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FIN 370 CORPORATE FINANCE EXAM QUESTIONS
SOLUTIONS STUDY GUIDE AND COMPLETE
PREPARATION MATERIAL 2026 2027 VERIFIED
ANSWERS ACTUAL UPDATED PRACTICE QUESTIONS
HIGH YIELD STUDY GUIDE GRADED A+
Below is the common equity section (in millions) of Fethe Industries' last two yearend
balance sheets:
2015 2014
Common stock $2,000 $1,000
Retained earnings 2,000 2,340
Total common equity $4,000 $3,340
The company has never paid a dividend to its common stockholders. Which of the following
statements is CORRECT?
a. The company's net income in 2014 was higher than in 2015.
b. The company issued common stock in 2015.
c. The market price of the company's stock doubled in 2015.
d. The company had positive net income in both 2014 and 2015, but the company's net
income in 2014 was lower than it was in 2015.
e. The company has more equity than debt on its balance sheet.
B
Rao Corporation has the following balance sheet. How much net operating working capital
does the firm have?
Cash $ 10 Accounts payable $ 20
Short-term investments 30 Accruals 20
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Accounts receivable 50 Notes payable 50
Inventory 40 Current liabilities $ 90
Current assets $130 Long-term debt 60
Net fixed assets 100 Common equity 30
Retained earnings 50
Total assets $230 Total liab. & equity $230 a.
$54.00
b. $60.00
c. $66.00
d. $72.60
e. $79.86
ANSWER: b
RATIONALE: Net operating working capital = Operating current assets −
Operating current liabilities NOWC = $100.00 − $40.00 NOWC = $60.00
A firm wants to strengthen its financial position. Which of the following actions would
increase its quick ratio?
a. Issue new common stock and use the proceeds to acquire additional fixed assets.
b. Offer price reductions along with generous credit terms that would (1) enable the firm to
sell some of its excess inventory and (2) lead to an increase in accounts receivable.
c. Issue new common stock and use the proceeds to increase inventories.
d. Speed up the collection of receivables and use the cash generated to increase
inventories.
e. Use some of its cash to purchase additional inventories.
B.
Inventory is less Liquid asset. Quick ratio measures the $ amount of liquid assets available
for each $ amount of current Liabilities.
If a bank loan officer were considering a company's request for a loan, which of the following
statements would you consider to be CORRECT?
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a. Other things held constant, the lower the current ratio, the lower the interest rate the
bank would charge the firm.
b. The lower the company's EBITDA coverage ratio, other things held constant, the
lower the interest rate the bank would charge the firm.
c. Other things held constant, the higher the debt ratio, the lower the interest rate the
bank would charge the firm.
d. Other things held constant, the lower the debt ratio, the lower the interest rate the
bank would charge the firm.
e. The lower the company's TIE ratio, other things held constant, the lower the interest
rate the bank would charge the firm. D.
HW 6 Answer
Which of the following would indicate an improvement in a company's financial position,
holding other things constant?
a. The current and quick ratios both increase.
b. The inventory and total assets turnover ratios both decline.
c. The debt ratio increases.
d. The profit margin declines.
e. The EBITDA coverage ratio declines. A.
. Companies Heidee and Leaudy have the same tax rate, sales, total assets, and basic
earning power. Both companies have positive net incomes. Company Heidee has a higher
debt ratio and, therefore, a higher interest expense. Which of the following statements is
CORRECT?
a. Company Heidee has a lower times interest earned (TIE) ratio.
b. Company Heidee has a lower equity multiplier.
c. Company Heidee has more net income.
d. Company Heidee pays more in taxes.
e. Company Heidee has a lower ROE.
ANSWER: a
RATIONALE: Heidee has higher interest charges. Basic earning power equals
FIN 370 CORPORATE FINANCE EXAM QUESTIONS
SOLUTIONS STUDY GUIDE AND COMPLETE
PREPARATION MATERIAL 2026 2027 VERIFIED
ANSWERS ACTUAL UPDATED PRACTICE QUESTIONS
HIGH YIELD STUDY GUIDE GRADED A+
Below is the common equity section (in millions) of Fethe Industries' last two yearend
balance sheets:
2015 2014
Common stock $2,000 $1,000
Retained earnings 2,000 2,340
Total common equity $4,000 $3,340
The company has never paid a dividend to its common stockholders. Which of the following
statements is CORRECT?
a. The company's net income in 2014 was higher than in 2015.
b. The company issued common stock in 2015.
c. The market price of the company's stock doubled in 2015.
d. The company had positive net income in both 2014 and 2015, but the company's net
income in 2014 was lower than it was in 2015.
e. The company has more equity than debt on its balance sheet.
B
Rao Corporation has the following balance sheet. How much net operating working capital
does the firm have?
Cash $ 10 Accounts payable $ 20
Short-term investments 30 Accruals 20
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Accounts receivable 50 Notes payable 50
Inventory 40 Current liabilities $ 90
Current assets $130 Long-term debt 60
Net fixed assets 100 Common equity 30
Retained earnings 50
Total assets $230 Total liab. & equity $230 a.
$54.00
b. $60.00
c. $66.00
d. $72.60
e. $79.86
ANSWER: b
RATIONALE: Net operating working capital = Operating current assets −
Operating current liabilities NOWC = $100.00 − $40.00 NOWC = $60.00
A firm wants to strengthen its financial position. Which of the following actions would
increase its quick ratio?
a. Issue new common stock and use the proceeds to acquire additional fixed assets.
b. Offer price reductions along with generous credit terms that would (1) enable the firm to
sell some of its excess inventory and (2) lead to an increase in accounts receivable.
c. Issue new common stock and use the proceeds to increase inventories.
d. Speed up the collection of receivables and use the cash generated to increase
inventories.
e. Use some of its cash to purchase additional inventories.
B.
Inventory is less Liquid asset. Quick ratio measures the $ amount of liquid assets available
for each $ amount of current Liabilities.
If a bank loan officer were considering a company's request for a loan, which of the following
statements would you consider to be CORRECT?
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a. Other things held constant, the lower the current ratio, the lower the interest rate the
bank would charge the firm.
b. The lower the company's EBITDA coverage ratio, other things held constant, the
lower the interest rate the bank would charge the firm.
c. Other things held constant, the higher the debt ratio, the lower the interest rate the
bank would charge the firm.
d. Other things held constant, the lower the debt ratio, the lower the interest rate the
bank would charge the firm.
e. The lower the company's TIE ratio, other things held constant, the lower the interest
rate the bank would charge the firm. D.
HW 6 Answer
Which of the following would indicate an improvement in a company's financial position,
holding other things constant?
a. The current and quick ratios both increase.
b. The inventory and total assets turnover ratios both decline.
c. The debt ratio increases.
d. The profit margin declines.
e. The EBITDA coverage ratio declines. A.
. Companies Heidee and Leaudy have the same tax rate, sales, total assets, and basic
earning power. Both companies have positive net incomes. Company Heidee has a higher
debt ratio and, therefore, a higher interest expense. Which of the following statements is
CORRECT?
a. Company Heidee has a lower times interest earned (TIE) ratio.
b. Company Heidee has a lower equity multiplier.
c. Company Heidee has more net income.
d. Company Heidee pays more in taxes.
e. Company Heidee has a lower ROE.
ANSWER: a
RATIONALE: Heidee has higher interest charges. Basic earning power equals
