Corporate Finance Quiz | Corporate Finance Online Test for Practice

31. What is "capital budgeting"?

1. The process of raising funds for business operations
2. The process of determining the long-term investment decisions of a company
3. The analysis of a company’s short-term financing needs
4. The process of estimating future dividends

32. Which of the following is a potential disadvantage of debt financing?

1. The company does not retain full ownership
2. The company is obligated to make regular interest payments
3. The company may issue too many shares
4. The company faces limited growth opportunities

33. What does "internal rate of return" (IRR) represent?

1. The interest rate at which a company's stock is valued
2. The discount rate that makes the net present value of an investment zero
3. The annual rate of return on equity
4. The growth rate of dividends

34. Which of the following is true regarding "bond ratings"?

1. Bond ratings reflect the company's ability to repay debt
2. Higher bond ratings typically indicate higher yield bonds
3. Bond ratings are determined solely by the government
4. Bond ratings have no impact on the cost of borrowing

35. What is the formula for the Weighted Average Cost of Capital (WACC)?

1. WACC = (E/V * Re) + (D/V * Rd * (1-Tc))
2. WACC = (E/V * Rd) + (D/V * Re)
3. WACC = Re + (D/V * Rd)
4. WACC = (E/V * Tc) + (D/V * Rd)

36. What is the "Pecking Order Theory" in capital structure?

1. Firms prefer to use equity first, then debt, and lastly, internal financing
2. Firms prefer to use internal funds first, then debt, and lastly, equity
3. Firms prefer to issue bonds first, then stock
4. Firms issue equity first, then debt

37. Which of the following is NOT a type of capital budgeting technique?

1. Payback period
2. Internal rate of return (IRR)
3. Net present value (NPV)
4. Liquidity ratio

38. What does the "cost of equity" represent?

1. The cost of debt after taxes
2. The return required by equity investors
3. The weighted average cost of capital
4. The price of a company’s stock

39. What is "financial leverage"?

1. The use of debt to increase the potential return on equity
2. The use of equity to decrease the company's risk profile
3. The use of retained earnings to finance new investments
4. The use of market value to calculate stock prices

40. What is the primary benefit of using debt in capital structure?

1. It provides tax savings through interest deductions
2. It increases ownership control for shareholders
3. It reduces the risk of financial distress
4. It increases the company’s dividend payout ratio

41. Which of the following is an example of "systematic risk"?

1. Risk associated with a particular company
2. Risk from fluctuations in market interest rates
3. Risk due to the failure of a specific project
4. Risk from a company's management decisions

42. What is "dividend payout ratio"?

1. The proportion of earnings paid out as dividends to shareholders
2. The total dividends paid divided by the company's market value
3. The ratio of dividends to total debt
4. The amount of dividends a company can afford to pay

43. What does the "Earnings Before Interest and Taxes" (EBIT) indicate?

1. The total profits after all expenses
2. The company’s ability to generate earnings from its operations
3. The total interest expense of a company
4. The net income of a company after taxes

44. What is the "dividend discount model" used for?

1. Valuing stocks based on the present value of future dividends
2. Determining the cost of equity capital
3. Estimating a company's market value using earnings
4. Calculating a company's debt ratio

45. The "coupon rate" of a bond is defined as:

1. The interest rate paid by the issuer on the bond’s face value
2. The price paid by the investor for the bond
3. The market price of the bond in the secondary market
4. The bond’s yield to maturity