finance Exam Newest /Corporate Finance Exam Preparation
Walter Industries' current ratio is 0.5. Considered alone, which of the following
actions would increase the company's current ratio?
a. Borrow using short-term notes payable and use the cash to increase
inventories.
b. Use cash to reduce accruals.
c. Use cash to reduce accounts payable.
d. Use cash to reduce short-term notes payable.
e. Use cash to reduce long-term bonds outstanding. - Correct Answer-A
1. Which of the following statements is CORRECT?
a. The cash flows for an ordinary (or deferred) annuity all occur at the beginning of
the periods.
b. If a series of unequal cash flows occurs at regular intervals, such as once a year,
then the series is by definition an annuity.
c. The cash flows for an annuity due must all occur at the beginning of the periods.
d. The cash flows for an annuity may vary from period to period, but they must
occur at regular intervals, such as once a year or once a month.e. If some cash
flows occur at the beginning of the periods while others occur at the ends, then
we have what the textbook defines as a variable annuity. - Correct Answer-C
2. Your bank account pays a 6% nominal rate of interest. The interest is
compounded quarterly. Which of the following statements is CORRECT?
a. The periodic rate of interest is 1.5% and the effective rate of interest is 3%.
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, Corporate Finance Exam Newest /Corporate Finance Exam Preparation
b. The periodic rate of interest is 6% and the effective rate of interest is greater
than 6%.
c. The periodic rate of interest is 1.5% and the effective rate of interest is greater
than 6%.
d. The periodic rate of interest is 3% and the effective rate of interest is 6%.e. The
periodic rate of interest is 6% and the effective rate of interest is also 6%. - Correct
Answer-C
Which of the following statements regarding a 30-year monthly payment
amortized mortgage with a nominal interest rate of 10% is CORRECT?
a. The monthly payments will decline over time.
b. A smaller proportion of the last monthly payment will be interest, and a
proportion will be principal, than for the first monthly payment.
c. The total dollar amount of principal being paid off each month gets smaller as
the loan approaches maturity.
d. The amount representing interest in the first payment would be higher if the
nominal interest rate were 7% rather than 10%.e. Exactly 10% of the first monthly
payment represents interest. - Correct Answer-B
Which of the following statements is CORRECT?
a. The present value of a 3-year, $150 annuity due will exceed the present value of
a 3-year, $150 ordinary annuity.
b. If a loan has a nominal annual rate of 8%, then the effective rate can never be
greater than 8%.
c. If a loan or investment has annual payments, then the effective, periodic, and
nominal rates of interest will all be different.
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, Corporate Finance Exam Newest /Corporate Finance Exam Preparation
d. The proportion of the payment that goes toward interest on a fully amortized
loan increases over time.
e. An investment that has a nominal rate of 6% with semiannual payments will
have an effective rate that is smaller than 6%. - Correct Answer-A
You plan to invest some money in a bank account. Which of the following banks
provides you with the highest effective rate of interest?
a. Bank 1; 6.1% with annual compounding.
b. Bank 2; 6.0% with monthly compounding.
c. Bank 3; 6.0% with annual compounding.
d. Bank 4; 6.0% with quarterly compounding.
e. Bank 5; 6.0% with daily (365-day) compounding. - Correct Answer-E
Which of the following statements is correct?
A. One of the advantages of the corporate form of organization is that it avoids
double taxation
B. It is easier to transfer one's ownership interest in a partnership than in a
corporation
C. One of the disadvantages of a propreitorship is exposed to unlimited liability
D. One of the advantages of a corporation from a social standpoint is that every
stockholder has equal voting rights
E. Corporations of all types are subject to the corporate income tax - Correct
Answer-E
Which of the following statements is correct?
4|Page
CORPORATE FINANCE EXAM NEWEST /CORPORATE FINANCE EXAM
PREPARATION / CORPORATE FINANCE PRACTICE EXAM WITH 200
COMPLETE QUESTIONS AND CORRECT DETAILED ANSWERS |ALREADY
GRADED A+|BRAND NEW VERSION!!
Companies HD and LD are both profitable, and have the same total assets, total
invested capital, sales, return on assets, and profit margin. Both firms finance
using only debt and common equity. However Company HD has the higher total
debt to total capital ratio. Which of the following statements is correct?
