FIA Corporate Finance Fundamentals 4

Question 1

Which working capital strategy involves maintaining low inventory and tight credit terms to minimize current assets?

Accepted Answer

Aggressive strategy

Answer

An aggressive working capital strategy minimizes current assets (lean inventory, strict receivables) to reduce financing costs, accepting higher liquidity risk.

Question 2

A firm issues 10,000 shares of stock at $15 per share with a par value of $1 per share. What amount is credited to the additional paid-in capital (APIC) account?

Accepted Answer

$140,000

Answer

APIC = (Issue price - Par value) × Shares = ($15 - $1) × 10,000 = $140,000.

Question 3

Which of the following is an example of a synergy in a merger and acquisition?

Accepted Answer

Combined entity achieving lower per-unit production costs

Answer

Cost synergies such as economies of scale that lower per-unit production costs are a primary rationale for M&A transactions.

Question 4

If a company's cash conversion cycle (CCC) decreases, this generally indicates:

Accepted Answer

The company is managing working capital more efficiently

Answer

A shorter CCC means the company converts investments in inventory and receivables to cash more quickly, reflecting better working capital efficiency.

Question 5

Under which dividend policy does a company maintain a constant payout ratio regardless of earnings fluctuations?

Accepted Answer

Constant payout ratio policy

Answer

A constant payout ratio policy sets dividends as a fixed percentage of earnings, so dividends fluctuate in line with profits.

(FIA) Financial Information Associate Certification Practice Test

(FIA) Financial Information Associate Certification Practice Test

FIA Corporate Finance Fundamentals 4