IFA IFA Business Finance & Investment

Question 1

What is the weighted average cost of capital (WACC)?

Accepted Answer

The blended cost of all capital sources weighted by their proportion in the capital structure

Answer

The average interest rate on all bank loans

Answer

The minimum return required on equity only

Answer

The tax rate applied to interest payments

Question 2

Which of the following is an example of equity financing?

Accepted Answer

Issuing new common stock

Answer

Issuing corporate bonds

Answer

Taking a bank term loan

Answer

Entering a finance lease

Question 3

What is a dividend policy and how does it affect shareholders?

Accepted Answer

The decision on how much of profits to distribute to shareholders versus retain in the business

Answer

A company's strategy for setting employee bonuses

Answer

A legal requirement to pay all profits to shareholders

Answer

The schedule for paying interest on bonds

Question 4

What is the primary purpose of a prospectus when a company issues new securities?

Accepted Answer

To provide potential investors with material information about the offering and the company

Answer

To file the company's annual tax return

Answer

To obtain a credit rating from rating agencies

Answer

To apply for a bank loan

Question 5

What does 'leverage' mean in a business finance context?

Accepted Answer

The use of borrowed funds to amplify potential returns and risks

Answer

The amount of cash held in reserve

Answer

The ratio of current assets to current liabilities

Answer

The market capitalization of the company

Question 6

Which financial market instrument provides its holder with a fixed interest payment and return of principal at maturity?

Accepted Answer

Corporate bond

Answer

Common stock

Answer

Preferred stock

Answer

Convertible note (before conversion)