DBA Corporate Finance and Financial Management

Question 1

What does the Weighted Average Cost of Capital (WACC) represent?

Accepted Answer

The blended cost of all capital sources (debt and equity) weighted by their proportions

Answer

The average salary of capital market professionals

Answer

The cost of equity capital only

Answer

The interest rate on long-term debt

Question 2

According to the Modigliani-Miller theorem (without taxes), what determines a firm's value?

Accepted Answer

Its real assets and earning power, not how it is financed

Answer

Its capital structure (debt-to-equity ratio)

Answer

The dividend policy chosen by management

Answer

The market price of its equity

Question 3

In capital budgeting, a project should be accepted if its Net Present Value (NPV) is:

Accepted Answer

Positive

Answer

Negative

Answer

Equal to zero

Answer

Greater than the Internal Rate of Return

Question 4

What does the 'agency problem' describe in corporate finance?

Accepted Answer

Conflicts of interest between principals (shareholders) and agents (managers)

Answer

Competition between external consulting agencies

Answer

Legal disputes with government regulatory agencies

Answer

The cost of hiring a marketing agency

Question 5

Which financial ratio measures a company's ability to pay short-term obligations with its most liquid assets?

Accepted Answer

Quick (acid-test) ratio

Answer

Debt-to-equity ratio

Answer

Current ratio

Answer

Return on equity

Question 6

What is 'financial leverage' in the context of corporate finance?

Accepted Answer

The use of debt to amplify potential returns (and risk) to equity holders

Answer

The use of equity to finance operations

Answer

A method of reducing taxes legally

Answer

The diversification of an investment portfolio