QCM : Fundamentals of Corporate Finance and Valuation — 10 questions

Explication

The primary focus of corporate finance is to manage how companies raise, allocate, and utilize financial resources to achieve strategic goals, particularly maximizing shareholder value, as explicitly defined by Vernimmen et al., 2025.

Explication

Current assets are resources owned by a company that are expected to be converted into cash or used within one year, such as cash, receivables, and inventories, as explicitly described in the course content.

Explication

Financial ratios primarily serve to evaluate a company's operational efficiency, profitability, and ability to generate value, which supports strategic decision-making and performance assessment.

Explication

The NPV method was first widely developed and recognized in the 1950s, when modern capital budgeting techniques gained prominence in both academic literature and corporate practice, thanks to contributions from finance scholars and practitioners.

Explication

The 'Cost of Capital' is a benchmark rate reflecting the minimum return required by investors, used for valuation and investment decisions. In contrast, 'ROCE' measures the actual efficiency and profitability of a company's use of capital, indicating how well the company generates returns from its assets. They serve different purposes: one as a hurdle rate, the other as a performance measure.

Explication

Robert C. Merton is credited with formalizing the mathematical foundation of the Time Value of Money, which is a core principle in finance. The other options are prominent economists and finance scholars, but they are not credited with proposing this specific concept.

Explication

Applying proper capital budgeting techniques like NPV ensures that the firm invests only in projects expected to generate positive net value, thereby creating long-term shareholder value. This process guides decision-making towards value-adding projects, which is the core effect of using sound evaluation methods.

Explication

The correct application involves prioritizing debt financing to leverage tax advantages while balancing it with equity to manage financial risk. This approach aligns with best practices in corporate finance, where firms aim to optimize their capital structure by considering both the benefits and risks of debt and equity. The other options are less balanced or practical: issuing equity may dilute ownership and is often more costly; using only short-term debt may increase refinancing risk; relying solely on retained earnings may limit growth and liquidity.

Explication

Valuation models primarily depend on estimating expected future cash flows or dividends, which are then discounted at an appropriate rate to determine the value of an asset or firm. Market sentiment, historical prices, and branding are relevant in other contexts but are not core components of valuation models.

Explication

ESG refers to Environmental, Social, and Governance criteria used to evaluate a company's sustainability, social responsibility, and ethical impact, which are increasingly integrated into corporate governance practices.