WorksheetsCF Test - TE 2
Total questions: 36
Worksheet time: 2hrs 2mins
Name
Class
Date
1.
When two mutually exclusive projects with conventional cash flows are being ranked, the net present value (NPV) and internal rate of return (IRR) decision rules are most likely to conflict when the:
a)
A. projects’ investments are of different scale.
b)
B. projects have multiple IRRs.
c)
C. projects have similar timing of cash flows.
2.
a)
A. Company A.
b)
B. Company B.
c)
C. Company D.
3.
a)
A.
b)
B.
c)
C.
4.
a)
A. is shorter, but its cash conversion cycle is longer.
b)
B. and cash conversion cycle are both longer.
c)
C. is longer, but its cash conversion cycle is shorter.
5.
Which of the following is most consistent with good corporate governance practices?
a)
A. All stakeholders should have the right to participate in the governance of the firm.
b)
B. An audit committee that benefits from the direct guidance of management.
c)
C. Appropriate controls and procedures to effectively manage the firm should be in place.
6.
The business risk of a particular company is most accurately measured by the company’s:
a)
A. debt-to-equity ratio.
b)
B. efficiency in using assets to generate sales.
c)
C. operating leverage and level of uncertainty about demand, output prices, and competition.
7.
Which group of company stakeholders would be least affected if the firm’s financial position weakens?
a)
A. Suppliers
b)
B. Customers
c)
C. Managers and employees
8.
A class of noncallable, nonconvertible preferred stock was issued at $45.00 per share with a dividend of $5.25. The preferred stock is now trading at $60.00 per share. Earnings of the company are growing at 3.00%. The cost of preferred stock is closest to:
a)
A. 11.7%.
b)
B. 8.8%.
c)
C. 5.8%.
9.
An analyst gathered the following information about a company and the market:<br />Current market price per share of common stock $28.00<br />Most recent dividend per share paid on common stock (D0) $2.00<br />Expected dividend payout rate 40%<br />Expected return on equity (ROE) 15%<br />Beta for the common stock 1.3<br />Expected rate of return on the market portfolio 13%<br />Risk-free rate of return 4%<br />Using the Capital Asset Pricing Model (CAPM) approach, the cost of retained earnings for the company is closest to:
a)
A. 13.6%.
b)
B. 15.7%.
c)
C. 16.1%.
10.
a)
A.
b)
B.
c)
C.
11.
The following information is available for a company:<br /><br />Bonds are priced at par and have an annual coupon rate of 9.2%.<br />Preferred stock is priced at $8.18 and pays an annual dividend of $1.35.<br />Common equity has a beta of 1.3.<br />The risk-free rate is 4% and the market premium is 11%.<br />Capital structure: Debt = 30%; Preferred stock = 15%; Common equity = 55%.<br />The tax rate is 35%.<br />The weighted average cost of capital (WACC) for the company is closest to:
a)
A. 11.5%.
b)
B. 14.3%.
c)
C. 13.4%.
12.
Which of the following represents a principal–agent conflict between shareholders and management?
a)
A. Risk tolerance
b)
B. Multiple share classes
c)
C. Accounting and reporting practices
13.
Kim Corporation is considering an investment of 750 million won with expected after-tax cash inflows of 175 million won per year for seven years. The required rate of return is 10 percent. Expressed in years, the project’s payback period and discounted payback period, respectively, are closest to:
a)
A. 4.3 years and 5.4 years.
b)
B. 4.3 years and 5.9 years.
c)
C. 4.8 years and 6.3 years.
14.
a)
A. 0.75 million and 1.1 million units, respectively.
b)
B. 1 million and 1.5 million units, respectively.
c)
C. 1.5 million and 0.75 million units, respectively.
15.
a)
A.
b)
B.
c)
C.
16.
a)
A.
b)
B.
c)
C.
17.
a)
A.
b)
B.
c)
C.
18.
The primary motivation of activist shareholders is to promote:
a)
A. improved shareholder value.
b)
B. environmentally sustainable business practices.
c)
C. consideration of human rights in employee relations.
19.
