CTP AFP Exam Questions and Answers

Question 1

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

Question 2

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

Question 3

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

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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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