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Accounting, Banking and Finance MCQs

Corporate Finance

Quiz # 2, MCQs

NOTE: Attempt all Questions to see the Result at the bottom of this page.

The Timer has started 10:00

1)

Which of the following is an anti takeover strategy in which the target company make significant efforts to resist a takeover bid e.g. by a major acquisition, issue new shares?
- A) Shark repellent
- B) Pac-man
- C) Poison pill
- D) Political pressure
Right Answer is the option "A"

2)

Corporate restructuring involves the restructuring of
- A) The assets and liabilities of the company
- B) The debt to equity structures of the company
- C) Cost minimization by the company
- D) All of the given options
Right Answer is the option "D"

3)

Which of the following terms refer to the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition?
- A) Management Buyout
- B) Management Buy-In
- C) Leverage Buyout
- D) None of the given options
Right Answer is the option "C". The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition.

4)

Which of the following is NOT among the categories of foreign risk?
- A) Transaction exposure
- B) Translation exposure
- C) Local exposure
- D) Economic exposure
Right Answer is the option "C". We can classify foreign risk exposure into three broad categories: • Transaction exposure • Translation exposure • Economic exposureWe can classify foreign risk exposure into three broad categories: • Transaction exposure • Translation exposure • Economic exposure

5)

Which of the following statements is INCORRECT regarding forward contracts?
- A) Reversing forward contract is difficult.
- B) Parties have to put an initial margin in forward contracts
- C) No size restriction is placed in forward contract
- D) Forward contract is made between parties and each party needs to confirm the credit worthiness of each other
Right Answer is the option "B"

6)

Which of the following is the CORRECT statement regarding the Law of One Price? ►
- A) The law of one price applies to only tradeable goods
- B) The law of one price applies to all goods
- C) The law of one price applies to immovable goods
- D) The law of one price applies to services only
Right Answer is the option "A"

7)

Which of the following is an expected rate of return on a bond if bought at its current market price and held to maturity?
- A) Yield to maturity
- B) Current yield
- C) Coupon yield
- D) Capital gains yield
Right Answer is the option "A". The yield to maturity (YTM), is the discount rate which returns the market price of the bond. It is thus the internal rate of return of an investment in the bond made at the observed price. YTM can also be used to price a bond, where it is used as the required return on the bond.

8)

A firm can lower its break-even level by doing which of the following actions?
- A) Lowering direct cost
- B) Increasing variable cos
- C) Increasing direct cost
- D) Lowering sales price
Right Answer is the option "A"

9)

Which one of the following statements applies to Dividend Growth Model?
- A) It is difficult to understand and use
- B) It is used for non-listed companies
- C) It is used for debt securities also
- D) It do not consider risk level of a security
Right Answer is the option "D". This approach does not take into account the risk level

10)

Which of the following is the principal advantage of high debt financing?
- A) Tax savings
- B) Low Bankruptcy costs
- C) Minimum financial risk
- D) Low financial leverage
Right Answer is the option "A". According to M & M model, debt financing increases the value of firm due to tax shield