1. Which of the following statements concerning capital structure theory is correct?

A. In the traditional view, there is a linear relationship between the cost of equity and financial risk

B. Modigliani and Miller said that, in the absence of tax, the cost of equity would remain constant

C. Pecking order theory indicates that preference shares are preferred to convertible debt as a source of finance

D. Business risk is assumed to be constant as the capital structure changes

2. Which of the following actions is LEAST likely to increase shareholder wealth?

A. The weighted average cost of capital is decreased by a recent financing decision

B. The financial rewards of directors are linked to increasing earnings per share

C. The board of directors decides to invest in a project with a positive NPV

D. The annual report declares full compliance with the corporate governance code

3. Which of the following statements are features of money market instruments?

(i) A negotiable security can be sold before maturity

(ii) The yield on commercial paper is usually lower than that on treasury bills

(iii) Discount instruments trade at less than face value

A.( i) only

B. (i) and (iii) only

C. (ii) and (iii)only

D. (i), (ii) and (iii)

4. There is a risk that the value of our foreign currency-denominated assets and liabilities will change when we prepare our accounts To which risk does the above statement refer?

A. Translation risk

B. Economic risk

C . Transaction risk

D. Interest rate risk

5. Which of the following statements concerning working capital management are correct?

(i) The twin objectives of working capital management are profitability and liquidity

(ii) A conservative approach to working capital investment will increase profitability

(iii) Working capital management is a key factor in a companys long-term success

A. (i) and (ii) only

B. (i) and (iii) only

C. (ii) and (iii) only

D. (i), (ii) and (iii)

6. The main function of the investment dealer is to serve as:

A. underwriter

B. a market maker

C. an advisor to the firm

D. the middle person between the firm in need of funds and investors.

7. BCL Ltd is appraising a different project, with a positive NPV. It is concerned about the risk and uncertainty associated with this other project. Which of the following statements about risk, uncertainty and the project is true?

A. Sensitivity analysis takes into account the interrelationship between project variables

B. Probability analysis can be used to assess the uncertainty associated with the project

C. Uncertainty can be said to increase with project life, while risk increases with the variability of returns

D. A discount rate of 5% could be used to lessen the effect of later cash flows on the decision

8. The major problem when a public firm issues new stock is:

A. Pricing the security

B. Underwriting the issue

C. Determining the spread

D. The dilution of existing stock

9. Forward and spot transactions take place:

A. Over the counter

B. In the foreign currency exchange

C. Between domestic and foreign governments

D. Between individuals and foreign governments.

10. An effective rate of return captures:

A. The time period

B. Present values

C. Compounding effects

D. Tax consequences

11. In determining the price to be paid for an acquisition, management should consider:

A. Earnings

B. Dividends

C. Book value exchanged

D. Market value exchanged

12. The portfolio effect analyses:

A. The return on the portfolio

B. The risk of the portfolio

C. The impact of a given investment on the overall risk level

D. None of the above.

13. Which of the following varies inversely with profitability?

A. liquidity.

B. Risk.

C. Accounts.

D. Trade

14. To increase the given present value, the discounted rate should be adjusted

A. Upward.

B. Downward.

C. No change.

D. Constant

15. The project can be selected if its profitability index is more than:

A.1%.

B.3%.

C.5%.

D.10%.

16. Corporate governance success includes the following three key groups:

A . Suppliers, managers, and customers.

B. Board of directors, executive officers, and common shareholders.

C. Suppliers, employees, and customers.

D . Common shareholders, managers, and employees.

17. 17. The risk-free rate of return is 8% the expected rate of return on the market portfolio is 15% the beta of eco boards equity stock is 1.4. The required rate on eco boards equity is:

A.15.4%.

B.16.8%.

C.17.2%.

D.17.8%

18. If a company issues bonus shares the debt-equity ratio:

A. Remain unaffected.

B. Will be affected.

C. Will improve.

D . None of the above

19. To financial analysts, "gross working capital" means the same thing as:

A. Fixed assets.

B. Current assets.

C. Working capital.

D. Cost of capital.

20. In deciding the appropriate level of current assets for the firm, management is confronted with:

A. A trade-off between profitability and risk.

B. A trade-off between liquidity and marketability.

C. A trade-off between equity and debt.

D. Trade-off between current assets and profitability.

21. In the lease versus borrow-to-purchase decision, the appropriate discount rate, except for the salvage value is:

A. The cost of capital

B. The after-tax cost of debt

C. The cost of equity capital

D. The cost of debt.

22. Which of the following is not a nonfinancial motive for merging

A. The desire to expand management capabilities

B. The need to expand marketing capabilities

C. The desire for easier access to capital markets

D. The acquisition of new products.

23. 19. A firms Equity share is $50,000, Preference share capital is $5,000, Debenture is $6,000, and retained earnings of $4,000. The firms capitalization is:

A. $64,000.

B. $61,000.

C. $57,000.

D. $54,000.

24. 1. Which of the following is a legitimate reason for international investment?

A. Dividends from a foreign subsidiary are tax-exempt in the United States.

B. Most Governments do not tax foreign corporations.

C. There are possible benefits from international diversification.

D. International investments have less political risk than domestic investments.

25. This security is known as variable income security:

A. Debentures

B. preference shares

C. equity shares

D. None of the above.