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Accounting, Banking and Finance MCQs

Corporate Finance

Quiz # 4, MCQs

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

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1)

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. There is no direct adjustment for the riskyness of the investment. For instance, there is no adjustment for the degree of certainty or uncertainty in estimated growth rate for dividends

2)

Which of the following statements is true regarding Weighted Average Cost of Capital (WACC)?
- A) WACC of a levered firm is greater than that of an un-levered firm
- B) WACC of a levered firm is lesser than that of an un-levered firm
- C) WACC of a levered firm is equal to that of an un-levered firm
- D) An Un-levered firm has zero WACC.
Right Answer is the option "A"

3)

In which of the following situations, a company has the ability to pay off its short-term obligations easily?
- A) If the company has a positive working capital
- B) If the company has a negative working capital
- C) If the company has a zero working capital
- D) None of the given option
Right Answer is the option "A"

4)

Which of the following is a re-structuring strategy in which employees buy a majority share in their own firm?
- A) Employee Dividend Scheme
- B) Employee Empowerment
- C) Employee Buyout
- D) Leverage Buyout
Right Answer is the option "C". It is a restructuring strategy in which employees buy a majority stake in their own firms

5)

In the long run, a successful acquisition is one that:
- A) Enables the acquirer to make an all-equity purchase, thereby avoiding additional financial leverage
- B) Enables the acquirer to diversify its asset base
- C) Increases the market price of the acquirer's stock over what it would have been without the acquisition
- D) Increases the financial leverage of the firm
Right Answer is the option "C"

6)

Which of the following formulas can be used to calculate the value of the firm while considering merger/acquisition?
- A) Value of all-equity financed firm + FV of tax benefits + Expected Bankruptcy Costs
- B) Value of all-equity financed firm + PV of tax benefits + Expected Bankruptcy Costs
- C) Value of all-equity financed firm + tax benefits + Expected Bankruptcy Costs
- D) Value of all-equity financed firm + Expected Bankruptcy Costs
Right Answer is the option "B"

7)

A 30-year corporate bond issued in 1985 would now be traded in which of the following markets?
- A) Primary capital market
- B) Primary money market
- C) Primary money market
- D) Secondary capital market
Right Answer is the option "D"

8)

Profitability and liquidity move in ________ direction whereas risk and profitability and risk move in _________ direction.
- A) Same; inverse
- B) Inverse; same
- C) Inverse; opposite
- D) Same; opposite
Right Answer is the option "B". Profitability varies inversely with liquidity; increased liquidity can be achieved at the expense of (decreased) profitability
Profitability & risk have same direction; in order to have greater profitability, we need to take greater risk.

9)

In the money
- A) If the strike price and current market price are equal, an option would be termed as:
- B) Out of money
- C) At the money
- D) None of the given options
Right Answer is the option "C". If the strike price and current market price are equal, then it is known as “at-themoney"

10)

Which of the following functions behind budget activity refers to monitoring, comparing information to a standard and taking corrective action?
- A) Planning
- B) Control
- C) Management
- D) None of the given options
Right Answer is the option "B"