CGA CGA Corporate Finance & Capital Markets

Question 1

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

Accepted Answer

Internal Rate of Return

Answer

Net Present Value

Answer

Payback Period

Answer

Accounting Rate of Return

Question 2

A company has a debt-to-equity ratio of 1.5. If total equity is $400,000, what is total debt?

Accepted Answer

$600,000

Answer

$267,000

Answer

$400,000

Answer

$1,000,000

Question 3

Which of the following best describes the weighted average cost of capital (WACC)?

Accepted Answer

The blended cost of all financing sources weighted by their proportion

Answer

The return required by equity holders only

Answer

The average interest rate on outstanding debt

Answer

The minimum return required by creditors

Question 4

A bond is trading at a premium. Which statement is correct?

Accepted Answer

The coupon rate exceeds the market rate

Answer

The coupon rate is below the market rate

Answer

The coupon rate equals the market rate

Answer

The bond has no par value

Question 5

Under the Modigliani-Miller theorem (no taxes), how does capital structure affect firm value?

Accepted Answer

Capital structure has no effect on firm value

Answer

More debt always increases firm value

Answer

Equity financing maximizes firm value

Answer

Optimal capital structure is all debt

Question 6

Which type of stock gives holders priority over common stockholders in dividend payments?

Accepted Answer

Preferred stock

Answer

Growth stock

Answer

Treasury stock

Answer

Blue-chip stock