Finance and Investment Quiz

What is an internal source of finance?

• Bank loan

• Selling company shares

• Retained profit

• Crowdfunding

Which of the following is a short-term external source of finance?

• Venture capital

• Bank overdraft

• Preference shares

• Retained earnings

What does WACC stand for?

• Weighted Average Corporate Capital

• Working Asset Cost Calculation

• Weighted Average Cost of Capital

• Work Allocation Capital Cost

What is the main feature of a preference share?

• Higher risk than ordinary shares

• Voting rights

• Fixed dividends

• No dividend ever paid

What is the purpose of a rights issue?

• To sell company property

• To raise equity from existing shareholders

• To reduce share prices

• To raise debt from banks

What is the formula to calculate the cost of equity using the Dividend Growth Model?

• Ke = D1/P0 + g

• Ke = P0/D1 + g

• Ke = D1 – P0 + g

• Ke = D1 x g x P0

Which source of finance is considered 'risk-free'?

• Retained earnings

• Ordinary shares

• Bank overdraft

• None – all carry some level of risk

What happens in a sale and leaseback arrangement?

• The business gives away an asset

• The asset is bought and returned for free

• The asset is sold and leased back

• The business gets a free asset

What is the marginal cost of capital?

• The cost of previous financing

• The average of all past financing

• The cost of raising one extra unit of capital

• The amount paid to shareholders

According to the Modigliani & Miller theory, what is the impact of dividend policy on company value?

• It increases company value

• It reduces shareholder wealth

• It has no impact if investment is in positive NPV projects

• It changes tax rates