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Free Questions › CFA › Corporate Issuers
Free CFA Corporate Issuers Practice Questions & Answers
900 exam-style Corporate Issuers questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 1
Which item increases a company’s financial leverage?
Select an option first.
Correct answer: C — Issuing new long term debt
Explanation: C is right because taking on more debt increases the proportion of debt in the capital structure. A lowers leverage. B reduces leverage. D does not change leverage unless used to repay debt.
Question 2
Which item increases a company’s financial leverage?
Select an option first.
Correct answer: C — Issuing new long‑term debt
Explanation: C is right because taking on more debt increases the proportion of debt in the capital structure. A lowers leverage. B reduces leverage. D does not change leverage unless used to repay debt.
Question 3
Which factor most likely raises a company’s cost of equity?
Select an option first.
Correct answer: B — Higher beta
Explanation: B is right because a higher beta increases required return. A lowers cost of equity. C affects debt cost more directly. D does not directly affect required return.
Question 4
A company’s after‑tax cost of debt increases when:
Select an option first.
Correct answer: B — Market yields rise
Explanation: B is right because higher market yields increase borrowing costs. A lowers after‑tax cost of debt (more tax shield). C affects cost of capital but not cost of debt. D irrelevant.
Question 5
Which action reduces the weighted average cost of capital (WACC), assuming no change in business risk?
Select an option first.
Correct answer: B — Increasing the proportion of low‑cost debt
Explanation: B is right because debt is cheaper than equity and interest is tax‑deductible. A raises WACC. C raises WACC. D raises WACC.
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Question 6
Which factor increases a company’s credit spread?
Select an option first.
Correct answer: C — Higher default risk
Explanation: C is right because higher default risk widens spreads. A lowers spreads. B lowers spreads. D lowers spreads.
Question 7
A company’s beta increases when:
Select an option first.
Correct answer: B — It increases financial leverage
Explanation: B is right: leverage magnifies equity risk. A lowers beta. C lowers beta. D lowers beta.
Question 8
Which is a benefit of using debt financing?
Select an option first.
Correct answer: B — Tax deductibility of interest
Explanation: B is right: interest is tax‑deductible. A decreases with debt. C increases with debt. D opposite.
Question 9
A company’s cost of equity using CAPM increases when:
Select an option first.
Correct answer: A — Market risk premium rises
Explanation: A is right: higher market premium increases required return. B, C, D reduce cost of equity.
Question 10
A company’s interest coverage ratio improves when:
Select an option first.
Correct answer: B — Operating income rises
Explanation: B is right: higher operating income improves coverage. A worsens it. C increases interest. D irrelevant.
Question 11
A higher debt‑to‑EBITDA ratio indicates:
Select an option first.
Correct answer: B — Higher leverage
Explanation: B is right: more debt relative to earnings = higher leverage. A, C, D incorrect.
Question 12
Which is a disadvantage of high leverage?
Select an option first.
Correct answer: B — Higher bankruptcy risk
Explanation: B is right: leverage increases default risk. A is incorrect. C leverage usually increases ROE. D unrelated.
Question 13
A company’s free cash flow increases when:
Select an option first.
Correct answer: C — Operating cash flow rises
Explanation: C is right: higher operating cash flow increases FCF. A, B, D reduce FCF.
Question 14
Which is a sign of weak corporate governance?
Select an option first.
Correct answer: C — Long director tenure with little turnover
Explanation: C is right: long tenure may reduce oversight quality. A, B, D are strengths.
Question 15
A company’s cost of debt decreases when:
Select an option first.
Correct answer: A — Credit rating improves
Explanation: A is right: better rating → lower spreads. B, C, D worsen credit risk.
Question 16
Which factor increases a firm’s WACC?
Select an option first.
Correct answer: C — Higher equity proportion
Explanation: C is right: equity is more expensive than debt. A, B, D reduce WACC.
Question 17
Which is a risk of relying heavily on debt financing?
Select an option first.
Correct answer: B — Higher fixed obligations
Explanation: B is right: debt creates fixed required payments. A incorrect. C usually opposite. D false.
Question 18
Which factor most directly increases a firm’s cost of debt?
Select an option first.
Correct answer: C — Higher probability of default
Explanation: C increases credit spreads. A lowers spreads. B lowers risk. D reduces after‑tax cost of debt.
Question 19
Which action increases financial risk?
Select an option first.
Correct answer: C — Increasing fixed interest obligations
Explanation: C raises fixed commitments. A, B, D reduce risk.
Question 20
A company’s market value of equity rises when:
Select an option first.
Correct answer: A — Share price increases
Explanation: A directly increases equity value. B may or may not increase value. C, D do not directly raise equity value.
Question 21
A company’s cost of equity falls when:
Select an option first.
Correct answer: D — Business risk decreases
Explanation: D lowers required return. A, B, C increase cost of equity.
Question 22
A company with high customer concentration faces:
Select an option first.
Correct answer: B — Higher business risk
Explanation: B is right: dependence on few customers increases risk. A, C, D incorrect.
Question 23
Which is a sign of strong governance?
Select an option first.
Correct answer: B — Majority independent board
Explanation: B indicates strong oversight. A, C, D are weaknesses.
Question 24
A company’s interest coverage ratio declines when:
Select an option first.
Correct answer: B — Interest expense rises
Explanation: B worsens coverage. A improves it. C reduces interest. D irrelevant.
Question 25
Which factor increases WACC?
Select an option first.
Correct answer: B — Lower leverage
Explanation: B increases reliance on expensive equity. A, C, D reduce WACC. -
Question 26
Which factor increases equity risk?
Select an option first.
Correct answer: B — Higher financial leverage
Explanation: B magnifies equity risk. A, C, D reduce risk.
Question 27
Which is a disadvantage of issuing equity?
Select an option first.
Correct answer: B — Ownership dilution
Explanation: B is the main drawback. A, C, D relate to debt, not equity.
Question 28
A company’s cost of capital decreases when:
Select an option first.
Correct answer: C — Credit rating improves
Explanation: C lowers borrowing costs. A, B, D increase WACC.
Question 29
Which factor increases operating risk?
Select an option first.
Correct answer: A — Higher fixed costs
Explanation: A increases operating leverage. B, C, D reduce risk.
Question 30
A company’s return on equity increases when:
Select an option first.
Correct answer: A — Net income rises
Explanation: A increases ROE. B dilutes ROE. C lowers ROE. D reduces net income.
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