Which of the following issues discussed at a shareholders’ general meeting would most likely require only a simple majority vote for approval?
a)
A. Voting on a merger
b)
B. Election of directors
c)
C. Amendments to bylaws
20.
a)
A. Company A.
b)
B. Company B.
c)
C. Company C.
21.
Which of the following represents a responsibility of a company’s board of directors?
a)
A. Implementation of strategy
b)
B. Enterprise risk management
c)
C. Considering the interests of shareholders only
22.
a)
A. a higher degree of total leverage.
b)
B. a lower sensitivity of operating income to changes in units sold.
c)
C. the same sensitivity of operating income to changes in net income.
23.
Corporate governance:
a)
A. complies with a set of global standards.
b)
B. is independent of both shareholder theory and stakeholder theory.
c)
C. seeks to minimize and manage conflicting interests between insiders and external shareholders.
24.
A mining company has received government approval for the development of a mining property and has also consulted with members of the local community near the development site throughout the project assessment process. The latter action is best described as an example of:
a)
A. principal–agent conflict mitigation.
b)
B. stakeholder management.
c)
C. regulatory compliance.
25.
Which of the following is the best example of a good corporate governance practice?
a)
A. Independent board members are prior, but not current employees of the firm.
b)
B. Supervisory and management boards have overlapping membership.
c)
C. The chief executive position is separate from the chair position on the company’s board.
26.
With regard to net present value (NPV) profiles, the point at which a profile crosses the horizontal axis is best described as:
a)
A. the point at which two projects have the same NPV.
b)
B. the sum of the undiscounted cash flows from a project.
c)
C. a project’s internal rate of return when the project’s NPV is equal to zero.
27.
Which of the following statements regarding stakeholder management is most accurate?
a)
A. Company management ensures compliance with all applicable laws and regulations.
b)
B. Directors are excluded from voting on transactions in which they hold material interest.
c)
C. The use of variable incentive plans in executive remuneration is decreasing.
28.
Which of the following statements regarding corporate shareholders is most accurate?
a)
A. Cross-shareholdings help promote corporate mergers.
b)
B. Dual-class structures are used to align economic ownership with control.
c)
C. Affiliated shareholders can protect a company against hostile takeover bids.
29.
a)
A. $175 million.
b)
B. $100 million.
c)
C. $150 million.
30.
Which of the following statements about non-market factors in corporate governance is most accurate?
a)
A. Stakeholders can spread information quickly and shape public opinion.
b)
B. A civil law system offers better protection of shareholder interests than does a common law system.
c)
C. Vendors providing corporate governance services have limited influence on corporate governance practices.
31.
a)
A.
b)
B.
c)
C.
32.
Morgan Insurance Ltd. issued a fixed-rate perpetual preferred stock three years ago and placed it privately with institutional investors. The stock was issued at $25 per share with a $1.75 dividend. If the company were to issue preferred stock today, the yield would be 6.5 percent. The stock's current value is:
a)
A. $25.00.
b)
B. $26.92.
c)
C. $37.31.
33.
Given the following information about a firm:<br />debt-to-equity ratio (D/E) of 50%<br />tax rate of 40%<br />cost of debt of 8%<br />cost of equity of 13%<br />the firm’s weighted average cost of capital (WACC) is closest to:
a)
A. 8.9%.
b)
B. 7.5%.
c)
C. 10.3%.
34.
a)
A.
b)
B.
c)
C.
35.
A company has 100 million shares outstanding. The share price of a company’s stock is £15 just prior to announcing a £100 million expansionary investment in a new plant, and the company estimates that the present value of future after-tax cash flows will be £150 million. Analysts, however, estimate that the new plant’s profitability will be lower than the company’s expectations. The company’s stock price will most likely:
a)
A. drop below £15 per share due to the cannibalization of revenue from the new plant.
b)
B. increase by less than £0.50 per share.
c)
C. increase by the new plant’s net present value per share.
36.
A company issues new 20-year $1,000 bonds with a coupon rate of 6.2% payable semiannually at an issue price of $1,030.34. Assuming a tax rate of 28%, the firm’s annual after-tax cost of debt (%) is closest to:
a)
A. 5.94.
b)
B. 4.28.
c)
C. 4.46.
100 %
