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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 601
DCF, capitalized interest should be:
Select an option first.
Correct answer: B — Treated as part of capex
Explanation: Capitalized interest is part of investment → treat as capex in FCFF.
Question 602
Which of the following is a feature of debt financing?
Select an option first.
Correct answer: B — It must be repaid
Explanation: B is correct because debt requires repayment. A is wrong because debt does not dilute ownership. C is wrong because voting rights belong to equity holders. D is wrong because debt requires interest payments.
Question 603
Why do investors pay a premium in go-private transactions?
Select an option first.
Correct answer: A — To compensate shareholders for losing liquidity
Explanation: A is correct because shareholders expect compensation for giving up liquid, publicly traded shares. B is wrong because premiums are not mandated by government. C is wrong because profitability varies. D is wrong because debt financing is often used.
Question 604
Which statement best describes the nature of debt financing?
Select an option first.
Correct answer: B — It requires fixed payments of interest and principal
Explanation: B is correct because debt requires issuers to make promised interest and principal payments on specified dates. A is wrong because permanent capital refers to equity, not debt. C is wrong because lenders do not receive voting rights. D is wrong because debt returns are capped and typically lower than equity returns.
Question 605
Why might shareholders prefer debt financing over issuing new equity?
Select an option first.
Correct answer: B — Debt avoids dilution of ownership
Explanation: B is correct because issuing new equity dilutes existing shareholders’ ownership. A is wrong because debt increases financial risk. C is wrong because debt does not affect voting rights. D is wrong because profits are not guaranteed.
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Question 606
Which of the following is a likely effect of a bribery scandal?
Select an option first.
Correct answer: C — Share price decline
Explanation: C is correct because governance scandals typically reduce share prices. **A is false because bribery indicates poor governance. **B is wrong because ratings fall. **D is wrong because customers lose trust.
Question 607
Which of the following is a likely financial consequence for a company whose ESG failure leads to a credit rating downgrade?
Select an option first.
Correct answer: B — Higher cost of debt
Explanation: B is correct because a downgrade increases perceived credit risk, raising borrowing costs. A is wrong because interest expense typically rises, not falls. C is wrong because equity value usually declines after ESG failures. D is wrong because regulatory scrutiny often increases, not decreases.
Question 608
Which of the following is a likely impact of a major governance failure such as bribery?
Select an option first.
Correct answer: C — Increased regulatory scrutiny
Explanation: C is correct because governance failures attract regulatory attention. A and B are the opposite of expected outcomes. D is not guaranteed.
Question 609
Which of the following is a likely outcome when a company faces a major social controversy (e.g., labor abuse)?
Select an option first.
Correct answer: C — Reputational damage and potential revenue loss
Explanation: C is correct because social controversies harm reputation and sales. A and B are the opposite of expected outcomes. D is unrealistic.
Question 610
Why might a company with strong ESG practices have a lower cost of capital?
Select an option first.
Correct answer: B — ESG reduces long-term risk
Explanation: B is correct because lower risk reduces required returns. **A is wrong because transparency increases. **C is wrong because profits are not guaranteed. **D is wrong because ESG does not eliminate regulation.
Question 611
Which of the following is a potential financial impact of a major ESG failure?
Select an option first.
Correct answer: B — Higher credit spreads
Explanation: B is correct because ESG failures increase perceived risk. **A and D are the opposite of what happens. **C is not guaranteed.
Question 612
After going private and restructuring, what might investors do next?
Select an option first.
Correct answer: B — Take the company public again
Explanation: B is correct because investors may relist the company once value is increased. A is wrong because dissolution is not the goal. C is wrong because government sale is not typical. D is wrong because share issuance is allowed.
Question 613
Which organizational form features a single owner who fully controls management and assumes all risks?
Select an option first.
Correct answer: B — Sole proprietorship
Explanation: B is correct because a sole proprietorship has one owner who controls management and bears unlimited liability. A is wrong because a general partnership has multiple partners sharing control and liability. C is wrong because limited partnerships include limited partners with limited liability. D is wrong because public limited companies have separation of ownership and management.
Question 614
Which attribute distinguishes corporations from sole proprietorships and partnerships?
Select an option first.
Correct answer: C — Separate legal identity
Explanation: C is correct because corporations are legally separate entities from their owners. A is wrong because pass-through taxation applies to proprietorships and partnerships, not corporations. B is wrong because corporations provide limited liability, not unlimited. D is wrong because corporations do not require equal capital contributions.
Question 615
In a general partnership, what happens if one partner cannot pay their share of business debts?
Select an option first.
Correct answer: B — The remaining partners are fully liable
Explanation: B is correct because general partners share unlimited liability collectively. A is wrong because governments do not cover partnership debts. C is wrong because debts are not forgiven due to inability to pay. D is wrong because all partners—not just managing partners—share liability.
Question 616
Which organizational form allows ownership to be divided into shares that are easily transferable?
Select an option first.
Correct answer: C — Private limited company
Explanation: C is correct because private limited companies divide ownership into shares that can be transferred (with restrictions). A is wrong because sole proprietorships have no ownership shares. B is wrong because partnership interests are not easily transferable. D is wrong because limited partnerships restrict transferability through partnership agreements.
