CFM CFM Corporate Finance & Valuation

Question 1

The Weighted Average Cost of Capital (WACC) is used as the discount rate when:

Accepted Answer

Discounting a firm's expected free cash flows to determine enterprise value

Answer

Evaluating the creditworthiness of suppliers

Answer

Setting credit terms for customers

Answer

Calculating accounts payable turnover

Question 2

Which capital budgeting method calculates the discount rate at which NPV equals zero?

Accepted Answer

Internal Rate of Return (IRR)

Answer

Net Present Value (NPV)

Answer

Payback Period

Answer

Profitability Index

Question 3

What does the Modigliani-Miller theorem suggest about capital structure in a world without taxes?

Accepted Answer

Capital structure is irrelevant and does not affect firm value

Answer

Firms should maximize debt to minimize cost of capital

Answer

Equity financing is always cheaper than debt financing

Answer

Optimal leverage ratio is 50% debt and 50% equity

Question 4

Enterprise Value (EV) is calculated as:

Accepted Answer

Market capitalization + Debt - Cash

Answer

Market capitalization + Cash - Debt

Answer

Net income × P/E ratio

Answer

Total assets - Total liabilities

Question 5

What is the primary advantage of using the Payback Period method for capital budgeting?

Accepted Answer

It is simple, easy to calculate, and emphasizes liquidity and speed of recovery

Answer

It accounts for the time value of money

Answer

It considers all cash flows over the asset's full life

Answer

It maximizes shareholder wealth by focusing on NPV

Question 6

Which valuation multiple compares enterprise value to a company's operating earnings before non-cash charges?

Accepted Answer

EV/EBITDA

Answer

P/E ratio

Answer

Price/Book

Answer

EV/Revenue