FIN622 Corporate Finance Quiz 3 Fall 2012

If a creditor wanted to know if a potential customer paid its bills on time, the creditor could look at the potential customer’s:


Current ratio.

Acid ratio.

Average age of accounts payable.

Average age of accounts receivable


Suppose you need the present value interest factor for 12 percent compounded quarterly for 10 years. If all you have is a PVIF table, you would use the ________ period row and the ________ percent rate column.

40, 12

20, 12

40, 3

20, 6


The analysis in which comparison is made from year to year and the earliest year is taken as base is known as:


Vertical analysis

Ration analysis

Base Year analysis

None of given options


A project would be financially feasible in which of the following situation?

If Internal Rate of Return of a project is greater than zero

If Net Present Value of a project is less than zero

If the project has Profitability Index less one.

If the project has Profitability Index greater than one.


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?

The company’s taxes increased.

The company’s depreciation expense declined.

The company’s operating income declined.

All of the given statements are correct




Which of the following is a necessary condition for issuing shares through IPO’s?

The firm must have a stable dividend policy

The firm must have a low cost of capital

The firm must have l low level of debt

The firm must be listed on the stock exchange



Which of the following reflects the real cost of funds to the borrowers and the real yield to the lenders?


Real interest rate

Nominal interest rate

Annual interest rate

Quarterly interest rate


Which of the following statement is CORRECT regarding residual dividend policy?


Shareholders are paid dividend from capital

Dividend are paid after meeting all the financial needs of the firm

The management sets a fixed payout ratio

Shareholders are paid fixed dividend every year



Residual Dividend Policy



Which of the following is tax deductible?


Select correct option:

Dividend on preferred shares

Dividend on common stocks

Coupon payments on bonds

Capital gain on common stocks


The greater the proportion of permanent current assets financed with short-term debt, the:



Riskier would be the working capital policy of the firm.

Lower would be the safety margin needed to protect against cash flow uncertainty.

Less likely the firm will try to lengthen the maturity schedule of its debt.

Lower would be the firm’s potential return on total investment.