FINC 600 Week 6 Practice Quiz Corporate Finance Question 1 If the capital markets are efficient, then the sale or purchase of any security at the prevailing market price is: A.Always a positive NPV transaction B.Generally a zero NPV transaction C.Is always a negative NPV transaction D.None of the above Question 2 Generally, a firm is able to find positive NPV opportunities with: I) Financing decisions II) Capital investment decisions III) Short-term borrowing decisions A.I only B.I and III only C.III only D.II only Question 3 Stock price cycles or patterns self-destruct as soon as investors recognize them through: A.stock market regulation by the Securities and Exchange Commission (SEC) B.price fixing by the specialists on New York Stock Exchange C.trading by the investors D.none of the above Question 4 Which of the following is a statement of semi-strong form efficiency? I) If the markets are efficient in the semi-strong form then prices will adjust immediately to public information II) If the markets are efficient in the semi-strong form then prices reflect all information III) If the markets are efficient in the semi-strong form then prices will adjust to newly published information after a long time delay A.I only B.II only C.II and III only D.III only Question 5 Weak form efficiency implies that past stock price(s) A.patterns tend to repeat itself in the future B.are major inputs to the investors for forming trading strategies C.do not matter D.none of the above Question 6 One important implication of the efficient markets hypothesis is that: A.investors should hold a diversified portfolio and avoid active trading. B.investors can benefit by engaging in day trading. C.investors should trade actively help to ensure the highest overall gain in their portfolios. D.all of the above. Question 7 On January 2, Michigan Mining declared a $25-per-share quarterly dividend payable on March 9th to stockholders of record on February 9. What is the latest date by which you could purchase the stock and still get the recently declared dividend? A.February 5 B.February 6 C.February 7 D.February 8 Question 8 Firms can repurchase shares in the following ways: I) Open market repurchase II) Through a tender offer III) Through a Dutch auction process IV) Through direct negotiation with a major shareholder A.I only B.II only C.III only D.I, II, III, and IV Question 9 Company X has 100 shares outstanding. It earns $1,000 per year and expects to pay all of it as dividends. If the firm expects to maintain this dividend forever, Calculate the stock price today. (The required rate of return is 10%) A.$110 B.$90 C.$100 D.None of the above Question 10 Capital structure of the firm can be defined as: I) the firm’s debt-equity ratio II) the firm’s mix of different securities used to finance assets III) the market imperfection that the firm’s manager can exploit A.I only B.II only C.III only D.I, II, and III Question 11 If an investor buys “a” proportion of an unlevered firm’s (firm U) equity then his/her payoff is: A.(a) * (profits) B.(a) * (interest) C.(a) * (profits – interest) D.none of the above Question 12 If an individual wanted to borrow with limited liability he/she should: A.Invest in the equity of an unlevered firm B.Borrow on his/her own account C.Invest in the equity of a levered firm D.Invest in a risk-free asset like T-bills Question 13 Capital structure is irrelevant if: A.the capital markets are perfect B.each investor holds a fully diversified portfolio C.each investor holds the same proportion of debt and equity of the firm
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