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WorksheetsCorporate Finance
Total questions: 25
Worksheet time: 20mins
Stock-based insolvency is a:
a: income statement measurement
b: balance sheet measurement.
c: only a book value measurement.
d: Both A and C.
e: Both B and C.
Flow-based insolvency is
a: a balance sheet measurement.
b: a negative equity position.
c: when operating cash flow is insufficient to meet current obligations.
d: inability to pay one’s debts.
e: Both C and D.
Financial restructuring can occur as:
a: a private workout
b: an employee buy-out.
c: a bankruptcy reorganization.
d: Both A and C.
e: Both B and C.
Financial distress can involve which of the following
asset restructuring
financial restructuring
liquidation.
All of the above.
The difference between liquidation and reorganization is:
reorganization terminates all operations of the firm and liquidation only terminates non-profitable operations.
liquidation terminates only profitable operations and reorganization terminates only
non-profitable operations
liquidation terminates all operations and reorganization maintains the option of the firm going concern.
liquidation only deals with current assets and reorganization only consolidates debt.
None of the above.
Prepackaged bankruptcies are:
described as a combination of a private workout and a liquidation.
the easiest way to transfer wealth to the shareholders.
described as a combination of a completed private workout and the formal bankruptcy filing.
All of the above.
None of the above.
The complete absorption of one company by another, wherein the acquiring firm retains its identity and the acquired firm ceases to exist as a separate entity, is called
merger.
consolidation.
tender offer.
spinoff.
divestiture.
A merger in which an entirely new firm is created and both the acquired and acquiring firms cease to exist is called a:
divestiture.
consolidation.
tender offer.
spinoff.
conglomeration
The acquisition of a firm in the same industry as the bidder is called a _____ acquisition
conglomerate
forward
backward
horizontal
vertical
An attempt to gain control of a firm by soliciting a sufficient number of stockholder votes to replace the current board of directors is called a:
tender offer.
proxy contest.
going-private transaction.
leveraged buyout.
consolidation.
Generous compensation packages paid to a firm’s top management in the event of a takeover are referred to as:
golden parachutes
poison puts.
white knights.
shark repellents.
bear hugs.
The distribution of shares in a subsidiary to existing parent company stockholders is called a(n):
lockup transaction
bear hug.
equity carve-out.
spin-off.
split-up.
an agreement on exchange rates today for settlement in the future.
swap
future
spot
none of the above
the sale (purchase) of a foreign currency with a simultaneous agreement to repurchase (resell) it some time in the future.
swap
future
spot
none of the above
The interest rate parity theorem states that :
if interest rates are lower domestically, the
foreign currency will be selling at a discount in the forward market.
if interest rates are higher domestically, the
foreign currency will be selling at a discount in the forward market.
if interest rates are lower domestically, the
foreign currency will be selling at a premium in the forward market.
None of the above
purchasing power parity (PPP):
the idea that the exchange rate adjusts so that a market basket of goods costs the same regardless of the country in which it is purchased
change in the price level of commodities in one country relative to the rate of change in the price level in another determines the rate of change of the exchange rate between the two countries
In an efficient foreign exchange market, speculation is a zero-NPV activity.
none of the above
relate to Financial distress:
occurs when a firm’s operating cash flows (OCFs) are not sufficient to satisfy current obligations and the
firm is forced to take corrective action.
Stock-based insolvency occurs
when a firm has negative net worth, so the value of its assets is less than the value of its debts.
Flow-based insolvency occurs when OCF is insufficient to meet current obligations.
all of the above
company specific or industry specific risk:
systematic risk
unsystematic risk
portfolio risk
non of the above
the example of systematic risk, except:
interest risk
inflation risk
market risk
business specific risk
all the statements are correct regarding hedging except:
The costs of hedging are not large
The treasurer can use forward contracts to hedge
if the forward rate is equal to the expected spot, the costs of hedging are negligible
all the above
the sale (purchase) of a foreign currency with a simultaneous agreement to repurchase (resell) it some time in the future.
SWAP
Future
Spot
Forward
SPOT involve an agreement on the exchange rate today for settlement in two days
True
False
Earning growth is a bad reason for MERGER
True
False
The firm turns a division into a separate entity and then sells shares in the division to the public is carve out.
True
False
The difference between the sale price and the repurchase price is called the swap rate
True
False
