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Part I. Multiple Choice Questions: Select The Best Statement or Words That Corresponds To The Question

This document contains a multiple choice quiz on corporate finance topics including bonds, stocks, capital structure, and cost of capital. It asks the reader to select the best answer from given options for each question. It also includes some straight problems asking the reader to calculate expected returns, growth rates, costs of capital, and other financial metrics. The questions cover a wide range of concepts tested in corporate finance.

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Nhel Alvaro
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601 views8 pages

Part I. Multiple Choice Questions: Select The Best Statement or Words That Corresponds To The Question

This document contains a multiple choice quiz on corporate finance topics including bonds, stocks, capital structure, and cost of capital. It asks the reader to select the best answer from given options for each question. It also includes some straight problems asking the reader to calculate expected returns, growth rates, costs of capital, and other financial metrics. The questions cover a wide range of concepts tested in corporate finance.

Uploaded by

Nhel Alvaro
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Part I.

Multiple Choice Questions


Select the best statement or words that corresponds to the question.

Identify the types of bond being referred to in the following case: A P5,000,000-face
value bond. It requires annual principal payment of P500,000 for ten years. It is secured
with the issuing entity’s investment in stocks and bonds. *

2 points

Serial; Zero-coupon; Collateral Trust

Straight; Fixed-rated; Junk

Serial; Fixed-rated; Junk

Straight; Zero-coupon; Equipment Trust

In deciding the appropriate level of current assets for the firm, management is
confronted with a trade-off between *

2 points

Liquidity and solvency

Operating efficiency and effectiveness

Costs of debts versus equity

Costs of internal financing versus external financing

According to Sam, Stock S is better because it provides an annual dividend of P5.


According to John, Stock J is better because it provides an earnings per share of P20.
Which of the following statements is FALSE? *

2 points
John is correct because P20 is more than P5.

John considers the overall return of his investment, whether paid out or not.

Sam believes in the Divident Relevance Theory.

Without the valuation of both shares along with the expected growth rates, we cannot say which
stock is better.

ABC operates 250 days in a year and sells an average of 500 units each day. On better
days, sales may reach 800 units. The supplier delivers the inventory within 3 to 6 days
after receiving the purchase orders from ABC but the average time is 4 days. Assuming
normal operations, what would the expected minimum inventory level be for ABC? *

2 points

2000 units

4800 units

1500 units

2800 units

The following statements relate to long-term financing. Which is true? *

2 points

An initial public offering will come first before a rights offering and a private placement.

The reissuance of shares that became treasury will have a cost of financing at market prices.

The Philippine Stock Exchange is the entity that is in charge of initial public offerings.

The risk on any type of external financing is greater than internal financing.

ABC Corp. issued new shares with a par value of P1,000, issue price of P1,200 and net
proceeds of 1,050. Shareholders expect dividends of P80 per share for the first year and
a growth rate of 4%. What would be the cost of retained earnings if it was used as a
financing source instead of ordinary shares? *
2 points

10.667%

11.619%

11.924%

12.000%

A P1,000-par value preference share was issued for a net proceed of P1,100. It will be
paying interest of 9% per annum. It has a liquidating value of P1,200 at the end of its
20-year term. The applicable tax rate to the entity is 30%. The effective cost of the
preference share is closest to *

2 points

8.40%

5.88%

7.50%

9.40%

A cash conversion cycle of negative 2 days will most likely mean the following *

2 points

Cash disbursements are greater than cash collections.

The average length of the collections and disbursements are close enough with collections being
slightly faster.

The financial manager was unable to manage the operating cashflows well, resulting to payables
settled two days after due date.

There is a cashflow problem with the effect of having 2 days in a year with negative cash balances.
[S1] Taxation and regulatory policies but not monetary policies affect business
organizations. [S2] The government may reduce inequality of wealth among its people
through manipulation of money supply in the market. *

2 points

Only S2 is true.

Both S1 and S2 are true.

Only S1 Is true.

The target investors of the new issuance of the 800,000 P1,000-par value shares expect
a return of 14% and a zero growth rate. If the management quantifies this return as
P160 per share, what should the target issue price per share be? *

2 points

P1,600.00

P875.00

P1,142.96

P1,400.00

Irredeemable bonds were issued at 103 but registration and other fees amounted to 5%
of issue price. If the coupon rate is 8% and the applicable tax rate is 25%, the annual
effective cost of the bonds is closest to *

2 points

3.5796%

6.1224%
6.1318%

3.5714%

Which one is LEAST likely to be considered in developing financial strategies? *

2 points

Investment and growth opportunities

Alignment of the business strategy and the financial strategy

Financing options

Public relations and media coverage

If an individual stock's beta is higher than 1, that stock is *

2 points

exactly as risky as the market

riskier than the market

will provide a peso return higher than the market

will provide a positive return when the market is losing

Which is not related with the cost of capital concept? *

Minimum rate of return on new projects

The required rate of return of investors

Historical cost of financing

Weighted average cost of new funds raised

ABC Corporation was able to issue 20-year P10,000,000-face value bonds with interest
of 8% per annum, due every quarter. It incurred issuance cost of P350,000 but it got net
proceeds of P10,200,000 from the issuance. The annual effective cost of these bonds is
closest to *

2 points

8.1527%

7.7993%

7.8017%

8.1545%

Part 2: Straight Problems


Minimum return in pesos *

5 points

Your answer

An investor has a stock investment with a beta of 1.25. He was expecting to have the
return on his stock at 18% when the market risk premium was 10%. If the revised market
risk premium is 8%, what will be the new expected return on investment? *
5 points

Your answer

What would be the cost of the ideal bond option? *

5 points

Your answer

The stock price is P39.77, the required rate of return of shareholders is 12.4%, and the
annual dividend expected to be declared next year is P3.50. Based on those information,
what is the growth rate of the stock? *

5 points

Your answer

Dividends per share and market value per share was recently at P32 and P240
respectively. If dividends grow at 4% per year, what would the dividend-on value of the
shares be 5 years from now? *

5 points

Your answer
Silver Corporation has the following liabilities and equity balances. <See image
attached.> If it is taxed at 25%, what is the weighted average cost of capital? *

5 points

Your answer

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