At a time in their career when veteran finance chiefs are huddling with their CEOs on strategy, wooing institutional investors, and finding new markets, do their technical skills remain rust-free? Is their basic finance knowledge still accessible at a finger snap? The Corporate Finance Institute puts forth the following questions as examples of what young finance professionals need to know. Can you score 100% on this test? No cheating!
1. Which of the following is a simple formula to calculate cost of capital?
A. total assets/net debt x cost of
debt + total assets/equity x cost of equity
B. net debt/equity x cost of debt + equity/net debt x cost of equity
C. net debt x cost of debt + equity x cost of equity
D. net debt/total assets x cost of
debt + equity/total assets x cost of equity
2. The correct order of a capital stack from the most to least secured is:
A. equity > subordinated debt > senior debt
B. subordinated debt > senior debt > equity
C. senior debt > subordinated debt > equity
D. senior debt > equity > subordinated debt
3. The formula for calculating future value (FV) is:
A. FV = PV/(1+r)^n
B. FV = PV/(1+r)*n
C. FV = PV x (1+r)^n
D. FV = PV x (1+r)*n
4. What is the enterprise value of a business?
A. The market value of its equity
B. The book value of its equity
C. The entire value of the business without giving consideration to its capital structure
D. The entire value of the business considering its capital structure
5. Which of the following is true when a bond is trading at a discount?
A. Coupon Rate > Current Yield > Yield to Maturity
B. Coupon Rate < Current Yield < Yield to Maturity
C. Coupon Rate = Current Yield = Yield to Maturity
D. Coupon Rate < Current Yield = Yield to Maturity
6. ________ underwriting is when the underwriter agrees to buy the entire issue and assume full financial responsibility for any unsold shares.
7. The concept of present value relates to the idea that:
A. The discount rate is always higher when you invest now than in the future
B. The discount rate is always higher when you invest in the future than now
C. The money you have now is worth less today than an identical amount you would receive in the future
D. The money you have now is worth more today than an identical amount you would receive in the future
Answers: 1-D; 2-C; 3-C; 4-C; 5-B; 6-B; 7-D