100 practice sets · Page 3 of 5
Which of the following is an example of "agency cost" in corporate finance?
The cost of financing with equity
The cost of debt interest payments
The cost of conflict between shareholders and management
The cost of external auditing services
What is the primary purpose of a "cash flow statement"?
To show a company's profitability over a period of time
To show the sources and uses of cash during a period
To display a company's financial position at a single point in time
To calculate a company's net income
What does "financial risk" refer to?
The risk associated with the overall market's performance
The risk that arises from using debt financing
The risk that a company will not be able to raise funds in the future
The risk that a company will experience a drop in stock price
In which situation would a firm prefer debt financing over equity financing?
When the firm has high growth potential
When the firm is in a highly volatile market
When the firm's tax rate is low
When the firm wants to maintain control
What is the formula for the "return on equity" (ROE)?
Net income / Shareholder equity
Net income / Total assets
Operating income / Total equity
Net profit margin / Asset turnover
What does the "current ratio" measure?
The company's ability to meet long-term obligations
The company's short-term liquidity position
The company's overall profitability
The company's operational efficiency
What is "depreciation" in financial accounting?
The process of allocating the cost of an asset over its useful life
The process of increasing the value of an asset
The amount of asset sales profit generated during the year
The reduction of the value of an asset due to inflation
Which of the following is a key feature of "capital rationing"?
Limiting the amount of debt financing a company can use
Limiting the amount of capital available for new investment projects
Limiting the number of shares issued to investors
Limiting the duration of capital budgeting decisions
In the context of "corporate governance," what is the role of the board of directors?
To manage day-to-day operations of the company
To oversee the company's financial performance and make strategic decisions
To approve marketing strategies
To set the price for products and services
Which of the following is a major advantage of issuing bonds over issuing stock?
Bonds do not dilute ownership control
Bonds are riskier for investors than stocks
Bonds are less expensive than equity in the long term
Bonds provide more flexibility in dividend payments
What does "operating leverage" measure?
The impact of debt on the profitability of a company
The degree to which a company's costs are fixed versus variable
The amount of capital used in a company's operations
The proportion of equity used in a firm's capital structure
What is the "trade-off theory" of capital structure?
The theory that firms balance the tax advantages of debt with the costs of financial distress
The theory that firms should rely solely on equity to finance operations
The theory that firms should avoid using debt altogether
The theory that debt is only useful in times of economic recession
Which of the following is a characteristic of "zero-coupon bonds"?
They pay no interest but are issued at a discount to face value
They pay fixed interest periodically
They have a very short maturity
They are always convertible into stocks
Which of the following is a "non-cash" expense?
Depreciation
Interest expense
Dividend payment
Taxes
What is a company's "beta" in finance?
A measure of a company's risk relative to the market
The rate of return on equity
The company's debt-to-equity ratio
The dividend payout ratio
The "coupon rate" of a bond is defined as:
The interest rate paid by the issuer on the bond's face value
The price paid by the investor for the bond
The market price of the bond in the secondary market
The bond's yield to maturity
What is the "dividend discount model" used for?
Valuing stocks based on the present value of future dividends
Determining the cost of equity capital
Estimating a company's market value using earnings
Calculating a company's debt ratio
What does the "Earnings Before Interest and Taxes" (EBIT) indicate?
The total profits after all expenses
The company's ability to generate earnings from its operations
The total interest expense of a company
The net income of a company after taxes
What is "dividend payout ratio"?
The proportion of earnings paid out as dividends to shareholders
The total dividends paid divided by the company's market value
The ratio of dividends to total debt
The amount of dividends a company can afford to pay
Which of the following is an example of "systematic risk"?
Risk associated with a particular company
Risk from fluctuations in market interest rates
Risk due to the failure of a specific project
Risk from a company's management decisions
