Deck 1: Introduction to Corporate Finance

Question 1

The regulatory authority that deals with the registration of publicly traded securities in South Africa is known as

A)capital market authority.
B)financial supervisory authority.
C)security market agency.
D)financial services board.
E)financial marketing unit.

Answer 1

financial services board.

Question 2

The person generally directly responsible for overseeing the cash and credit functions, financial planning, and capital expenditures is the:

A)treasurer.
B)director.
C)controller.
D)chairman of the board.
E)chief operations officer.

Answer 2

treasurer.

Question 3

The decision of which lender to use and which type of long-term loan is best for a project is part of:

A)working capital management.
B)the net working capital decision.
C)capital budgeting.
D)a controller's duties.
E)the capital structure decision.

Answer 3

the capital structure decision.

Question 4

Which of the following is what managers should be trying to do for the firm?

A)maximize revenue.
B)minimize expenses.
C)maximize the market value of the existing owners' equity.
D)maximize the current period's net income.
E)None of the above.

Question 5

The person generally directly responsible for overseeing the tax management, cost accounting, financial accounting, and information system functions is the:

A)treasurer.
B)director.
C)controller.
D)chairman of the board.
E)chief executive officer.

Question 6

The original sale of securities by governments and corporations to the general public occurs in the:

A)primary market.
B)secondary market.
C)private placement market.
D)proprietary market.
E)liquidation market.

Question 7

What does the financial market mainly consist of?

A)the money and the capital markets.
B)the debt and the equity markets.
C)the primary and the secondary markets.
D)the stock markets.
E)the public listed companies.

Question 8

The management of a firm's short-term assets and liabilities is called:

A)working capital management.
B)debt management.
C)equity management.
D)capital budgeting.
E)capital structure.

Question 9

Privately placed debt and equity are not sold on the basis of private negotiations to

A)retail investors.
B)insurance companies.
C)mutual funds managers.
D)large financial institutions
E)retail investors and mutual funds managers

Question 10

Capital structure decisions include consideration of the:
I.amount of long-term debt to assume.
II.cost of acquiring funds.
III.current assets and liabilities.
IV.net working capital.

A)I and II only.
B)II and III only.
C)III and IV only.
D)I, II, and IV only.
E)I, III, and IV only.

Question 11

How are most equities traded on the London Stock Exchange?

A)the exchange's auction system.
B)the stock exchange trading system.
C)the stock dealers.
D)the exchange's auction system, stock exchange trading system and the dealers
E)None of the above.

Question 12

How many companies were listed on the London Stock Exchange since January 2015?

A)about 2000.
B)less than 1500.
C)exactly 1000.
D)about 1000.
E)more than 2400.

Question 13

The process of planning and managing a firm's long-term investments is called:

A)working capital management.
B)financial depreciation.
C)agency cost analysis.
D)capital budgeting.
E)capital structure.

Question 14

When one shareholder sells equity directly to another the transaction is said to occur in the:

A)dealer market.
B)primary market.
C)secondary market.
D)OTC market.
E)NASDAQ market.

Question 15

Where does the assets' values of the firms appear on the Balance Sheet?

A)right hand side.
B)left hand side.
C)right hand side and left hand side.
D)it does not appear on the Balance Sheet at all.
E)right hand side or left hand side.

Question 16

What type of companies are listed on the Alternative Investment Market?

A)foreign companies.
B)european companies.
C)asian companies.
D)smaller companies.
E)None of the above.

Question 17

The mixture of debt and equity used by a firm to finance its operations is called:

A)working capital management.
B)financial depreciation.
C)cost analysis.
D)capital budgeting.
E)capital structure.

Question 18

What is the estimated market value of New York Stock Exchange in 2015?

A)$18 millions.
B)$25 millions
C)$10 millions.
D)$30 millions
E)$1 billions

Question 19

Working capital management includes decisions concerning which of the following?
I.trade payables
II.long-term debt
III.trade receivables
IV.inventory

A)I and II only.
B)I and III only.
C)II and IV only.
D)I, II, and III only.
E)I, III, and IV only.

Question 20

Which one of the following is a capital budgeting decision?

A)Determining how much debt should be borrowed from a particular lender.
B)Deciding whether or not to open a new store.
C)Deciding when to repay a long-term debt.
D)Determining how much inventory to keep on hand.
E)Determining how much money should be kept in the checking account.

Question 21

Profit and cash flows are:

A)generally the same since they reflect current laws and accounting standards.
B)generally the same since accounting profits reflect when the cash flow are received.
C)generally not the same since International Financial Reporting Standards (IFRS) allows for
Revenue recognition separate from the receipt of cash flows.
D)generally not the same because cash inflows occur before revenue recognition.
E)Both c and D

Question 22

In which year was the Alternative Investment Market formed?

A)1997.
B)2000.
C)2005.
D)1995.
E)2001.

Question 23

Which of the following Stock Exchanges is based in the Asia Pacific region?

A)New York Stock Exchange.
B)Colombo Stock Exchange .
C)London Stock Exchange
D)Irish Stock Exchange.
E)None of the above.

Question 24

Where are most money market banks located?

