D362 FINC 3100 Corporate Finance Final Assessment Guid e Q & A 2024 1. Multiple Choice: What is the primary goal of financial management? a) Risk maximization b) Sales maximization c) Shareholder wealth maximization d) Customer satisfaction Answer : c) Shareholder wealth maximization Rationale: The primary goal is to maximize shareholder wealth, as it reflects the overall value of the company. 2. True/False: The Modigliani -Miller theorem suggests that, in the absence of taxes, the value of a leveraged firm is equal to the value of an unleveraged firm. Answer : True Rationale: The theorem states that under certain conditions, the value of a com pany is unaffected by how it is financed. 3. Fill -in-the-blank: The __________ model is used to determine the discount rate for an uncertain cash flow. Answer : Capital Asset Pricing Model (CAPM) Rationale: CAPM calculates the expected return on an a sset, which is used as the discount rate for present value calculations. 4. Multiple Choice: Which of the following is not a method of project evaluation? a) Net present value b) Internal rate of return c) Payback period d) Economic value adde d e) Cost -benefit analysis Answer : e) Cost -benefit analysis Rationale: Cost -benefit analysis is a decision -making process, not a project evaluation method. 5. True/False: In perfect capital markets, the choice of capital structure is irrelevant to a firm's market value. Answer : True Rationale: According to the Modigliani -Miller theorem, in perfect capital markets, a firm's value is not affected by its capital structure. 6. Fill -in-the-blank: The __________ ratio measures a company's abilit y to meet its short -term obligations with its most liquid assets. Answer : Quick ratio Rationale: The quick ratio excludes inventory from current assets and is a stringent measure of liquidity.
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