B. Acy Bachelor of Accountancy Corporate Finance and Financial Management 3

Question 1

Which of the following dividend theories argues that investors are indifferent between dividends and capital gains in a perfect market?

Accepted Answer

Modigliani-Miller dividend irrelevance theory

Answer

Bird-in-the-hand theory

Answer

Tax preference theory

Answer

Residual dividend policy

Question 2

The degree of operating leverage (DOL) measures sensitivity of:

Accepted Answer

EBIT to changes in sales

Answer

EPS to changes in EBIT

Answer

Net income to changes in interest expense

Answer

Stock price to changes in dividends

Question 3

Which of the following best describes the trade-off theory of capital structure?

Accepted Answer

Firms balance the tax benefits of debt against financial distress costs

Answer

Firms should use 100% debt to maximize tax shields

Answer

Capital structure has no effect on firm value

Answer

Equity is always preferred over debt

Question 4

A $10,000 investment grows to $14,693 in 5 years. Using the rule of 72, approximately what annual interest rate was earned?

Accepted Answer

8%

Answer

6%

Answer

9%

Answer

10%

Question 5

Which of the following is an example of systematic (market) risk that CANNOT be eliminated through diversification?

Accepted Answer

A nationwide recession reducing consumer spending

Answer

A company's CEO unexpectedly resigns

Answer

An FDA rejection of a single drug company's product

Answer

A labor strike at one manufacturing plant

Question 6

Under the efficient market hypothesis (EMH) in its strong form, which of the following is true?

Accepted Answer

All public and private (insider) information is reflected in stock prices

Answer

Only public information is reflected in stock prices

Answer

Past price patterns can be used to earn abnormal returns

Answer

Technical analysis can consistently beat the market

Question 7

A company has total debt of $400,000 and total equity of $600,000. Its debt-to-equity ratio and debt ratio are, respectively:

Accepted Answer

0.67 and 40%

Answer

1.50 and 60%

Answer

0.67 and 60%

Answer

1.50 and 40%