A)Tokyo, New York and Singapore.
B)Frankfurt, London and New York.
C)Taiwan, Hong Kong and Beijing.
D)New Zealand, Africa and New York.
E)None of the above.

Question 25

Which of the following statements concerning auction markets is (are) correct?
I.Euronext is an auction market.
II.The Foreign Exchange Market is an auction market.
III.All trades involve a dealer in an auction market.
IV.An auction market is called an over-the-counter market.

A)I only.
B)II only.
C)I and III only.
D)II and III only.
E)II and IV only.

Question 26

A money broker specialises in

A)locating interested parties to sell a company's stock.
B)finding interested parties to buy a company's stock.
C)finding short-term money for borrowers and placing money for lenders.
D)only helping lender placing their money.
E)All of the above.

Question 27

In which region is the Bermuda Stock Exchange based in?

A)Americas
B)Asia Pacific
C)Europe.
D)Asia
E)None of the above.

Question 28

Which of the following reports to the chief financial officer?

A)the general and the divisional managers
B)the retail investors
C)the treasurer and the financial controller.
D)the shareholders and the debtholders
E)None of the above.

Question 29

In which year was London Stock Exchange merged with Borsa Italiana?

A)2005
B)2002
C)2001
D)2009
E)2007

Question 30

What are the financial goals that are related to control of risk and profitability?

Question 31

Which of the following goals is related to the control of risk?

A)maximize sales or market share.
B)bankruptcy avoidance
C)minimize costs.
D)maximize profits.
E)None of the above.

Question 32

Which of the following is a requirement to be listed on the Euronext?

A)the listing company must have at least five years of the accounts filed with the regulator.
B)the value of the shares listed must be at least 10 million euros.
C)the listing company must have an international business operation.
D)a company must have at least 25% of the shares listed on the exchange.
E)the listing company must be in business for at least 10 years.

Question 33

The primary market is defined as the:

A)market for insured securities.
B)market for new issues.
C)market for securities of the largest firms.
D)over-the-counter market.
E)None of the above.

Question 34

Dealer markets:

A)are reserved strictly for trading debt securities.
B)only exist outside of Europe.
C)are called over-the-counter markets.
D)include the Euronext and London Stock Exchanges.
E)list only the securities of the largest firms.

Question 35

What did research find out about company's shares that are highly liquid and heavily traded?

A)such company's shares are only found in London stock exchange
B)such company's shares tend to be found in the banking sector.
C)such company's shares are privately owned.
D)such company's shares tend to have a higher value.
E)such company's shares are only owned by the Americans.

Question 36

List and briefly describe the three basic questions addressed by a financial manager.

Question 37

Which of the following system operate in the over-the-counter (OTC) market?

A)the electronic communication system.
B)the alternative trading system.
C)the security dealers automated quotation system.
D)the high frequency trading system.
E)the trading network system.

Question 38

Which standard is followed by the stock listed firms in preparing the financial statement?

A)the international public sector accounting standards.
B)the purchasing power accounting standard
C)the international financial reporting standards.
D)the fair trading standard.
E)the company standard.

Question 39

In which year was the Stock Exchange Electronic Trading Service (SETS) launched?

A)1995.
B)2000.
C)2001.
D)2005.
E)1997

Question 40

What is the implication of strong market liquidity on a company's shares?

A)the demand of the company's shares is weak.
B)the supply of the company's shares is weak.
C)the supply of the company's share is strong.
D)the demand of the company's share is strong.
E)None of the above.

Question 41

All else equal, a firm can increase its net working capital by:

A)increasing its tangible non-current assets.
B)increasing shareholders' equity.
C)decreasing current assets.
D)decreasing current liabilities.
E)None of the above.

Question 42

On the secondary market:

A)investors cannot transfer ownership of securities.
B)firms sell securities to raise cash.
C)securities are resold.
D)only small firms are active.
E)None of the above.

Question 43

Why is stock market liquidity important?

Question 44

Based on Figure 1.3, describe the link of cash flows between the firm and the financial markets

Question 45

Suppose you own 100 shares of Vodafone which you intend to sell today.Since you will sell it in the secondary market, Vodafone will receive no direct cash flows as a consequence of your sale.Why, then, should Vodafone's management care about the price you get for your shares?

Question 46

One thing lenders sometimes require when loaning money to a small corporation is an assignment of the common stock as collateral on the loan.Then, if the business fails to repay its loan, the ownership of the stock certificates can be transferred directly to the lender.Why might a lender want such an assignment? What advantage of the corporate form of organization comes into play here?

Question 47

Why might a corporation wish to list its shares on a national exchange such as the London Stock Exchange as opposed to a small company exchange, such as AIM?

Question 48

Explain the difference between an accounting profit and cash flow by using an example

Question 49

What should be the goal of the financial manager of a corporation? Why?

Question 50

Consider the following statements about exchanges:
(i) Over-the counter markets have no dealers.
(ii) Auction markets are purely electronic markets.

A)(i) is correct.
B)(ii) is correct.
C)(i) is correct and (ii) is incorrect.
D)(i) and (ii) are both correct
E)(i) and (ii) are both incorrect.