DBA Corporate Finance and Financial Management 2

Question 1

In the context of US public companies, what does the Sarbanes-Oxley Act (SOX) primarily require?

Accepted Answer

Enhanced financial disclosures and internal controls to prevent accounting fraud

Answer

SOX (2002) was enacted after corporate scandals (Enron, WorldCom) to improve financial reporting accuracy and establish accountability for executives and auditors.

Question 2

What is 'working capital management' primarily concerned with?

Accepted Answer

Managing the relationship between current assets and current liabilities to ensure operational efficiency

Answer

Working capital management optimizes the balance between current assets (inventory, receivables, cash) and current liabilities to maintain liquidity and operational efficiency.

Question 3

Which valuation method estimates a company's intrinsic value based on the present value of its expected future free cash flows?

Accepted Answer

Discounted Cash Flow (DCF) analysis

Answer

DCF analysis discounts projected future free cash flows back to the present using an appropriate discount rate (usually WACC) to estimate intrinsic value.

Question 4

What does 'dividend irrelevance theory' (Modigliani-Miller) suggest?

Accepted Answer

In perfect capital markets, dividend policy does not affect firm value

Answer

M&M's dividend irrelevance theorem argues that in perfect markets without taxes or transaction costs, investors are indifferent between dividends and capital gains.

Question 5

In mergers and acquisitions, what is 'goodwill' on the acquiring company's balance sheet?

Accepted Answer

The premium paid above the fair market value of the acquired company's net identifiable assets

Answer

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired, reflecting intangibles like brand, customer relationships, and synergies.

DBA - Doctor of Business Administration Practice Test

DBA - Doctor of Business Administration Practice Test

DBA Corporate Finance and Financial Management 2