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WorksheetsCorporate finance
Total questions: 20
Worksheet time: 11mins
1. Basic objective of Financial Management is __________.
Maximization of profit.
Maximization of shareholders’ wealth.
Ensuring Financial discipline in the firm.
All of these.
2. Financial structure refers to ________.
Short-term resources.
All the financial resources.
Long-term resources.
All of these.
3. Quick asset does not include ________.
Government bonds.
Book debts.
Advance for supply of raw materials.
Inventories.
4. A business owned by a solitary individual who has unlimited liability for its debt is called a_______.
corporation.
sole proprietorship
partnership.
limited liability company.
5. Long-term finance is required for _______.
Current assets
Fixed assets.
Intangible assets.
None of these.
6. The __________ decision involves determining the appropriate make-up of the right-hand side of the balance sheet.
Asset management.
Financing.
Investment
Capital budgeting.
7. The long-run objective of financial management is to _____________.
Maximize earnings per share.
Maximize the value of the firm's common stock.
Maximize return on investment.
Maximize market share.
8. The most important and common form of dividend is ________________.
Stock dividend.
Cash dividend.
Bond dividend.
Scrip’s dividend.
9. Which of the following is the first step in capital budgeting process?
Final approval.
Screening the proposal.
Implementing proposal .
Identification of investment proposal.
10. Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
articles of incorporation
corporate breakdown
agency problem
bylaws
11. A positive cash flow to stockholders indicates which one of the following with certainty?
The dividends paid exceeded the net new equity raised.
The amount of the sale of common stock exceeded the amount of dividends paid.
No dividends were distributed but new shares of stock were sold.
Both the cash flow to assets and the cash flow to creditors must be negative.
12. Which one of the following is NOT included in cash flow from assets?
accounts payable
inventory
sales
interest expense
13. Which of the following are expenses for accounting purposes but are not operating cash flows for financial purposes?
I. interest expense II. Taxes III. costs of goods sold IV. depreciation
IV only
II and IV only
I and III only
I and IV only
14. The sources and uses of cash over a stated period of time are reflected on the:
income statement.
balance sheet.
statement of cash flows.
statement of operating position.
15. According to the Statement of Cash Flows, an increase in interest expense will _____ the cash flow from _____ activities.
decrease; operating
decrease; financing
increase; operating
increase; financing
16. In a world with taxes and financial distress, when a firm is operating with the optimal capital structure the:
debt-equity ratio will be less than optimal.
weighted average cost of capital will be maximized
firm will be all-equity financed.
required return on assets will be at its maximum point.
increased benefit from additional debt is equal to the increased bankruptcy costs of that debt.
17. The explicit and implicit costs associated with corporate default are referred to as the _____ costs of a firm.
flotation
default beta
direct bankruptcy
indirect bankruptcy
financial distress
18. Which three factors are generally considered to be the most important when determining a target debt-equity ratio?
taxes, asset types, and inflation rate
asset types, current operating income, and inflation rates
taxes, current operating income, and future operating income
taxes, asset types, and uncertainty of operating income
interest rates, inflation rates, and tax rates
19. Shareholders sometimes pursue selfish strategies such as taking large risks or paying excessive dividends. These actions generally result in:
no action by debt holders since these are shareholder concerns.
agency costs to bondholders.
investments with risks similar to those of the current firm.
undertaking scale-enhancing projects.
lower agency costs, as shareholders have more control over the firm's assets.
20. The costs of avoiding a bankruptcy filing by a financially distressed firm are classified as _____ costs.
flotation
direct bankruptcy
indirect bankruptcy
financial solvency
capital structure
