MBA Finance 3

Question 1

What is 'leveraged buyout' (LBO)?

Accepted Answer

Acquiring a company primarily using borrowed funds

Answer

An LBO involves acquiring a company using a significant amount of debt, with the acquired company's assets often used as collateral for the loans.

Question 2

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

Accepted Answer

Discounted Cash Flow (DCF) Analysis

Answer

DCF analysis values a company by discounting its projected future free cash flows back to the present using the appropriate discount rate.

Question 3

What does 'accounts receivable turnover' measure?

Accepted Answer

How efficiently a company collects payment from customers

Answer

Accounts receivable turnover measures how many times per period a company collects its average receivables, indicating collection efficiency.

Question 4

What is the difference between systematic and unsystematic risk?

Accepted Answer

Systematic risk affects the whole market; unsystematic is company-specific and diversifiable

Answer

Systematic risk (market risk) cannot be diversified away, while unsystematic risk is specific to a company or industry and can be eliminated through diversification.

Question 5

What is a 'sinking fund' in corporate finance?

Accepted Answer

A fund set aside to retire debt over time

Answer

A sinking fund requires a company to periodically set aside money to retire portions of its bond debt before maturity, reducing default risk.

MBA - Degree Master of Business Administration Practice Test

MBA - Degree Master of Business Administration Practice Test

MBA Finance 3