Finance Test

1. The concept of present value relates to the idea that*
- The discount rate is always higher when you invest now than in the future
- The discount rate is always higher when you invest in the future than now
- The money you have now is worth less today than an identical amount you would receive in the future
- The money you have now is worth more today than an identical amount you would receive in the future
2. The formula for calculating future value (FV) is*
- FV = PV/(1+r)^n
- FV = PV/(1+r)*n
- FV = PV x (1+r)^n
- FV = PV x (1+r)*n
3. If you were able to earn interest at 3% and you started with $100, how much would you have after 3 years?*
- $91.51
- $109.27
- $291.26
- $103.00
4. Based on the numbers given below, calculate the net present value (NPV) of this project.*
- 59.06
- 459.47
- 230.00
- 205.36
5. What is an annuity?*
- An investment that has no definite end and a stream of cash payments that continues forever
- A stream of cash flows that start one year from today and continue while growing by a constant growth rate
- A series of equal payments at equal time periods and guaranteed for a fixed number of years
- A series of unequal payments at equal time periods which are guaranteed for a fixed number of years
6. Calculate the price of a dividend paying stock using the following information, assuming the price is equal to the present value of all future dividends one will receive from owning the stock. (Hint: treat the stock as a growing perpetuity)*
- $37.50
- $32.14
- $42.60
- $45.00
7. What is a par value of a bond?*
- The amount borrowed by the issuer of the bond and returned to the investors when the bond matures
- The overall return earned by the bond investor when the bond matures
- The difference between the amount borrowed by the issuer of bond and the amount returned to investors at maturity
- The size of the coupon investors receive on an annual basis
8. When the price of a bond is above the face value, the bond is said to be*
- Trading at par
- Trading at a premium
- Trading at a discount
- Trading below par
9. Which of the following is true when a bond is trading at a discount?*
- Coupon Rate > Current Yield > Yield to Maturity
- Coupon Rate < Current Yield < Yield to Maturity
- Coupon Rate = Current Yield = Yield to Maturity
- Coupon Rate < Current Yield = Yield to Maturity
10. The concept of time value of money is that*
- The cash flows that occur earlier are more valuable than cash flows that occur later
- The cash flows that occur earlier are less valuable than cash flows that occur later
- The longer the time cash flows are invested, the more valuable they are in the future
- The future value of cash flows are always higher than the present value of the cash flows
11. What is the enterprise value of a business?*
- The market value of equity of the business
- The book value of equity of the business
- The entire value of the business without giving consideration to its capital structure
- The entire value of the business considering its capital structure
12. Which of the following is the formula to calculate cost of capital?*
- Total assets/Net debt x Cost of debt + Total assets/Equity x Cost of equity
- Net debt/Equity x Cost of debt + Equity/Net debt x Cost of equity
- Net debt x Cost of debt + Equity x Cost of equity
- Net debt/Total assets x Cost of debt + Equity/Total assets x Cost of equity
13. Company A has a capital structure of $80M debt and $20M equity. This year, the company reported a net income of $17M. What is Company A's return on equity?*
- 117.6%
- 21.3%
- 85.0%
- 28.3%
14. Which of the following is not an investment grade credit rating?*
- BB+
- BBB+
- BBB
- BBB-
15. Which of the following is not true about private equity funds?*
- Private equity funds are pools of capital invested in companies which represent an opportunity for high rate of return
- Exit strategies for private equity funds include Initial Public Offerings (IPOs) and leveraged buyout (LBO)
- Venture capital is an example of private equity funds
- Private equity funds are usually invested for unlimited time periods
16. ____ underwriting commitment is when the underwriter agrees to buy the entire issue and assume full financial responsibility for any unsold shares.*
- Best efforts
- Firm commitment
- All-or-none
- Full-purchase
17. The correct order of capital stack from the most to least secured is*
- Equity > Subordinated debt > Senior debt
- Suborindated debt > Senior debt > Equity
- Senior debt > Subordinated debt > Equity
- Senior debt > Equity > Subordinated debt
18. Which of the following is not a financing activity?*
- Repayment of long-term debt
- Issuance of equity
- Investments in businesses
- Payment of dividends
19. What is working capital?*
- Equity Capital + Retained Earnings
- Equity Capital - Total Liabilities
- Total Assets - Total Liabilities
- Current Assets - Current Liabilities
20. Which of the following is not true about goodwill?*
- Goodwill needs to be evaluated for impairment yearly
- Goodwill is treated as a tangible asset in accounting
- Goodwill is a result of purchasing a company for a price higher than the fair market value of the target company's net assets
- Goodwill can be comprised of things such as good reputation, loyal client base, and brand recognition
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