Corporate Finance Objective Questions Answers for Practice

76. What is the "hurdle rate" in capital budgeting?

1. The rate of return a project must exceed for it to be accepted
2. The cost of capital used to discount future cash flows
3. The minimum debt rate a company must pay on its loans
4. The average rate of return on all company projects

77. What is "accounting income"?

1. The income reported on a company’s income statement
2. The net income after taxes
3. The gross revenue minus operating expenses
4. The total dividends paid to shareholders

78. What is the primary difference between a "financial option" and a "real option"?

1. Financial options give investors the right to buy stocks, while real options relate to corporate investment decisions
2. Financial options are more expensive than real options
3. Real options can be traded on the open market, but financial options cannot
4. Real options involve borrowing and lending decisions, while financial options do not

79. Which of the following is NOT a method of valuing a company?

1. Discounted Cash Flow (DCF)
2. Price-to-Earnings (P/E) ratio
3. Dividend Discount Model (DDM)
4. Earnings Per Share (EPS) ratio

80. Which of the following would be considered an "operating expense"?

1. Interest expense on a loan
2. Salaries and wages of employees
3. Repayment of a bond
4. Purchase of long-term assets

81. What is the main objective of "capital structure" management?

1. To balance the cost of equity and debt
2. To maximize the short-term profitability of the firm
3. To minimize the overall size of the company
4. To avoid any form of debt financing

82. What is the "residual income" model used for?

1. Estimating the value of a company based on future cash flows
2. Determining the profitability of a firm after paying the cost of capital
3. Calculating the firm’s cost of equity
4. Forecasting dividend growth rates

83. What is a "callable bond"?

1. A bond that can be converted into stock
2. A bond that can be redeemed by the issuer before its maturity date
3. A bond with a fixed interest rate
4. A bond that can be purchased back by the investor

84. What is a major disadvantage of "common stock"?

1. Common stockholders receive fixed interest payments
2. Common stockholders have no voting rights
3. Common stock is more volatile than preferred stock
4. Common stockholders are paid dividends before bondholders

85. What is the "dividend discount model" (DDM)?

1. A method of estimating a company's value by considering its expected dividends
2. A method of calculating a company's net present value
3. A method of determining the cost of capital
4. A model used to assess the creditworthiness of a company

86. What is "capital gains tax"?

1. The tax imposed on income from interest payments
2. The tax on profits from the sale of an asset
3. The tax on the dividends received from stocks
4. The tax on corporate profits

87. Which of the following is a characteristic of a "bull market"?

1. Declining stock prices
2. Rising stock prices
3. Stock prices remain stable
4. Low investor confidence

88. Which financial metric is most commonly used to assess a company's ability to generate profit from its assets?

1. Return on assets (ROA)
2. Price-to-earnings ratio (P/E)
3. Earnings per share (EPS)
4. Return on equity (ROE)

89. What is "economic profit"?

1. Revenue minus explicit costs
2. Total revenue minus total costs, including opportunity costs
3. Revenue minus tax expenses
4. Total revenue minus interest payments

90. Which financial statement provides a snapshot of a company's financial position at a specific point in time?

1. Income Statement
2. Cash Flow Statement
3. Balance Sheet
4. Statement of Retained Earnings