Corporate Finance
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Corporate Finance MCQ With Answers
Corporate Finance
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Finc 332: Corporate Finance, Pt 2
Corporate Finance
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Corporate Finance
What Is Corporate Finance?
Corporate finance s the area of finance that focuses on how companies raise money, invest in profitable projects, and return value to shareholders. It answers practical questions like:
- Which projects should a firm invest in?
- How should it finance growth - through debt, equity, or internal cash?
- How much to pay out in dividends, how much to reinvest?
In other words, corporate finance is the balancing between growth, profitability, and risk towards the maximization of a firm's value.
On this page, our corporate finance quizzes turn theory into practical exercises. You'll see how real companies make choices between investment opportunities, funding sources, and dividend policies — and what those decisions mean for shareholders and long-term performance.
Capital Budgeting Process Explained
Capital budgeting is the process by which companies decide which long-term investments are worth pursuing. It could include expanding production, introducing a new product line, or updating technology.
The key steps include:
- Identifying potential investment opportunities
- Estimate the expected future cash flows.
- Risk assessment of the project
- Application of evaluation tools such as Payback Period, NPV, and Internal Rate of Return
These techniques help managers compare options and select those projects that create the most value.
Our quizzes will lead you through simplified examples using cash flow tables, asking you to calculate which project should be approved. And with practice, you can understand why these two, NPV and IRR, are the cornerstone of investment decision-making in corporate finance.
Cost of Capital — Meaning & Formula
Cost of capital is the minimum return that the company needs to generate for its investors. It comprises :
- Cost of debt: interest paid on loans or bonds
- Cost of equity: the expected return shareholders demand
Combined, they form the Weighted Average Cost of Capital, or WACC blended rate that reflects the firm's financing mix.
WACC Formula (simplified):
→ WACC = (E/V × Re) + (D/V × Rd × (1 – Tc)) Where E = equity, D = debt, V = total capital, Re = cost of equity, Rd = cost of debt, and Tc = tax rate.
In these quizzes, you will see how a changed amount of debt or equity changes WACC — and why projects need to exceed the cost of capital to add value.
WACC Formula (simplified):
Financing decisions shape a company’s financial stability and control structure.
- Debt Financing: This involves obtaining loans or bonds. Debt financing does not dilute ownership, though it increases fixed repayment obligations and financial risks.
- Equity financing: One sells ownership shares to investors. It provides flexibility but may reduce control and is often costlier than debt.
With case-based quizzes, you will analyze which option fits into different business conditions-for example, the choice of issuing new shares or taking an additional loan.
Dividend Policy — Types and Examples
Dividend policy defines the way in which profit is distributed between shareholders and reinvested into the business.
Common types include:
- Stable Dividend Policy: Constant dividend per share every year
- Constant Dividend Payout Ratio: Payment of dividend at a specified percentage of earnings.
- Residual Dividend Policy: The firm pays dividends only after funding all the positive NPV projects.
Real-life examples of companies with fluctuating earnings are used in our interactive quizzes, helping you appreciate how payout policies can affect investor confidence, stock prices, and future growth.