MC-questions

Question 1

A company has a semi-annual coupon bond outstanding. A decrease in the market required rate of return will have an effect on this bond. Which effect is meant here:

1. Increase of the market price
2. Increase of the coupon rate
3. Decrease of the market price
4. Decrease of the coupon rate

Question 2

A firm is comparing two different capital structure plans, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the firm would have 178,500 shares outstanding. Under Plan II, there would be 71,400 shares outstanding and €1.79 million in debt outstanding. The interest rate on the debt is 10% and there are no taxes. What is the break-even EBIT?

1. €341,414.14
2. €351,111.11
3. €298,333.33
4. €287,878.78

Question 3

Consider the the dividend growth model, an increase in which of the following will increase the current value of an equity?

I. Dividend amount

II. Number of future dividends

III. Discount rate

IV. Dividend growth rate

1. I, II, and III only
2. I, II, and IV only
3. I, II, III, and IV
4. III and IV only

Question 4

A company is considering a new project. The project will require €500,000 for new non-current assets, €200,000 for additional inventory, and €40,000 for additional trade receivables. Short-term debt is expected to increase by €150,000. What is the project's cash flow at time zero, which is the sum of investments in new non-current assets and net working capital?

1. -€890,000
2. -€614,000
3. -€590,000
4. -€500,000

Question 5

A conflict of interest between the shareholders and the management of a firm is called:

1. shareholders' liability
2. corporate activism
3. corporate breakdown
4. the agency problem

Question 6

Daphne invested €1000 seven years ago at 5 per cent interest. She spends her earnings as soon as she earns any interest so she only receives interest on her initial €1000 investment. Which type of interest is Daphne earning?

1. Complex interest
2. Interest on interest
3. Compound interest
4. Simple interest

Question 7

Shareholders' equity is best described as:

1. equal to total assets plus total liabilities.
2. includes long-term debt, preferred stock, and ordinary equity.
3. the residual value of a firm.
4. increases in value whenever total assets increases.

Question 8

Consider the following features for a bond:

I. It is a discounted price

II. It is a price at a premium

III. The yield-to-maturity is less than the coupon rate

IV. The yield-to-maturity exceeds the coupon rate

Which of the following features currently apply to a bond that has a market price that is lower than its face value?

1. I and III only
2. I and IV only
3. II and III only
4. II and IV only
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MC-questions

A company has a debt-to-equity ratio of 42%, sales of €749,000, net income of €41,300, and total debt of €198,400. What is the return on equity (ROE=Net Income/Total Equity)?

1. 9.09%
2. 8.74%
3. 8.41%
4. 7.79%

Question 2

A project that provides annual cash flows of €9,377.18 for 12 years costs €67,150 today. At what rate would you be indifferent between accepting the project and rejecting it?

1. 9%
2. 10%
3. 11%
4. 12%

Question 3

Yesterday, the president of HB Enterprises received a phone call from a competitor. The competitor is a sole proprietorship. An unexpected family situation has caused the owner to suddenly want to retire and relocate closer to his family. Thus, the assets of the competitor are being offered to HB Enterprises at a bargain basement price. While HB Enterprises had not anticipated purchasing these assets, it was decided that the opportunity was too good to pass up. This illustrates which of the following needs to hold cash?

1. Transaction
2. Speculative
3. Compensation
4. Precautionary

Question 4

If a firm effectively manages its financial risks, what can this firm do?

1. Avoid all long-term financial risks
2. Eliminate all the risks faced by the firm
3. Reduce the price volatility it faces
4. Guarantee the firm's financial success

Question 5

Which one of the following statements concerning interest rates is the most correct?

1. The effective annual rate decreases as the number of compounding periods per year increases.
2. The effective annual rate equals the annual percentage rate when interest is compounded annually.
3. Borrowers would prefer monthly compounding over annual compounding.
4. Savers would prefer annual compounding over monthly compounding.

Question 6

This question is based on the dividend growth model. If you expect the market required rate of return to increase across all equity securities, then you should also expect:

1. dividend-paying equities to maintain a constant price while non-dividend paying equities decrease in value.
2. dividend-paying equities to increase in price while non-dividend paying equities decrease in value.
3. an increase in all equity values.
4. a decrease in all equity values.

Question 7

You are considering two mutually exclusive projects with the following cash flows.

Year Project A Project B

0 - € 80,000 - € 80,000

1 0 €32,000

2 0 €32,000

3 € 105,000 € 32,000

Which project(s) should you accept if the discount rate is 8 per cent? What if the discount rate is 12 per cent?

1. accept project A as it always has the higher NPV
2. accept A at 8 percent and B at 12 percent
3. accept B at 8 percent and A at 12 percent
4. accept A at 8 percent and neither at 12 percent

Question 8

The National Bank has.....read more

MC-questions

Question 1

The four stocks A, B, C, and D have standard deviations, respectively, of 5%, 10%, 15% and 20%. Which one is the riskiest?

1. Stock A
2. Stock B
3. Stock C
4. Stock D

Question 2

According to the Pecking Order Hypothesis: less probable companies in an asymmetric world will need more ________; they will first seek ________ and will avoid ________.

1. internal funding; the use of retained earnings; equity market
2. internal funding; the use of retained earnings; debt market
3. external funding; equity funding; debt market
4. external funding; debt financing; equity market

Question 3

Consider the following sales:

• May: €50,000
• June: €80,000
• July: €120,000

For any month the following percentages are received over time in cash: 40% in cash from that same month of sales, 50% in cash from the previous month's sales and 10% in cash from the sales from two months ago. What amount of cash will be received during July?

1. €93,000
2. €97,500
3. €108,000
4. €120,000

Question 4

Which model shows how soon one will recover from an initial investment?

1. Payback period
2. NPV
3. IRR
4. Profitability index

Question 5

Consider the following information from a balance sheet: the value of common stock is €60,000, preferred stock has a value of €10,000, retained earnings are €40,000, long-term debt is €120,000. For the purpose of estimating the WACC of the firm,what are the weights of long-term debt, preferred stock and equity? (Note: D = debt, PS= preferred stock, E = equity and V = total value).

1. D/V = 52.17%, PS/V = 4.35% and E/V = 43.48%
2. D/V = 52.17%, PS/V = 43.48% and E/V = 4.35%
3. D/V = €120,000, PS/V = €10,000 and E/V = €100,000
4. There is not enough information to answer this question.

Question 6

Which of the following types of securities cannot be issued by a large public firm?

1. common stock
2. bonds
3. preferred stock
4. t-bills

Question 7

A company that offers a credit discount to its customers is trying to ________, and a company that pays a credit in time rather than take a discount and paying it early is attempting to ________.

1. speed up cash outflow; slow down cash outflow
2. speed up cash outflow; slow down cash inflow
3. speed up cash inflow; slow down cash outflow
4. speed up cash inflow; slow down cash inflow

Question 8

Assume you have signed a call option contract for an asset. The premium of this option is €0.90 and expires in 2 months. The asset is currently sold on the market at €25 (current spot price). The strike price of the option is €26. What are the intrinsic and time value components of the.....read more