FINRA Series 79 practice questions

Use these questions to practice the reasoning in the current Series 79 outline. They are original examples written for this guide and are not copied from FINRA's confidential exam. Work them without notes first, record your confidence, and then read the explanations. A correct guess should still go into your review list if you cannot explain why the other choices are wrong.

The current exam has 37 scored questions on data collection, analysis, and evaluation; 20 on underwriting and new financing; and 18 on M&A, tender offers, and restructuring. The questions below are not a weighted test. They intentionally sample common calculations and distinctions from all three functions.

Question 1: current ratio and working capital

A target reports current assets of $72 million, including $18 million of inventory, and current liabilities of $48 million. What are its current ratio and net working capital?

• A. Current ratio 1.5x; working capital $24 million
• B. Current ratio 1.125x; working capital $24 million
• C. Current ratio 1.5x; working capital $30 million
• D. Current ratio 0.67x; working capital $24 million

Answer: A. Current ratio is current assets divided by current liabilities: $72 million / $48 million = 1.5x. Net working capital is current assets minus current liabilities: $72 million - $48 million = $24 million.

B uses the quick-asset amount after removing inventory, which is relevant to a quick ratio, not the current ratio. C adds assets and liabilities instead of subtracting them. D reverses the current ratio. The problem tests both definition choice and the difference between a ratio and a dollar measure.

Question 2: enterprise value and equity value

A company has EBITDA of $32 million. A selected peer multiple is 7.5x. The company has $90 million of debt and $10 million of cash. Ignoring other claims, what is implied equity value?

• A. $240 million
• B. $160 million
• C. $150 million
• D. $250 million

Answer: B. Enterprise value is $32 million x 7.5 = $240 million. Net debt is $90 million - $10 million = $80 million. Equity value is $240 million - $80 million = $160 million.

A is enterprise value, not equity value. C subtracts the full $90 million debt but ignores the $10 million cash, so it understates equity value by $10 million. D adds cash to enterprise value rather than subtracting net debt. This item illustrates a useful exam habit: recompute the bridge before selecting an option.

Question 3: present value

A project is expected to generate $22 million of free cash flow one year from now. At a 10% discount rate, what is the present value of that one cash flow?

• A. $20 million
• B. $22 million
• C. $24.2 million
• D. $12 million

Answer: A. Present value is future cash flow divided by 1 plus the discount rate: $22 million / 1.10 = $20 million. B ignores discounting. C applies the 10% as an increase rather than discounting a future amount. D is half of the cash flow and has no relationship to the stated rate.

A full DCF would discount multiple forecast periods and terminal value, but this item isolates one period. The important check is direction: a future amount discounted at a positive rate should have a lower present value. Keep the period count aligned with the cash-flow date.

Question 4: ownership dilution

A company has 80 million shares outstanding. An investor owns 8 million shares. The company issues 20 million new shares, and the investor buys none. What is the investor's new ownership percentage?

• A. 10%
• B. 8%
• C. 12.5%
• D. 6.7%

Answer: B. Total shares after the issue are 80 million + 20 million = 100 million. The investor still owns 8 million, so ownership is 8 / 100 = 8%. A is the original percentage. C uses 8 divided by the 64 million shares remaining after an incorrect subtraction. D may come from dividing by the original 120 million total with a mistaken additional dilution.

This question tests the post-transaction denominator. The investor's number of shares remains unchanged, while the company's total shares increase. If the investor participated in the new issue, the numerator would change too.

Question 5: primary versus secondary shares

A public company sells 4 million newly issued shares for $18 each. Existing shareholders also sell 1 million shares at the same price. Before expenses, how much cash does the issuer receive from the transaction?

• A. $90 million
• B. $72 million
• C. $18 million
• D. $0

Answer: B. The issuer receives proceeds from the 4 million primary shares: 4 million x $18 = $72 million. The 1 million secondary shares generate $18 million for the selling shareholders, not the issuer. A incorrectly gives the issuer proceeds from both tranches. C counts only one million shares. D treats all shares as secondary.

When a follow-on contains both primary and secondary shares, separate the amounts. The issuer's capital raised can be important for financing analysis, while the shareholder sale affects ownership and public float. The word 'public' does not tell you who receives the money.

Question 6: underwriting commitment

An issuer asks an investment bank to use commercially reasonable efforts to place an offering. The agreement does not require the bank to buy unsold securities. Which arrangement best fits?

• A. Firm commitment
• B. Best efforts
• C. Standby commitment
• D. All-or-none commitment

Answer: B. In a best-efforts arrangement, the agent uses efforts to sell but does not make a full purchase commitment for unsold securities. Under a firm commitment, the underwriter purchases the securities under the agreement and assumes distribution risk. A standby commitment commonly supports a rights offering by covering shares not purchased by existing holders. An all-or-none arrangement makes completion dependent on selling the specified amount.

The wording in the stem is decisive: it says the bank does not buy unsold securities. Do not select firm commitment just because the bank is helping distribute the offering.

Question 7: acquisition premium

A target's unaffected share price is $24. A buyer offers $30 per share in cash. What is the offer premium?

• A. 20%
• B. 25%
• C. 6%
• D. 80%

Answer: B. The premium is offer price minus unaffected price, divided by unaffected price: ($30 - $24) / $24 = $6 / $24 = 25%. A divides by the offer price. C gives the dollar difference without converting it to a percentage. D divides the offer price by the target price and reports the resulting ratio as a premium.

Name the denominator before calculating. Premium questions compare the offer with the target price before the transaction announcement, unless the prompt specifies another reference price.

