COF1ACCT4414 - Corporate Finance Final (1 to 14) Name _...

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Corporate Finance Final (1 to 14) Name _________________________________ Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Which of the following could explain why a business might choose to organize as a corporation rather than as a sole proprietorship or a partnership? a. Corporations generally face fewer regulations. b. Corporations generally face lower taxes. c. Corporations generally find it easier to raise capital. d. Corporations enjoy unlimited liability. e. Statements c and d are correct. ____ 2. Given the following data, find the expected rate of inflation during the next year. r* = real risk-free rate = 3%. Maturity risk premium on 10-year T-bonds = 2%. It is zero on 1-year bonds, and a linear relationship exists. Default risk premium on 10-year, A-rated bonds = 1.5%. Liquidity premium = 0%. Going interest rate on 1-year T-bonds = 8.5%. a. 3.5% b. 4.5% c. 5.5% d. 6.5% e. 7.5% Solution : Fisher Equation =[ I = (n-r) ] Inflation rate = 8.5 – 3 = 5.5% ____ 3. You deposit $2,000 in a savings account that pays 10 percent interest, compounded annually. How much will your account be worth in 15 years? a. $2,030.21 b. $5,000.00 c. $8,091.12
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d. $8,354.50 e. $9,020.10 Solution : Application of excel FV formula =FV(10%,15,-2000) ____ 4. You can earn 8 percent interest, compounded annually. How much must you deposit today to withdraw $10,000 in 6 years? a. $5,402.69 b. $6,301.70 c. $6,756.76 d. $8,432.10 e. $9,259.26 Solution : Application of excel PV formula =PV(8%,6,10000) ____ 5. Holmes Aircraft recently announced an increase in its net income, yet its net cash flow declined relative to last year. Which of the following could explain this performance? a. The company's interest expense increased. b. The company's depreciation expense declined. c. The company's operating income declined. d. All of the statements above are correct. e. None of the statements above is correct. ____ 6. A company has the following balance sheet. What is its net operating working capital? Cash $ 10 Accounts payable $ 30 Short-term investments 30 Accruals 10 Accounts receivable 50 Notes payable 50 Inventory 40 Current liabilities 90 Current assets 130 Long-term debt 60 Net fixed assets 100 Common equity 30 Retained earnings 50 Total assets $230 $230
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a. $ 40 b. $ 60 c. $100 d. $130 e. $230 Solution : Particulars Amount Cash $ 10.00 Accounts receivable $ 50.00 Inventory $ 40.00 Operating - Current Assets $ 100.00 Accounts payable $ 30.00 Accruals $ 10.00 current liabilities $ 40.00 Working Capital $ 60.00
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____ 7. Which of the following actions will increase a company's quick ratio? a. Reduce inventories and use the proceeds to reduce long-term debt. b.
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COF1ACCT4414 - Corporate Finance Final (1 to 14) Name _...

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