Certified Treasury Professional v7.0

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A company with constant earnings and excess cash is considering a significant stock repurchase plan. Which of the following is MOST LIKELY to occur?

  • A. Earnings per share will increase, and the number of shares outstanding will stay constant.
  • B. Earnings per share will decrease, and the number of shares outstanding will increase.
  • C. Earnings per share will increase, and the number of shares outstanding will decrease.
  • D. Earnings per share will decrease, and the number of shares outstanding will stay constant.


Answer : C

Optimal dividend policy is one that does all of the following EXCEPT:

  • A. maintain adequate retained earnings for future growth.
  • B. maximize shareholder value.
  • C. distribute corporate income to investors.
  • D. balance tax shield benefits against agency costs.


Answer : D

Company XYZ has determined that its weighted average cost of capital is 12.5%. The capital structure of the company is made up of 75% equity and 25% debt. The before-tax cost of debt is 10%. Given a tax rate of 34%, what is XYZ's cost of common stock?

  • A. 13.25%
  • B. 14.47%
  • C. 15.25%
  • D. 16.53%


Answer : B

A company hires an investment firm to fully underwrite a new stock issuance. Which of the parties carries the MOST risk?

  • A. The public
  • B. The company
  • C. The company’s bond holders
  • D. The investment firm


Answer : D

Which of the following BEST describes an advantage of a company going public?

  • A. Increased management control
  • B. Increased public disclosure
  • C. Increased managerial flexibility
  • D. Increased liquidity


Answer : D

With respect to the Sarbanes-Oxley Act, a company may avoid additional reporting requirements by:

  • A. issuing shares in an IPO.
  • B. providing an SSAE 16.
  • C. redeeming bond issues.
  • D. delisting its securities.


Answer : D

Which of the following would be expected to happen on the ex-dividend date?

  • A. The stock is sold with the dividend attached.
  • B. The stock price drops.
  • C. The stock’s volume increases.
  • D. The stock’s dividend is paid.


Answer : B

Regarding dividends, on which of the following dates would a company's current assets be reduced?

  • A. Declaration date
  • B. Ex-dividend date
  • C. Payment date
  • D. Record date


Answer : C

In which of the following instances does the clientele effect come into play?

  • A. When a company announces its earnings forecast
  • B. When a company submits its 10-Q to the SEC
  • C. When a company declares a dividend
  • D. When a company increases its sales


Answer : C

ASC Topic 815 (FAS 133) is applicable when accounting for which of the following?

  • A. Gain on an equity investment
  • B. Purchase of a bond investment
  • C. Market value of collateral
  • D. Purchase of a forward


Answer : D

Which of the following would be MOST suitable for a risk-averse electronics manufacturer that uses copper in many of its components?

  • A. A put option on copper futures
  • B. A short position in copper futures
  • C. A floor option on copper futures
  • D. A costless collar using options on copper futures


Answer : D

Which of the following is subject to transaction exposure?

  • A. A U.S. company’s foreign subsidiary in Japan has a receivable denominated in Yen.
  • B. A Japanese companys foreign subsidiary in the U.S. has a receivable denominated in Yen.
  • C. A U.S. company’s foreign subsidiary in Japan has a payable denominated in Yen.
  • D. A Japanese companys foreign subsidiary in the U.S. has a payable denominated in dollars.


Answer : B

Which of the following is subject to translation exposure?

  • A. A German company with a subsidiary in Spain
  • B. A Spanish company with revenues in euros
  • C. A Japanese subsidiary in the United States with U.S. dollar liabilities
  • D. A U.K. company that exports goods to the United States


Answer : C

Company XYZ is not sure which direction interest rates are headed. Which of the following would be MOST suitable?

  • A. An interest rate cap
  • B. An interest rate floor
  • C. An interest rate swap
  • D. An interest rate collar


Answer : D

In evaluating alternative capital investments, a company should consider qualitative factors such as:

  • A. projected cash flows.
  • B. estimated economic returns.
  • C. corporate strategy.
  • D. estimated costs.


Answer : C

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