Corporate Finance Questions and Answers | Online Quiz for Practice

46. What is a company's "beta" in finance?

1. A measure of a company's risk relative to the market
2. The rate of return on equity
3. The company's debt-to-equity ratio
4. The dividend payout ratio

47. Which of the following is a "non-cash" expense?

1. Depreciation
2. Interest expense
3. Dividend payment
4. Taxes

48. Which of the following is a characteristic of "zero-coupon bonds"?

1. They pay no interest but are issued at a discount to face value
2. They pay fixed interest periodically
3. They have a very short maturity
4. They are always convertible into stocks

49. What is the "trade-off theory" of capital structure?

1. The theory that firms balance the tax advantages of debt with the costs of financial distress
2. The theory that firms should rely solely on equity to finance operations
3. The theory that firms should avoid using debt altogether
4. The theory that debt is only useful in times of economic recession

50. What does "operating leverage" measure?

1. The impact of debt on the profitability of a company
2. The degree to which a company's costs are fixed versus variable
3. The amount of capital used in a company’s operations
4. The proportion of equity used in a firm’s capital structure

51. Which of the following is a major advantage of issuing bonds over issuing stock?

1. Bonds do not dilute ownership control
2. Bonds are riskier for investors than stocks
3. Bonds are less expensive than equity in the long term
4. Bonds provide more flexibility in dividend payments

52. In the context of "corporate governance," what is the role of the board of directors?

1. To manage day-to-day operations of the company
2. To oversee the company's financial performance and make strategic decisions
3. To approve marketing strategies
4. To set the price for products and services

53. Which of the following is a key feature of "capital rationing"?

1. Limiting the amount of debt financing a company can use
2. Limiting the amount of capital available for new investment projects
3. Limiting the number of shares issued to investors
4. Limiting the duration of capital budgeting decisions

54. What is "depreciation" in financial accounting?

1. The process of allocating the cost of an asset over its useful life
2. The process of increasing the value of an asset
3. The amount of asset sales profit generated during the year
4. The reduction of the value of an asset due to inflation

55. What does the "current ratio" measure?

1. The company's ability to meet long-term obligations
2. The company's short-term liquidity position
3. The company's overall profitability
4. The company's operational efficiency

56. What is the formula for the "return on equity" (ROE)?

1. Net income / Shareholder equity
2. Net income / Total assets
3. Operating income / Total equity
4. Net profit margin / Asset turnover

57. In which situation would a firm prefer debt financing over equity financing?

1. When the firm has high growth potential
2. When the firm is in a highly volatile market
3. When the firm's tax rate is low
4. When the firm wants to maintain control

58. What does "financial risk" refer to?

1. The risk associated with the overall market's performance
2. The risk that arises from using debt financing
3. The risk that a company will not be able to raise funds in the future
4. The risk that a company will experience a drop in stock price

59. What is the primary purpose of a "cash flow statement"?

1. To show a company's profitability over a period of time
2. To show the sources and uses of cash during a period
3. To display a company's financial position at a single point in time
4. To calculate a company's net income

60. Which of the following is an example of "agency cost" in corporate finance?

1. The cost of financing with equity
2. The cost of debt interest payments
3. The cost of conflict between shareholders and management
4. The cost of external auditing services