Question 8: exchange ratio

An acquirer offers 0.6 of its shares for each target share. The acquirer's stock trades at $50. What is the current value of the stock consideration per target share?

• A. $30
• B. $50
• C. $83.33
• D. $20

Answer: A. The target holder receives 0.6 acquirer shares, worth 0.6 x $50 = $30 at the stated share price. B forgets the exchange ratio. C divides the acquirer price by 0.6, reversing the relationship. D subtracts the ratio from the stock price, which has no meaning.

Stock consideration changes in value when the acquirer's share price changes. The exchange ratio remains 0.6 unless the agreement provides otherwise, but the value of what the target holder receives moves with the acquirer stock.

Question 9: restructuring priority

A simplified restructuring has $100 million of value available and $70 million of senior debt, followed by $50 million of junior debt. Ignoring costs and other claims, how much value remains for junior creditors after senior debt is paid?

• A. $50 million
• B. $30 million
• C. $20 million
• D. $0

Answer: B. After paying $70 million of senior debt from $100 million, $30 million remains for junior claims. The junior debt is $50 million, so it is not paid in full, but the question asks how much value is available, not the recovery percentage. C subtracts both debt claims from enterprise value and reports a shortfall rather than available value. D incorrectly assumes junior creditors receive nothing whenever they are impaired.

If asked for the junior recovery percentage instead, divide $30 million by $50 million, or 60%. Equity would receive no value under these simplified assumptions because the debt claims exceed the available amount.

Question 10: compare the methods

A stable company has predictable dividends and a consistent payout policy. Which method directly values equity by discounting expected dividends?

• A. Dividend discount model
• B. EV/EBITDA trading comparables
• C. Precedent transaction analysis
• D. Working-capital analysis

Answer: A. A dividend discount model estimates equity value as the present value of expected dividends. EV/EBITDA compares enterprise value with EBITDA, while precedent transactions use prices paid in prior deals. Working-capital analysis evaluates short-term assets and liabilities rather than directly discounting dividends.

Method selection depends on the question and company. A DDM is difficult to use when dividends are absent or unpredictable. A trading multiple may be more useful when comparable companies exist. The exam tests whether you understand what the method measures, not whether one valuation method is universally best.

Question 11: normalized EBITDA

A company reports EBITDA of $26 million, including a $2 million one-time expense that the question instructs you to add back. What is adjusted EBITDA, and what enterprise value results at 8.0x?

• A. Adjusted EBITDA $24 million; enterprise value $192 million
• B. Adjusted EBITDA $28 million; enterprise value $224 million
• C. Adjusted EBITDA $28 million; enterprise value $208 million
• D. Adjusted EBITDA $26 million; enterprise value $208 million

Answer: B. Add back the specified one-time expense: $26 million + $2 million = $28 million. Multiply by 8.0x to get $224 million enterprise value. A subtracts the adjustment. C applies the wrong multiple or arithmetic. D ignores the explicit adjustment. In a real analysis, an adjustment needs support; here the question expressly directs it.

Question 12: offering route and documents

A private issuer seeks capital from a limited group of eligible investors under an exemption. Which activity best fits the financing process described in the current Series 79 outline?

• A. Prepare a private offering memorandum and assess investor eligibility
• B. Assume the issuer must file a public registration statement in every case
• C. Treat the process as a public IPO because shares are being sold
• D. Allocate shares using an existing public prospectus without checking the exemption

Answer: A. A private placement can involve a private offering memorandum, investor identification and eligibility, placement-agent documentation, and other exemption conditions. B assumes public registration despite the stated exemption route. C confuses a sale of shares with an IPO. D ignores both the private transaction and the governing exemption. The exact requirements depend on the exemption and facts.

Question 13: indications of interest

During book building, investors submit non-binding indications of interest for 7 million shares, while the issuer plans to sell 5 million. What is the best interpretation?

• A. The offering is oversubscribed based on stated indications, but the indications do not guarantee final orders or allocations
• B. The issuer is required to sell 7 million shares
• C. Every investor receives the full amount indicated
• D. The offering has failed because demand exceeds the planned amount

Answer: A. Stated interest exceeds the planned size, so the deal appears oversubscribed at that point. The book informs price, size, timing, and allocation decisions, but indications are not necessarily binding. B assumes the issuer must increase size. C confuses an indication with a guaranteed allocation. D treats excess demand as a failed offering.

Question 14: stock consideration value

A target holder will receive 0.4 acquirer shares for each target share. If the acquirer trades at $65, what is the current value of the stock consideration per target share?

• A. $26
• B. $65
• C. $162.50
• D. $39

Answer: A. Multiply the exchange ratio by the acquirer price: 0.4 x $65 = $26. B ignores the ratio. C divides by 0.4. D subtracts 0.4 from the stock price. The value can change with the acquirer share price even if the exchange ratio remains fixed.

How to review these questions

For calculations, write the requested value, formula, inputs, and units. For rules, identify the party and transaction stage. For each distractor, name the specific wrong step. If your error was careless arithmetic, rework the same setup with new figures. If it was a concept error, return to the topic and explain the distinction before taking another question.

These ten items are a short learning set, not a full 80-question Series 79 simulation. They do not reproduce FINRA item wording, difficulty, or scoring. Use them alongside the current outline and broader practice that samples all three functions. Because five live items are unscored and unidentified, answer every test item rather than trying to guess which count.

Sources

FINRA Series 79 Content Outline (2025). All practice scenarios and values above are original examples.