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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 31
A company’s liquidity improves when:
Select an option first.
Correct answer: B — Cash increases
Explanation: B directly improves liquidity. A, C, D worsen liquidity.
Question 32
Which factor increases the likelihood of financial distress?
Select an option first.
Correct answer: C — High fixed obligations
Explanation: C increases distress risk. A, B, D reduce it.
Question 33
Which is a typical benefit of debt financing?
Select an option first.
Correct answer: B — Tax‑deductible interest
Explanation: B is the main advantage. A, C, D incorrect.
Question 34
A company’s cost of equity using CAPM decreases when:
Select an option first.
Correct answer: A — Beta falls
Explanation: A lowers required return. B, C, D increase it.
Question 35
A company’s cost of equity increases when:
Select an option first.
Correct answer: C — Market risk premium increases
Explanation: C raises required return. A, B, D lower cost of equity.
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Question 36
Which action most likely reduces a firm’s WACC?
Select an option first.
Correct answer: B — Increasing the proportion of debt
Explanation: B lowers WACC because debt is cheaper and interest is tax‑deductible. A, C, D raise WACC.
Question 37
A company’s leverage decreases when it:
Select an option first.
Correct answer: B — Issues new equity
Explanation: B lowers leverage by increasing equity. A, C increase leverage. D irrelevant.
Question 38
Which factor increases credit risk?
Select an option first.
Correct answer: C — Declining profitability
Explanation: C weakens ability to service debt. A, B, D reduce credit risk.
Question 39
Which factor increases operating risk?
Select an option first.
Correct answer: C — Higher fixed costs
Explanation: C increases operating leverage. A, B, D reduce risk.
Question 40
Which action strengthens liquidity?
Select an option first.
Correct answer: C — Increasing cash
Explanation: C directly improves liquidity. A ties up cash. B helps but not as directly. D does not improve liquidity.
Question 41
A company’s credit spread narrows when:
Select an option first.
Correct answer: B — Profitability improves
Explanation: B improves credit quality. A, C, D worsen it.
Question 42
Which factor increases the likelihood of bankruptcy?
Select an option first.
Correct answer: B — High fixed obligations
Explanation: B increases financial strain. A, C, D reduce risk.
Question 43
Which is a sign of weak governance?
Select an option first.
Correct answer: C — No separation between CEO and board chair
Explanation: C reduces oversight quality. A, B, D are strengths.
Question 44
A company’s WACC increases when:
Select an option first.
Correct answer: B — Equity proportion rises
Explanation: B increases reliance on expensive equity. A, C, D reduce WACC.
Question 45
Which factor increases business risk?
Select an option first.
Correct answer: B — Entering a highly cyclical industry
Explanation: B increases earnings volatility. A, C, D reduce risk.
Question 46
A company’s interest coverage improves when:
Select an option first.
Correct answer: A — Operating income rises
Explanation: A improves coverage. B, C, D worsen it.
Question 47
A company’s beta increases when:
Select an option first.
Correct answer: C — It increases leverage
Explanation: C magnifies equity risk. A, B, D reduce beta.
Question 48
Which is a typical advantage of debt financing?
Select an option first.
Correct answer: B — Lower cost than equity
Explanation: B is correct: debt is cheaper than equity. A, C, D false.
Question 49
A company’s cost of capital decreases when:
Select an option first.
Correct answer: B — Credit spreads fall
Explanation: B lowers borrowing costs. A, C, D increase WACC.
Question 50
Which factor increases a company’s financial risk?
Select an option first.
Correct answer: B — Higher leverage
Explanation: B increases exposure to debt obligations. A, C, D reduce financial risk.
Question 51
A company’s free cash flow decreases when:
Select an option first.
Correct answer: B — Capital spending increases
Explanation: B reduces free cash flow. A, C, D increase it.
Question 52
Which factor increases a company’s beta?
Select an option first.
Correct answer: B — Increasing leverage
Explanation: B magnifies equity risk. A, C, D reduce beta.
Question 53
Which factor reduces credit risk?
Select an option first.
Correct answer: C — Strong cash reserves
Explanation: C strengthens credit quality. A, B, D increase risk.
Question 54
A company’s cost of equity decreases when:
Select an option first.
Correct answer: D — Business risk falls
Explanation: D lowers required return. A, B, C increase it.
Question 55
Which action strengthens liquidity?
Select an option first.
Correct answer: B — Increasing cash
Explanation: B directly improves liquidity. A, C, D worsen it.
Question 56
Which factor increases the likelihood of financial distress?
Select an option first.
Correct answer: B — High fixed obligations
Explanation: B increases financial strain. A, C, D reduce distress risk.
Question 57
Which factor increases financial flexibility?
Select an option first.
Correct answer: B — Large cash reserves
Explanation: B increases flexibility. A, C, D reduce it.
Question 58
A company’s beta decreases when:
Select an option first.
Correct answer: B — It enters a stable industry
Explanation: B lowers systematic risk. A, C increase beta. D irrelevant.
Question 59
Which factor reduces credit spreads?
Select an option first.
Correct answer: C — Stronger balance sheet
Explanation: C improves credit quality. A, B, D widen spreads.
Question 60
When a company increases its proportion of long‑term fixed‑rate debt, which risk rises the most?
Select an option first.
Correct answer: C — Financial risk
Explanation: C: More fixed obligations → higher financial risk. A: Fixed‑rate debt reduces interest rate risk. B: Refinancing risk applies more to short‑term debt. D: Only relevant if debt is foreign‑currency denominated.
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