DBA Corporate Finance and Financial Management 1

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

WACC represents the average rate of return a company must earn on its investments to satisfy all its capital providers, weighted by the proportion of each funding source.

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

Without taxes, Modigliani and Miller proved that firm value is determined by its assets and cash flows, not by the mix of debt and equity used to finance it.

Question 3

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

Accepted Answer

Positive

Answer

A positive NPV means the project generates more value than it costs (discounted at the required rate), thereby increasing shareholder wealth.

Question 4

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

Accepted Answer

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

Answer

The agency problem arises when managers (agents) may act in their own interests rather than maximizing shareholder (principal) wealth.

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

The quick ratio measures liquidity by dividing liquid assets (cash, marketable securities, receivables) by current liabilities, excluding inventory.

DBA - Doctor of Business Administration Practice Test

DBA - Doctor of Business Administration Practice Test

DBA Corporate Finance and Financial Management 1