A. Company HD has a lower total assets turnover than company LD
B. Company HD has a lower equity multiplier than Company LD
C. Company HD has a higher fixed assets turnover than Company LD.
D. Company HD has a higher ROE than Company LD.
E. Company HD has a lower operating income (EBIT) than company LD. - Correct
Answer-D
Taggart Technologies is considering issuing new common stock and using the
proceeds to reduce its outstanding debt. The stock issue would have no effect on
total assets, the interest rate Taggart pays, EBIT, or the tax rate. Which of the
following is likely to occur if the company goes ahead with the stock issue?
a. The ROA will decline.
b. Taxable income will decline.
c. The tax bill will increase.
d. Net income will decrease.
e. The times-interest-earned ratio will decrease. - Correct Answer-C
1|Page
, Corporate Finance Exam Newest /Corporate Finance Exam Preparation
Walter Industries' current ratio is 0.5. Considered alone, which of the following
actions would increase the company's current ratio?
a. Borrow using short-term notes payable and use the cash to increase
inventories.
b. Use cash to reduce accruals.
c. Use cash to reduce accounts payable.
d. Use cash to reduce short-term notes payable.
e. Use cash to reduce long-term bonds outstanding. - Correct Answer-A
1. Which of the following statements is CORRECT?
a. The cash flows for an ordinary (or deferred) annuity all occur at the beginning of
the periods.
b. If a series of unequal cash flows occurs at regular intervals, such as once a year,
then the series is by definition an annuity.
c. The cash flows for an annuity due must all occur at the beginning of the periods.
d. The cash flows for an annuity may vary from period to period, but they must
occur at regular intervals, such as once a year or once a month.e. If some cash
flows occur at the beginning of the periods while others occur at the ends, then
we have what the textbook defines as a variable annuity. - Correct Answer-C
2. Your bank account pays a 6% nominal rate of interest. The interest is
compounded quarterly. Which of the following statements is CORRECT?
a. The periodic rate of interest is 1.5% and the effective rate of interest is 3%.
2|Page
, Corporate Finance Exam Newest /Corporate Finance Exam Preparation
b. The periodic rate of interest is 6% and the effective rate of interest is greater
than 6%.
c. The periodic rate of interest is 1.5% and the effective rate of interest is greater
than 6%.
d. The periodic rate of interest is 3% and the effective rate of interest is 6%.e. The
periodic rate of interest is 6% and the effective rate of interest is also 6%. - Correct
Answer-C
Which of the following statements regarding a 30-year monthly payment
amortized mortgage with a nominal interest rate of 10% is CORRECT?
a. The monthly payments will decline over time.
b. A smaller proportion of the last monthly payment will be interest, and a
proportion will be principal, than for the first monthly payment.
c. The total dollar amount of principal being paid off each month gets smaller as
the loan approaches maturity.
d. The amount representing interest in the first payment would be higher if the
nominal interest rate were 7% rather than 10%.e. Exactly 10% of the first monthly
payment represents interest. - Correct Answer-B
Which of the following statements is CORRECT?
a. The present value of a 3-year, $150 annuity due will exceed the present value of
a 3-year, $150 ordinary annuity.
b. If a loan has a nominal annual rate of 8%, then the effective rate can never be
greater than 8%.
c. If a loan or investment has annual payments, then the effective, periodic, and
nominal rates of interest will all be different.
3|Page
, Corporate Finance Exam Newest /Corporate Finance Exam Preparation
d. The proportion of the payment that goes toward interest on a fully amortized
loan increases over time.
e. An investment that has a nominal rate of 6% with semiannual payments will
have an effective rate that is smaller than 6%. - Correct Answer-A
You plan to invest some money in a bank account. Which of the following banks
provides you with the highest effective rate of interest?
a. Bank 1; 6.1% with annual compounding.
b. Bank 2; 6.0% with monthly compounding.
c. Bank 3; 6.0% with annual compounding.
d. Bank 4; 6.0% with quarterly compounding.
e. Bank 5; 6.0% with daily (365-day) compounding. - Correct Answer-E
Which of the following statements is correct?
A. One of the advantages of the corporate form of organization is that it avoids
double taxation
B. It is easier to transfer one's ownership interest in a partnership than in a
corporation
C. One of the disadvantages of a propreitorship is exposed to unlimited liability
D. One of the advantages of a corporation from a social standpoint is that every
stockholder has equal voting rights
E. Corporations of all types are subject to the corporate income tax - Correct
Answer-E
Which of the following statements is correct?
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