There are 29 T/F and Multiple Choice Questions of Corporate Finance.

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There are 29 T/F and Multiple Choice Questions of Corporate Finance.

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QUESTION 1 Since the prices of common stock are determined in the financial markets, firms' managers can make their decisions to maximize the share prices regardless of the preferences of different holders of these securities. True False 1 points QUESTION 2 Financial manger can create value for a firm by creating more cash flow for it than it uses. To do so, they should make investment decisions so that the firm may buy assets that generate more cash than they cost. True False 1 points QUESTION 3 The separation of ownership from management gives the corporation several advantages over other types of firms. One of them is the unlimited liability. True False 1 points QUESTION 4 Two important financing decisions for a corporate financial manager are debt policy decision and dividend policy decision. Debt policy asks what level of debt is best for the firm. The dividend policy asks what dividend payout ratio is best for the firm. True False 1 points QUESTION 5 In the statement of cash flows, a decrease in accounts receivable is classified as a use of cash from operations. True False 1 points QUESTION 6 If a firm total asset turnover is higher than the industry average, it indicates that the company is not generating a sufficient volume of business given its total asset investment. True False 1 points QUESTION 7 If other things remain the same, the return on equity (ROE) of a firm will go higher as the firm increases its debt ratio. True False 1 points QUESTION 8 In general, firms with high P/E ratios tend to have high MV/BV ratios. True False 1 points QUESTION 9 The objective of the capital budgeting decision is to maximize the stock price of the company, and it is achieved by maximizing the present value of the growth opportunities. True False 1 points QUESTION 10 The payback period rule accepts all investment projects in which the payback period for the cash flows is greater than the cutoff point. True False 1 points QUESTION 11 A project may have more than one IRR if the cash flow pattern exhibits more than one sign changes. True False 1 points QUESTION 12 In a regular project with an initial cash outflow and subsequent cash inflows, the net present value is negative when the cost of capital is greater than IRR. True False 1 points QUESTION 13 If the profitability ratio of a project is smaller than 1, it means the NPV of the project is negative. True False 1 points QUESTION 14 In a regular project with an initial cash outflow and subsequent cash inflows, the net present value increases as the required rate of return (= R) increases. True False 1 points QUESTION 15 When we have two mutually exclusive projects, if NPV and IRR lead to inconsistent rankings, we should follow the NPV rule in general. True False 1 points QUESTION 16 The depreciation tax shield is calculated by T x Depreciation, where T is the firm’s marginal tax rate. True False 1 points QUESTION 17 An increase in NWC is treated as a cash inflow in capital budgeting cash flow estimation. True False 1 points QUESTION 18 In capital budgeting cash flow estimation, sunk costs should not be included. True False 1 points QUESTION 19 A firm using MACRS accelerated depreciation will be less likely to accept a given project using either NPV or IRR evaluation than a firm using the optional straight line alternative, other things being equal. True False 1 points QUESTION 20 The _____________ is the cash flow actually available for distribution to investors after the company has made all the investments in fixed assets and working capital necessary to sustain ongoing operations. operating cash flows cash flow from assets net cash flow accounting cash flow 1 points QUESTION 21 Which one of the following is the formula for the cash flow to creditors? interest paid - retirement of debt + proceeds from new debt interest paid + retirement of debt - proceeds from new debt -interest paid - retirement of debt + proceeds from new debt -interest paid + retirement of debt - proceeds from new debt 1 points QUESTION 22 The costs of resolving the conflict of interest between managers and shareholders are called ______________ costs. managerial separation agency contract 1 points QUESTION 23 ________ are the markets in which corporations raise new capital. Primary markets Secondary markets Money markets Mortgage markets 1 points QUESTION 24 ________ are the markets for short-term debts. Capital markets Money markets Secondary markets Mortgage markets 1 points QUESTION 25 What is the effect on net working capital if the corporation decides to increase its investment in inventory and pay for it with cash? Increase in net working capital. Decrease in net working capital. Depends on the amount of the investment. No change in net working capital. None of the above. 1 points QUESTION 26 Total cash flow or free cash flow is ____________________. without cost to the firm. net income plus taxes. an increase in net working capital. cash flow in excess of that required to fund profitable capital projects. None of the above. 1 points QUESTION 27 Average accounting return is determined by: dividing the yearly cash flows by the investment dividing the average cash flows by the investment dividing the average net income by the average investment dividing the average net income by the initial investment 1 points QUESTION 28 Money that the firm has already spent or is committed to spend regardless of whether a project is taken is called a(n) sunk cost opportunity cost erosion cost fixed cost 1 points QUESTION 29 A reduction in the sales of an existing product caused by the introduction of a new product is an example of a(n) sunk cost opportunity cost erosion cost fixed cost
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