AFP AFP-CTP Online Practice Questions and Exam Preparation

AFP AFP-CTP Online Questions & Answers

• Question 721:

  XYZ Company has decided to purchase a close competitor. This acquisition would make XYZ Company the 4th largest in its industry allowing it better purchasing power and greater distribution channels. After completing the MandA analysis, it is determined that the combined companies would produce a 40% increase in revenue, reduce manufacturing costs by 30%, but would increase current liabilities by 27%. Which of the following would keep the acquisition from happening?

  A. Increased weighted average cost of capital
  B. Low return on investment
  C. Negative net present value
  D. Restrictive bond covenants
  D. Restrictive bond covenants

• Question 722:

  A company's capital structure includes $800,000,000 in total capital, of which $200,000,000 comes from debt. The firm's after-tax cost of debt is 6%, and its cost of equity is 12%. The marginal tax rate is currently 40%. What is the company's weighted average cost of capital?

  A. 9.9%
  B. 10.3%
  C. 10.5%
  D. 10.8%
  C. 10.5%

• Question 723:

  A company plans to double its dividend to its shareholders. Which of the following characteristics of the company would be MOST affected by this increase?

  A. Long-term debt
  B. Short-term debt
  C. Net income
  D. Retained earnings
  D. Retained earnings

• Question 724:

  Money market funds are able to obtain very competitive trading terms because:

  A. there is no diversification.
  B. of the economies of scale.
  C. invested funds are locked in for a specific period of time.
  D. the investment manager only purchases high yielding instruments.
  B. of the economies of scale.

• Question 725:

  A put option gives the holder the right to:

  A. buy the underlying stock at the strike price.
  B. sell the underlying stock at the strike price.
  C. sell short shares of the underlying stock at the strike price.
  D. buy long shares of the underlying stock at the strike price.
  B. sell the underlying stock at the strike price.

• Question 726:

  Owners of a privately-held company have decided to sell the business, but are receiving offers dramatically lower than what the firm is worth (as estimated by the owners). Which of the following options is the BEST way for management to establish the true value of their company?

  A. Issue stock to the public through an IPO.
  B. Increase the dividend payout ratio.
  C. Repurchase shares to elevate stock price.
  D. Alter the capital structure by issuing more debt.
  A. Issue stock to the public through an IPO.

• Question 727:

  Assume the cost of an ACH transaction is $0.80, the charges for a wire transfer are $30.00, the monthly account maintenance fee is $10.00, and the company earns interest at an annual rate of 1.825% on overnight investments. What is the break-even point where the interest earned on overnight investments offsets the incremental wire costs?

  A. $3,840
  B. $5,840
  C. $284,000
  D. $584,000
  D. $584,000

• Question 728:

  A cash manager is determining the threshold over which cash concentrations will be done by wire. An ACH transaction costs $0.50. A wire costs $12.00. Funds are available 2 days quicker by wire and the opportunity cost of funds is 5%. What threshold should the cash manager use?

  A. $41,975
  B. $43,800
  C. $83,942
  D. $87,600
  A. $41,975

• Question 729:

  Racklyn Paint Company, a new paint and construction company, has vendor payables of $2 million due periodically over the next 3 months; payroll payable to its crews of $500K each month; a mortgage of $4.4 million with a fixed rate of 6.0% ; and an equipment loan of $5 million with a bank at a 30-day LIBOR plus 150 bp payment of $100K due monthly. Racklyn receives their first contract valued at $12 million with half of the contract value due at the time of contract and final payment upon completion. Racklyn expects the job to last 6 months. Which option would be the BEST use of Racklyn Paint Company's cash?

  A. Prepay a portion of the equipment loan to minimize interest rate risk.
  B. Pay current payables and invest any excess cash in a money market account earning 1.5%.
  C. Pay off the mortgage and invest remaining funds in a 6-month CD at 2.5%.
  D. Invest $4 million in a CD at 2.5% for 3 months.
  B. Pay current payables and invest any excess cash in a money market account earning 1.5%.

• Question 730:

  Investors typically require a higher yield as compensation for holding securities that have:

  A. less marketability.
  B. low default risk.
  C. shorter maturity.
  D. tax exempt status.
  A. less marketability.