CF exam

Multiple Choice

An increase in firm's financial leverage will:

• 
  increase the variability of EBIT

  
  

• reduce the financial risk of the firm

  
  

• 
  reduce the cost of equity

• none of all above

Multiple Choice

Which of the following is true?

• accept project with positive NPV

  
  

• reject project when IRR is lower than cost of capital (discount rate)

  
  

• 
  NPV ignores the time value of money

  
  

• payback period ignores the time value of money

  
  

Multiple Choice

A 10-year bond is issued with a face value of $1,000, paying interest of $60 a year. What will happen if market yields increase shortly after the bond is issued

• 
  its coupon rate will decrease below 6%

  
  

• 
  its price will decrease and its YTM will increase above 6%

• 
  

• 
  its par value will decrease

Multiple Choice

Public companies

• always have securities that are traded on a stock exchange

  
  

• have more dispersed ownership than closely held companies

  
  

• are vulnerable to agency problems relatively more than closely held companies

  
  

• 
  operate only in public sector

• always have securities that are traded on a stock exchange,

  ave more dispersed ownership than closely held companies, are vulnerable to agency problems relatively more than closely held companies

Multiple Choice

Which of the following sentences referring to financial statements analysis is correct?

• 
  an increase in profit margin results in an increase in ROE (other things equal)

• a decrease in profit margin results in a decrease in ROA (other things equal)

  
  

• 
  an  increase in equity multiplier results always in an increase in ROE

• an increase in total assets turnover results in a decrease in ROE (other things equal)

• an increase in profit margin results in an increase in ROE (other things equal), a decrease in profit margin results in a decrease in ROA (other things equal)

Multiple Choice

The objective of decision making in corporate finance is

• 
  to maximize earnings

• 
  to maximize the size of the firm

• 
  to maximize firm value

  
  

Multiple Choice

You own an ordinary share that just paid an annual dividend of €6. The firm does not expect to grow in the future. If the required rate of return for the share is 10% then what is the value of the share?

• €6

• 
  €60

• €6.6

Multiple Choice

Computer World Inc. paid out $22 million in total common dividends and reported $280 million of retained earnings at year-end. The prior year’s retained earnings were $260 million. What was the net income?

• 
  $22 million

• $20 million

• $42 million

  
  

Multiple Choice

Cash conversion cycle _________ with ________

• 
  increases;  a decrease in days sales outstanding

• increases;  an increase in payables deferral period

• 
  decreases;  a decrease in inventory conversion period

  
  

Multiple Choice

To estimate the long-term constant growth rate of FCF for a mature, stable company one should

• 
  multiply ROE by retention (polwback) ratio

• 
  multiply ROE by payout ratio

  
  

• multiply ROA by expected sales growth rate

Multiple Choice

P/E ratio is a quotient of stock price and equity per share

• True

• False

Multiple Choice

Company's capitalization is a sum of paid-in capital and retained earnings

• True

• False

Multiple Choice

In IRR calculations cash flows are reinvested at a discount rate (k)

• True

• False

Multiple Choice

An increase in inventories will decrease firm's FCF

• True

• False

Multiple Choice

A debenture is a bond secured by company's assets (serving as a collateral)

• True

• False

Open Ended

What are the main differences between equity and debt?

Open Ended

Why is NPV treated as a better invetment appraisal measure than IRR?

Open Ended

What are the differences between stocks and bonds?

Open Ended

What are the differences between equity and debt