This document provides a practice quiz for a finance course. It contains 25 multiple choice questions covering various topics related to corporate finance, including capital structure, cost of capital, financial statements, liquidity, capital budgeting, and stock repurchases. The questions assess understanding of key concepts and calculations.

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1. Indirect costs of bankruptcy are borne principally by:
2. Which of the following lists events in the chronological order from earliest to latest?
3. Dividends are decided by:
I) The managers of a firm
II) The government
III) The board of directors
4. Discuss some examples of the conflicts of interest that may arise between bondholders and
stockholders when a firm is in financial distress.
5. The main advantage of debt financing for a firm is:
I) no SEC registration is required for bond issue
II) interest expense of a firm is tax deductible
III) unlevered firms have higher value than levered firms
6. 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

2. 7. If the capital markets are efficient, then the sale or purchase of any security at the prevailing
market price is:
8. Briefly describe the traditional position on capital structure.
Bambe Holdings, Inc. has debt with both a face and a market value of $2,000. This debt
has a coupon rate of 6% and pays interest annually. The expected earnings before interest
and taxes is $1,200, the tax rate is 34%, and the unlevered cost of capital is 12%. What is
the firm’s cost of equity?
9. Profitability ratios indicate:
I) How productively is the firm utilizing its assets.
II) How liquid is the firm.
III) How profitable is the firm.
IV) How highly is the firm valued by the investors.
10. What are the primary reasons for a company to use debt in its capital structure?
11. The difference between Current Assets of a firm and its Current Liabilities is called
12. What are the three basic financial statements?
13. The cash budget is the primary short-term financial planning tool. The key reasons a cash
budget is created are:
14. Firms can repurchase shares in the following ways:
I) Open market repurchase
II) Through a tender offer

3. III) Through a Dutch auction process
IV) Through direct negotiation with a major shareholder
15. Stock price cycles or patterns self-destruct as soon as investors recognize them through
16. 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
17. Net working capital is defined as
18. If a firm permanently borrows $100 million at an interest rate of 8%, what is the present value
of the interest tax shield? (Assume that the tax rate is 30%)
19. The difference between Total Assets of a firm and its Total Liabilities is called
20. Capital structure is irrelevant if:
21. In order to find the present value of the tax shields provided by debt, the discount rate used is
the:
22. What are the common ratios used to measure liquidity of a firm?
23. What is the model that is used to prepare a pro-forma statement?
24. Briefly explain the information content of share repurchase
25. Generally, a firm is able to find positive NPV opportunities with:

4. I) Financing decisions
II) Capital investment decisions
III) Short-term borrowing decisions