Corporate Finance Decisions Quiz

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Questions and Answers

What are the three main corporate finance decisions?

Investment decision, Financing decision, Risk management decision
Investment decision, Financing decision, Dividend decision (correct)
Investment decision, Risk management decision, Dividend decision
Risk management decision, Financing decision, Dividend decision

What should be the goal of corporate finance decisions?

Maximization of firm value (correct)
Minimization of firm value
Maximization of revenue
Maximization of shareholder wealth

What should the expected rate of return reflect?

Magnitude of future cashflows only
Magnitude and timing of future cashflows only
Timing of future cashflows only
Magnitude and timing of future cashflows as well as all side effects (correct)

What does the optimal capital structure maximize?

<p>Firm value (B)</p> Signup and view all the answers

What should the hurdle rate reflect?

<p>Risk of the investment and the capital structure used to finance it (C)</p> Signup and view all the answers

Study Notes

Corporate Finance Decisions

The three main corporate finance decisions are:
Investment decisions (capital budgeting): deciding which projects to invest in
Financing decisions (capital structure): deciding how to finance the projects
Dividend decisions (payout policy): deciding how to distribute profits to shareholders

Goal of Corporate Finance Decisions

The goal of corporate finance decisions should be to maximize shareholder value

Expected Rate of Return

The expected rate of return should reflect the risk of the investment

Optimal Capital Structure

The optimal capital structure maximizes the firm's value by balancing the debt and equity mix

Hurdle Rate

The hurdle rate should reflect the minimum rate of return required to justify an investment

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Description

Test your knowledge of corporate finance decisions in financial markets with this quiz. Learn about maximizing firm value, investment decisions, financing decisions, dividend decisions, and risk management. Discover how to find the right kind of debt for your firm and make profitable investments.