Corporate Finance

Corporate Finance

Corporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make these decisions.

Corporate finance MCQs Second set for chapters 18-19-20-21-25-26

with problem short solutions

Download the attachments at the end

Sample qeustions:

52. R&S is considering either leasing or buying some new equipment. The lease payments would be $9,500 a year. The purchase price is $31,000. The equipment has a 3-year life after which it is expected to have a resale value of $4,500. Your firm uses straight-line depreciation, borrows money at 8.5 percent, and has a 35 percent tax rate. What is the aftertax salvage value of the equipment?

a. $2,857

B. $2,925

c. $3,333

d. $6,075

e. $6,923

After-tax salvage value = $4,500 * (1 - .35) = $2,925

 

62. Your supplier grants you credit terms of 2/10, net 35. What is the effective annual rate of the discount if you purchase $2,900 worth of merchandise?

a. 23.5 percent

b. 27.7 percent

c. 28.8 percent

d. 33.5 percent

E. 34.3 percent

Days in period = 35-10 = 25; Periods per year = 365 / 25 = 14.6;

Interest rate for 30 days = [.02*$2,900] / [(1-.02)*$2,900] = $58 / $2,842 = .02041;

Effective annual rate = (1 + .02041)^14.6 -1 = .3431 = 34.3 percent

Corporate Finance - MCQs Chapter 18-19-20-21-25-26

Download the files at the end of the article

Sample questions:

11) According to the text, the _____ is generally responsible for making credit policy decisions.

[A] production manager

[B] controller

[C] marketing manager

[D] cash manager

[E] payables manager

 [A] :This manager is generally responsible for setting production schedules and materials requirements. Review section 19.2.  

[B] :This manager performs more of an information and reconciliation function than an actual decision-making function. Review section 19.2.  

[C] :You are correct!  

[D] :This manager is generally responsible for the collection, concentration, and disbursement of cash in addition to managing short-term borrowing relationships. Review section 19.2.  

[E] :This manager generally deals with decisions concerning payment policies and taking discounts offered. Review section 19.2.

 

16) Jumbo, Inc. had sales of $8,000 in November, $14,000 in December, and projects sales of $10,000 in January, $12,000 in February, and $8,000 in March. The firm's COGS in any given month is equal to 70 percent of the next month's sales. The firm collects its receivables in 60 days and pays its payables in 30 days. The firm begins January 1 with $10,000 in cash. All sales and purchases are on credit. There are no other costs or revenues. What are Jumbo's total cash collections in March? Assume there are 30 days in every month.

[A] $10,000

[B] $11,000

[C] $11,600

[D] $12,100

[E] $13,000

 

 [A] :You are correct!

 

Financial Statements Analysis

  • Each Student enrolled in this course is required to solve and analyze the attached case in line with the spirit of the taught material in the corporate finance course.
  • Each student should write a logical report summarizing his/her analysis indicating any supporting arguments for his/her answers.
  • The report should be well typed and free as much as possible of typing and grammatical mistakes
  • On the cover please write your name and ID number.
  • The deadline for submission of the report is Sunday 19/05/2013
  • This case is graded out of 15 points
  • Any delay after the deadline will be penalized heavily

Attached is the case file in PDF

Corporate Finance - MCQs Chapter 17
 
Download the files at the end of the article
 
Sample Questions:

56. Lester's Meat Market is currently an all equity firm that has 24,000 shares of stock outstanding at a market price of $25 a share. The firm has decided to leverage its operations by issuing $200,000 of debt at an interest rate of 8 percent. This new debt will be used to repurchase shares of the outstanding stock. The restructuring is expected to increase the earnings per share. What is the minimum level of earnings before interest and taxes that the firm is expecting? Ignore taxes. 
a. $48,000
b. $52,400
c. $57,620
d. $60,200
e. $61,340

EBIT / 24,000 = [EBIT - ($200,000  x  .08)] / [24,000 - ($200,000 / $25)]; 16,000EBIT = 24,000EBIT - $384,000,000; EBIT = $48,000

 
57. The Quilt Shoppe is an all equity firm that has 2,500 shares of stock outstanding at a market price of $20 a share. Company management has decided to issue $10,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 8.5 percent. What are the earnings per share at the break-even level of earnings before interest and taxes? Ignore taxes. 
a. $1.63
b. $1.70
c. $1.82
d. $1.88
e. $1.94

Number of shares repurchased = $10,000 / $20 = 500; EBIT / 2,500 = [EBIT - ($10,000 .085)] / (2,500 500); 2,000EBIT = 2,500EBIT $2,125,000; EBIT = $4,250; EPS = [$4,250 - ($10,000 .085)] / (2,500 - 500); EPS = $1.70

Corporate Finance - MCQs Chapters 10, 11, 15 and 16 - Set 2

Download the files at the end of the article
 
Sample Questions:

1. The changes in a firm's future cash flows that are a direct consequence of accepting a project are called _____ cash flows. 
A. incremental
b. stand-alone
c. after-tax
d. net present value
e. erosion

2. The evaluation of a project based solely on its incremental cash flows is the basis of the: 
a. future cash flow method.
B. stand-alone principle.
c. dividend growth model.
d. salvage value model.
e. equivalent cost principle.

Page 1 of 2

Login

« October 2019 »
Mon Tue Wed Thu Fri Sat Sun
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      

Who's Online

We have 45 guests and no members online