Question 1

A company is expected to pay a dividend of $2 next year, and dividends are expected to grow at 5% per year indefinitely. The required rate of return on the company’s stock is 10%. What is the value of the stock using the Gordon growth model?

Options :

A : $15

B : $20

C : $40

D : $61

Answer: C

Question 2

What is the relationship between the length of the cash cycle and the amount of cash a firm needs to operate?

Options :

A : A longer cash cycle reduces the need for operational cash due to increased efficiency.

B : The cash cycle length has no impact on operational cash needs.

C : Shorter cash cycles require more cash to handle rapid transactions.

D : Companies must keep more cash on hand if they maintain a longer cash cycle.

Answer: D

Question 3

In the capital asset pricing model (CAPM), what does a beta (#) greater than 1 signify for a portfolio?

Options :

A : The portfolio will always outperform the market.

B : The portfolio has more risk than the market.

C : The portfolio has less risk than the market.

D : The portfolio is expected to move in the opposite direction of the market.

Answer: B

Question 4

What is the significance of Section 302 of the Sarbanes–Oxley Act (SOX)?

Options :

A : It requires management to certify the accuracy of financial reports.

B : It requires the external auditor to take responsibility for financial accuracy.

C : It relaxes the requirements for internal control.

D : It allows companies to opt out of internal control reporting.

Answer: A

Question 5

What is a drawback of using the Gordon growth model for estimating the cost of common equity?

Options :

A : It emphasizes short-term financial performance.

B : It requires extensive market data analysis.

C : It is too complex for general use.

D : It applies only to companies with stable dividend policies.

Answer: D

Free Financial-Management Mock Exam – Practice Online Confidently

Buying Options: