Finance and risk management - international business - Practice Exam 1


Question 1

A company has a semi-annual coupon bond outstanding. A decrease in the market required rate of return will have an effect on this bond. Which effect is meant here:

  1. Increase of the market price
  2. Increase of the coupon rate
  3. Decrease of the market price
  4. Decrease of the coupon rate

Question 2

A firm is comparing two different capital structure plans, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the firm would have 178,500 shares outstanding. Under Plan II, there would be 71,400 shares outstanding and €1.79 million in debt outstanding. The interest rate on the debt is 10% and there are no taxes. What is the break-even EBIT?

  1. €341,414.14
  2. €351,111.11
  3. €298,333.33
  4. €287,878.78

Question 3

Consider the the dividend growth model, an increase in which of the following will increase the current value of an equity?

I. Dividend amount

II. Number of future dividends

III. Discount rate

IV. Dividend growth rate

  1. I, II, and III only
  2. I, II, and IV only
  3. I, II, III, and IV
  4. III and IV only

Question 4

A company is considering a new project. The project will require €500,000 for new non-current assets, €200,000 for additional inventory, and €40,000 for additional trade receivables. Short-term debt is expected to increase by €150,000. What is the project's cash flow at time zero, which is the sum of investments in new non-current assets and net working capital?

  1. -€890,000
  2. -€614,000
  3. -€590,000
  4. -€500,000

Question 5

A conflict of interest between the shareholders and the management of a firm is called:

  1. shareholders' liability
  2. corporate activism
  3. corporate breakdown
  4. the agency problem

Question 6

Daphne invested €1000 seven years ago at 5 per cent interest. She spends her earnings as soon as she earns any interest so she only receives interest on her initial €1000 investment. Which type of interest is Daphne earning?

  1. Complex interest
  2. Interest on interest
  3. Compound interest
  4. Simple interest

Question 7

Shareholders' equity is best described as:

  1. equal to total assets plus total liabilities.
  2. includes long-term debt,
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