Finance and risk management - international business - Practice Exam 4


Question 1

Which one of the following actions will provide you with the right, but not the obligation, to buy the underlying asset at a specified price during a specified period of time?

  1. purchase of a put option
  2. sale of a put option
  3. purchase of a call option
  4. sale of a call option

Question 2

Agency costs refer to:

  1. the total interest paid to creditors over the lifetime of the firm.
  2. the costs that result from default and bankruptcy of a firm.
  3. corporate income subject to double taxation.
  4. the costs of any conflicts of interest between shareholders and management.

Question 3

Shareholders' equity:

  1. decreases whenever new shares of equity are issued.
  2. includes long-term debt, preferred stock, and ordinary equity.
  3. represents the residual value of a firm.
  4. is equal to total assets plus total liabilities.

Question 4

Which one of the following statements is the most correct?

  1. Interest expense increases the amount of tax due.
  2. Taxes reduce both net income and operating cash flow.
  3. Interest expense is included in operating cash flow.
  4. Depreciation does not affect taxes since it is a non-cash expense.

Question 5

Interest rates that include an inflation premium are referred to as:

  1. effective annual rates.
  2. real rates.
  3. nominal rates.
  4. fisher rates.

Question 6

The optimal capital structure is the one that balances

  1. return and risk factors in order to maximize dividends.
  2. return and risk factors in order to maximize profits.
  3. return and risk factors in order to maximize earnings per share.
  4. return and risk factors in order to maximize market value.

Question 7

Which one of following is the rate indicating that a stock's price is expected to appreciate?

  1. capital gains yield
  2. current yield
  3. total return
  4. dividend yield

Question 8

Which one of the following is a net working capital management decision?

  1. determining the amount of equipment needed to complete a job.
  2. determining the amount of long-term debt required to complete a project.
  3. determining the number of shares of stock to issue to fund an acquisition.
  4. determining
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