Question 1

A mortgage is a form of loan that is secured by a charge over:

Accepted Answer

A)  freehold property.
B)  inventories.
C)  accounts receivable.
D)  none of the above.E) A) and B)
F) None of the above

Question 2

Dividend policy is influenced by:

Accepted Answer

A)  the desire of a company for growth.
B)  the difficulty of obtaining funds from other sources.
C)  the perceived preference of shareholders for dividend income.
D)  all of the above.E) None of the above
F) All of the above

Question 3

The current market price of a company's shares is $10. The company is planning to make a 1 for 10 rights issue at a subscription price of $8. You hold 100 shares at the time the rights issue is to be made. If you exercise your rights, what is the total number of shares you will now own?

Accepted Answer

A)  110.
B)  100.
C)  108.
D)  111.E) A) and C)
F) A) and D)

Question 4

Which of the following best describes the 'trade-off' theory?

Accepted Answer

A)  Maintaining the cost of borrowing at the same level as the cost of equity.
B)  Balancing the WACC and the cost of borrowings.
C)  Balancing the benefits received from interest being a taxable expense with the cost of possibly going bankrupt.
D)  None of the above is a good description.E) A) and D)
F) A) and C)

Question 5

The firm's financial structure relates to how the firm:

Accepted Answer

A)  finances its assets.
B)  manages its accounts receivable.
C)  meets its daily financial payments.
D)  all of the above.E) B) and C)
F) A) and C)

Question 6

The statement concerning invoice discounting that is not true is:

Accepted Answer

A)  the responsibility for collecting the trade debts outstanding remains with the business.
B)  it is currently a more important source of funds to businesses than factoring.
C)  it is more expensive than factoring.
D)  it is a more confidential form of finance than factoring.E) C) and D)
F) A) and C)

Question 7

Which of these is a disadvantage of Australian Securities Exchange listing?

Accepted Answer

A)  Requirements for additional financial disclosure.
B)  Closer monitoring by financial journalists and analysts.
C)  The high cost of listing.
D)  All are disadvantages.E) C) and D)
F) B) and D)

Question 8

The offer of new shares to existing shareholders at a discount on market price, in proportion to the amount of their current holding, is known as:

Accepted Answer

A)  a preference issue.
B)  a bonus issue.
C)  an option.
D)  a rights issue.E) B) and C)
F) A) and B)

Question 9

Investors, typically wealthy, successful individuals, who are prepared to make investments in new businesses and provide advice, are known as:

Accepted Answer

A)  godfathers.
B)  humanitarian.
C)  philanthropists.
D)  business angels.E) A) and D)
F) All of the above

Question 10

Venture capital is:

Accepted Answer

A)  capital offered only to large companies.
B)  capital offered to take advantage of opportunities with greater than normal risk.
C)  capital offered only to owners of established businesses.
D)  none of the above.E) C) and D)
F) A) and D)

Question 11

It is true that:

Accepted Answer

A)  shareholders have the protection of limited liability.
B)  in most insolvent companies, ordinary shareholders receive little or nothing back on winding up.
C)  shareholders have a legal entitlement to be paid a dividend once a year.
D)  Both A and B.E) B) and C)
F) A) and C)

Question 12

An advantage of financing operations with equity rather than debt is:

Accepted Answer

A)  the legal requirement to repay the principal.
B)  the tax deductibility of interest expense on debt.
C)  the legal requirement to pay interest
D)  none of the above.E) A) and D)
F) A) and C) D

Question 13

Covenants imposed on a loan may include:

Accepted Answer

A)  a requirement to submit regular financial information.
B)  limitations on dividend payments.
C)  maintenance of a certain level of liquidity.
D)  all of the above.E) A) and D)
F) None of the above

Question 14

Which statement is correct?

Accepted Answer

A)  Short-term assets should be financed by long-term liabilities.
B)  Long-term liabilities should be used to finance long-term assets.
C)  Short-term liabilities should be used to finance long-term assets.
D)  None of the above.E) B) and D)
F) C) and D)

Question 15

Which of these is not a long-term source of finance?

Accepted Answer

A)  Finance lease.
B)  Trade credit.
C)  Ordinary shares.
D)  Mortgage.E) None of the above
F) B) and C) B

Question 16

A tender issue of shares is one in which:

Accepted Answer

A)  the investors must state in advance the amount they are willing to pay for the shares.
B)  the investors must state in advance the number of shares they are willing to purchase.
C)  the issuer must state in advance the amount it expects to receive for the shares..
D)  Both A and B are correct.E) All of the above
F) B) and C)

Question 17

Which factor should be taken into account when deciding between debt and equity finance?

Accepted Answer

A)  The effect on earnings per share.
B)  The security available.
C)  The purpose of the finance.
D)  All of the above.E) B) and D)
F) B) and C)

Question 18

Long-term and short-term finance tends to be differentiated by:

Accepted Answer

A)  the amount of finance raised.
B)  the period of time the finance has to be repaid.
C)  whether the finance is debt or equity.
D)  whether the finance is internal or external.E) A) and B)
F) None of the above B

Question 19

An advantage of financing through an issue of ordinary shares rather than with borrowing is:

Accepted Answer

A)  it does not require a fixed periodic repayment.
B)  it involves lower transaction costs.
C)  it does not dilute proportional ownership.
D)  All of the above are advantages.E) B) and D)
F) A) and C)

Question 20

Which of these is not an internal source of finance?

Accepted Answer

A)  Retained earnings.
B)  A reduction in inventory levels.
C)  An increase in the bank overdraft.
D)  None of the above, i.e., all are internal sources of finance.E) All of the above
F) A) and B)

Exam 14: Financing the Business

A mortgage is a form of loan that is secured by a charge over:

Correct AnswerverifiedShow Answer

Dividend policy is influenced by:

Correct AnswerverifiedShow Answer

The current market price of a company's shares is $10. The company is planning to make a 1 for 10 rights issue at a subscription price of $8. You hold 100 shares at the time the rights issue is to be made. If you exercise your rights, what is the total number of shares you will now own?

Correct AnswerverifiedShow Answer

Which of the following best describes the 'trade-off' theory?

Correct AnswerverifiedShow Answer

The firm's financial structure relates to how the firm:

Correct AnswerverifiedShow Answer

The statement concerning invoice discounting that is not true is:

Correct AnswerverifiedShow Answer

Which of these is a disadvantage of Australian Securities Exchange listing?

Correct AnswerverifiedShow Answer

The offer of new shares to existing shareholders at a discount on market price, in proportion to the amount of their current holding, is known as:

Correct AnswerverifiedShow Answer

Investors, typically wealthy, successful individuals, who are prepared to make investments in new businesses and provide advice, are known as:

Correct AnswerverifiedShow Answer

Venture capital is:

Correct AnswerverifiedShow Answer

It is true that:

Correct AnswerverifiedShow Answer

An advantage of financing operations with equity rather than debt is:

Correct AnswerverifiedD

Covenants imposed on a loan may include:

Correct AnswerverifiedShow Answer

Which statement is correct?

Correct AnswerverifiedShow Answer

Which of these is not a long-term source of finance?

Correct AnswerverifiedB

A tender issue of shares is one in which:

Correct AnswerverifiedShow Answer

Which factor should be taken into account when deciding between debt and equity finance?

Correct AnswerverifiedShow Answer

Long-term and short-term finance tends to be differentiated by:

Correct AnswerverifiedB

An advantage of financing through an issue of ordinary shares rather than with borrowing is:

Correct AnswerverifiedShow Answer

Which of these is not an internal source of finance?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
D

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified