CFC Financial Management & Strategy 2

Question 1

A company has a beta of 1.4, the risk-free rate is 3%, and the market return is 9%. What is the required return using CAPM?

Accepted Answer

11.4%

Answer

CAPM: 3% + 1.4 × (9% − 3%) = 3% + 8.4% = 11.4%.

Question 2

Which capital structure theory argues that a firm's value is unaffected by its debt-to-equity ratio in the absence of taxes and market imperfections?

Accepted Answer

Modigliani-Miller Theorem

Answer

The Modigliani-Miller Theorem (1958) holds that firm value is independent of capital structure under perfect market assumptions.

Question 3

A project has an NPV of $0 when discounted at 15%. This 15% rate is best described as the project's:

Accepted Answer

Internal Rate of Return

Answer

The Internal Rate of Return (IRR) is the discount rate at which a project's NPV equals zero.

Question 4

Which working capital strategy accepts higher risk in exchange for lower financing costs by funding permanent current assets with short-term debt?

Accepted Answer

Aggressive strategy

Answer

An aggressive working capital strategy uses cheaper short-term debt to finance even long-term current assets, accepting higher rollover and liquidity risk.

Question 5

A firm's economic value added (EVA) is calculated as:

Accepted Answer

NOPAT minus (WACC × Invested Capital)

Answer

EVA = NOPAT − (WACC × Invested Capital), measuring value created above the cost of capital.

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC Financial Management & Strategy 2