Question 617
Which type of partnership includes at least one partner with unlimited liability and others with limited liability?
Select an option first.
Correct answer: B — Limited partnership
Explanation: B is correct because limited partnerships require at least one GP with unlimited liability and LPs with limited liability. A is wrong because all partners have unlimited liability. C is wrong because LLPs have no general partner and all partners have limited liability. D is wrong because corporations are not partnerships.
Question 618
Which organizational form is most suitable for companies seeking to go public?
Select an option first.
Correct answer: C — Public limited company
Explanation: C is correct because public limited companies can issue shares to the public and list on exchanges. A is wrong because sole proprietorships cannot issue shares. B is wrong because partnerships cannot go public. D is wrong because LLPs are typically restricted to professional services firms.
Question 619
Which statement best describes pass-through taxation?
Select an option first.
Correct answer: C — Profits are taxed only at the owner level
Explanation: C is correct because pass-through entities (sole proprietorships, partnerships, many private limited companies) pay taxes only at the owner level. A is wrong because double taxation applies to corporations, not pass-through entities. B is wrong because pass-through entities are not taxed at the business level. D is wrong because profits are taxed—just not at the entity level.
Question 620
Which feature of corporations enables them to raise large amounts of external financing?
Select an option first.
Correct answer: B — Separation of ownership and management
Explanation: B is correct because separation allows investors to buy shares without participating in management, expanding the investor base. A is wrong because corporations have limited liability. C is wrong because shareholders are not required to contribute equally. D is wrong because corporations do not use pass-through taxation.
Question 621
What is the maximum amount a shareholder can lose in a corporation?
Select an option first.
Correct answer: C — The amount they invested
Explanation: C is correct because shareholders have limited liability capped at their investment. A is wrong because shareholders are not liable for corporate debt. B is wrong because personal assets are protected. D is wrong because losses cannot exceed the investment.
Question 622
Which of the following is a disadvantage of public limited companies compared to other forms?
Select an option first.
Correct answer: C — Double taxation
Explanation: C is correct because public corporations face taxation at both corporate and shareholder levels. A is wrong because limited liability is an advantage. B is wrong because access to capital is an advantage. D is wrong because separation is also an advantage.
Question 623
Which of the following is a key reason partnerships are limited in growth potential?
Select an option first.
Correct answer: B — Partners have unlimited liability
Explanation: B is correct because unlimited liability restricts partners’ willingness to take risks and limits financing options. A is wrong because partnerships are pass-through entities, not double-taxed. C is wrong because partnerships can hire employees. D is wrong because partnerships can reinvest profits.
Question 624
Which organizational form is dissolved when the owner dies or stops operating the business?
Select an option first.
Correct answer: A — Sole proprietorship
Explanation: A is correct because sole proprietorships have no separate legal identity and end with the owner. B is wrong because corporations continue regardless of ownership changes. C is wrong because limited partnerships can continue if structured to do so. D is wrong because private limited companies have perpetual existence.
Question 625
Which type of investor is most likely to participate in private placements?
Select an option first.
Correct answer: B — Accredited or sophisticated investors
Explanation: B is correct because private placements are typically restricted to accredited or sophisticated investors due to higher risk. A is wrong because public investors cannot freely participate. C is wrong because governments are not the primary target. D is wrong because employees may participate but are not the main group.
Question 626
Which feature makes public companies more transparent than private companies?
Select an option first.
Correct answer: B — Mandatory registration and disclosure
Explanation: B is correct because public companies must file audited financial statements and disclose material information. A is wrong because public companies have limited liability. C is wrong because corporations are not pass-through entities. D is wrong because public companies have fewer restrictions on ownership transfer.
Question 627
What is the primary responsibility of a corporation’s board of directors?
Select an option first.
Correct answer: B — Acting in the best interest of shareholders
Explanation: B is correct because directors must act in shareholders’ best interests. A is wrong because management handles daily operations. C is wrong because tax policy is set by governments. D is wrong because directors do not guarantee debt.
Question 628
Which of the following is a key advantage of the corporate form?
Select an option first.
Correct answer: C — Separation of ownership and management
Explanation: C is correct because separation enables corporations to attract investors who do not want to manage the business. A is wrong because corporations have limited liability. B is wrong because corporations have greater access to financing. D is wrong because corporations have extensive reporting requirements.
Question 629
Which statement best describes the free float of a public company?
Select an option first.
Correct answer: C — Shares available for public trading
Explanation: C is correct because free float refers to shares available for trading on the exchange. A is wrong because employee shares are not the definition. B is wrong because insider shares are excluded from free float. D is wrong because free float shares can be traded.
Question 630
Which organizational form is most likely to have complex partnership agreements with multiple tiers?
Select an option first.
Correct answer: B — Limited partnership
Explanation: B is correct because limited partnerships often include complex negotiated agreements and multiple tiers. A is wrong because sole proprietorships have no partnership agreements. C is wrong because corporations use corporate charters, not partnership tiers. D is wrong because general partnerships are simpler.
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