Exam 500300 Corporate Finance

1.   Which of the following would result in an increase   in cash flow and a source of cash? 

 

  

 A. A     decrease in accounts payable 

 

B. A decrease in     long-term debt 

 

C. A decrease in     inventory 

 

D. An increase in     accounts receivable 

  

2.   The DuPont identity breaks down return on equity       (ROE) into three parts, which are 

 

  

A. overall         efficiency (as measured by profit margin), asset-use efficiency (as         measured by current asset turnover), and financial leverage (as         measured by long-term debt ratio). 

 

B. operating         efficiency (as measured by inventory turnover), asset use efficiency         (as measured by total asset turnover), and short-term solvency (as         measured by the current ratio). 

 

 C.         operating efficiency (as measured by profit margin), asset use         efficiency (as measured by total asset turnover), and financial         leverage (as measured by the equity multiplier). 

 

D. operating         efficiency (as measured by inventory turnover), customer reach (as         measured by total customers served), and short-term solvency (as         measured by the current ratio).

  

3.   What's the most likely reason a firm           would decide to go public? 

 

  

A. To             increase the total liability of the firm 

 

B. To             increase the value of the firm 

 

C. As an             inexpensive way to raise new capital 

 

 D. As an exit strategy for venture capital             investors 

  

4.                 In corporate finance, the term dilution is used to 

 

  

A. determine when cash flows can be distributed to                 shareholders as dividends. 

 

B. determine when and how to go public.