Most Important Managerial Finance MCQs

Select one:
a. A company’s target capital structure affects its weighted average cost of capital.
b. Weighted average cost of capital calculations should be based on the after-tax-costs of all the individual capital components.
c. If a company’s tax rate increases, then, all else equal, its weighted average cost of capital will increase.
d. The cost of retained earnings is equal to the return stockholders could earn on alternative investments of equal risk.
e. Flotation costs can increase the cost of preferred stock.

Select one:
a. 5.0%
b. 5.3%
c. 11.0%
d. 11.3%
e. 11.6%

Select one:
a. 8.55%
b. 9.33%
c. 9.36%
d. 9.87%
e. 10.67%

Select one:
a. Long-term debt.
b. Common stock.
c. Accounts payable.
d. Preferred stock.
e. All of the above are considered capital components for WACC and capital budgeting purposes.

Select one:
a. 10.0%
b. 9.1%
c. 8.6%
d. 8.0%
e. 7.2%

Select one:
a. 10.0%
b. 11.0%
c. 12.0%
d. 12.6%
e. 13.2%

Select one:
a. Is useless as a risk indicator.
b. Ignores cash flows beyond the payback period.
c. Does not directly account for the time value of money.
d. All of the answers above are correct.
e. Only answers b and c are correct.

Select one:
a. If a project’s internal rate of return (IRR) exceeds the cost of capital, then the project’s net present value
(NPV) must be positive.
b. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.
c. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the
cost of capital.
d. Answers a and c are correct.
e. None of the answers above is correct.

Select one:
a. A
b. B
c. C
d. B and C
e. E …Information provided is insufficient to answer this question

Select one:
a. Project X must have a higher net present value than Project Y.
b. If the two projects have the same WACC, Project X must have a higher net present value.
c. Project X must have a shorter payback than Project Y.
d. Both answers b and c are correct.
e. None of the above answers is correct.

Select one:
a. Changes when the cost of capital changes.
b. Is equal to the annual net cash flows divided by one half of the project’s cost when the cash flows are an
annuity.
c. Must exceed the cost of capital in order for the firm to accept the investment.
d. Is similar to the yield to maturity on a bond.
e. Answers c and d are correct.

Select one:
a. 5.23 years
b. 4.86 years
c. 4.00 years
d. 6.12 years
e. 4.35 years

Select one:
a. $15,819.27
b. $21,937.26
c. $32,415.85
d. $38,000.00
e. $52,815.71

Select one:
a. The constant growth model takes into consideration the capital gains earned on a stock.
b. It is appropriate to use the constant growth model to estimate stock value even if the growth rate never
becomes constant.
c. Two firms with the same dividend and growth rate must also have the same stock price.
d. Statements a and c are correct.
e. All of the statements above are correct.

Select one:
a. The constant growth rate stock valuation model is P0 = D1/(rs – g).
b. If a stock has a required rate of return rs = 12 percent, and its dividend grows at a constant rate of 5
percent, this implies that the stock’s dividend yield is 5 percent.
c. The price of a stock is the present value of all expected future dividends, discounted at the dividend
growth rate.
d. Statements a and c are correct.
e. All of the statements above are correct.

Select one:
a. The expected return on the stock is 5 percent a year.
b. The stock’s dividend yield is 5 percent.
c. The stock’s price one year from now is expected to be 5 percent higher.
d. Statements a and c are correct.
e. All of the statements above are correct.

Select one:
a. $50.00
b. $50.50
c. $52.50
d. $53.00
e. $63.00

Select one:
a. $150
b. $100
c. $ 50
d. $ 25
e. $ 10

Select one:
a. 13.00%
b. 10.05%
c. 6.00%
d. 5.33%
e. 7.00%

Select one:
a. $28
b. $53
c. $27
d. $23
e. $39