Accounting and Finance
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Course Introduction
Accounting and Finance is a comprehensive course that introduces students to the fundamental concepts, principles, and practices underlying the fields of accounting and financial management. The course covers essential topics such as recording financial transactions, preparing and analyzing financial statements, understanding cost behavior and management accounting, and the principles of financial planning, budgeting, and investment analysis. Students will also explore the regulatory environment, the interpretation of financial information for decision making, and the strategic role of finance in organizations. Through a combination of theoretical frameworks and practical applications, the course equips students with the analytical skills necessary for effective financial decision-making in business contexts.
Recommended Textbook
Foundations of Financial Management 10th Canadian Edition by Stanley B. Block
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Chapter 1: The Goals and Activities of Financial Management
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Sample Questions
Q1) Increased international competition can be seen as a motivator to emphasize:
A) asset diversification strategies.
B) the risk side of the risk-return relationship.
C) the return side of the risk-return relationship.
D) invest in a new risky project.
Answer: C
Q2) Increased use of technology has increased corporate efficiency by:
A) increasing the firm's reliance on debt.
B) creating larger asset values on the firm's balance sheet.
C) made it cheaper (in terms of interest costs)for firms to borrow money.
D) creating electronic communication networks.
Answer: D
Q3) Maximizing the earnings of the firm is the goal of financial management. A)True
B)False
Answer: False
Q4) Social responsibility and profit maximization are synonymous.
A)True
B)False
Answer: False
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Chapter 2: Review of Accounting
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Sample Questions
Q1) Book value per share is of greater concern to the financial manager than market value per share.
A)True
B)False
Answer: False
Q2) The residual income of the firm belongs to:
A) creditors.
B) preferred shareholders.
C) common shareholders.
D) bondholders.
Answer: C
Q3) The investments account does not directly affect cash and cash equivalents.
A)True
B)False
Answer: True
Q4) The income statement is the primary financial statement for measuring the profitability of a firm over a period of time.
A)True
B)False
Answer: True
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Chapter 3: Financial Analysis
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Q1) Asset utilization ratios measure the returns on various assets such as return on total assets.
A)True
B)False
Answer: False
Q2) A firm has a debt to asset ratio of 75%,$240,000 in debt,and net income of $48,000.Calculate return on equity.
A) 60%
B) 20%
C) 26%
D) Not enough information
Answer: A
Q3) Which industry places the most value on intangible assets?
A) Professional services
B) Manufacturing industry
C) Production facility
D) Assembly facility
Answer: A
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Chapter 4: Financial Forecasting
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Sample Questions
Q1) A firm has forecasted sales of $3,000 in April,$4,500 in May,and $12,000 in June.All sales are on credit.30% is collected the month of sale and the remainder the following month.What will be the balance in accounts receivable at the end of June?
A) $1,950
B) $6,500
C) $8,400
D) $5,100
Q2) As the dividend payout ratio declines more external funds are required.
A)True
B)False
Q3) Profit is generally adequate to finance significant growth.
A)True
B)False
Q4) When using the percent-of-sales method in forecasting funds needed,which of the following is not true?
A) As the dividend payout ratio decreases,the required new funds also decrease.
B) Required new funds decrease as profits margins increase.
C) Required new funds increase as accumulated amortization increases.
D) As the tax rate increases,the required new funds increase.
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Chapter 5: Operating and Financial Leverage
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Sample Questions
Q1) A firm's indifference point between debt and equity financing plans would occur when the:
A) amount of debt used is equal to the amount of equity.
B) cost of borrowing is low.
C) cost of borrowed funds equals return on equity.
D) current level of EBIT generates the same EPS under both plans.
Q2) For firms in industries that offer some degree of stability,are in a positive stage of growth,and are operating in favourable economic conditions,the use of debt is not needed or recommended.
A)True
B)False
Q3) The concept of operating leverage involves the use of __________ to magnify returns at high levels of operation.
A) fixed costs
B) variable costs
C) marginal costs
D) semi-variable costs
Q4) Financial leverage is concerned with the use of debt in the business.
A)True
B)False
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Chapter 6: Working Capital and the Financing Decision
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Q1) King,Inc.,a successful Midwest firm,is considering opening a branch office on the west coast.Under normal economic conditions,with a 45% probability of occurring,King can expect to earn a net income of $50,000 per year.In a mini-recession,at 25% probability,King will earn $20,000.In a severe recession,at a 20% probability,King will lose $10,000.There is also a slight probability (10%)that King will lose $300,000 if the expansion fails and the branch office must be closed.Should King open a branch office in British Columbia?
Q2) Which of the following techniques allows explicit consideration of more than one possible outcome?
A) Operating leverage
B) Present value
C) Least-squares regression
D) Expected value
Q3) Three basic theories describe the term structure of interest rates,or shape of the yield curve.List end explain these theories.
Q4) When using level production,inventory will peak in the month where unit sales trend above the production level.
A)True
B)False
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Chapter 7: Current Asset Management
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Sample Questions
Q1) Money market funds are:
A) accounts that allow small investors to participate in buying large-denomination securities.
B) extremely risky but high-yielding accounts used by large corporations to finance operations.
C) accounts that allow small investors to buy shares in companies that then buy shares of common stock.
D) pools of bonds held by large utility companies.
Q2) Massa Machine Tool expects total sales of $10,000.The price per unit is $5.The firm estimates an ordering cost of $7.50 per order,with an inventory carrying cost of $0.70 per unit.What is the optimum order size?
A) 146 units
B) 207 units
C) 373 units
D) 2,000 units
Q3) Float is the difference between the cash balance on the corporate books and the amount credited to the corporation by the bank.
A)True
B)False
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Chapter 8: Sources of Short-Term Financing
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Q1) Monthly instalment loans usually increase the effective rate of borrowing by approximately 2 times the stated rate.
A)True
B)False
Q2) Financial institution deregulation has eased competition between banks and foreign financial institutions.
A)True B)False
Q3) Compensating balances are a way for banks to recover the cost of corporate services provided,but not directly charged.
A)True
B)False
Q4) A discounted loan features subtraction of the calculated interest payment in advance.
A)True B)False
Q5) Commercial paper represents secured short-term borrowing by large companies. A)True B)False
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Chapter 9: The Time Value of Money
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Sample Questions
Q1) Increasing the number of periods will increase all of the following except:
A) the present value of an annuity.
B) the present value of $1.
C) the future value of $1.
D) the future value of an annuity.
Q2) In determining the PV<sub>IF</sub> for the present value of $1,one could use the reciprocal of the FV<sub>IF</sub> for the future value of $1 at the same rate and time period.
A)True
B)False
Q3) When the inflation rate is zero,the present value of $1 is identical to the future value of $1.
A)True
B)False
Q4) In determining the compound sum of a single amount,one measures:
A) the future value of periodic payments at a given interest rate.
B) the present value of an amount discounted at a given interest rate.
C) the future value of an amount allowed to grow at a given interest rate.
D) the present value of periodic payments at a given interest rate.
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Chapter 10: Valuation and Rates of Return
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Q1) Gamble and Johnson's (GJ)common shares are selling for $52.50.They are expected to pay a dividend of $2.25 next year and dividends should grow at a rate of 7% annually.What is your required rate of return on an investment in GJ common shares?
A) 11.30%
B) 19.25%
C) 12.00%
D) 15.75%
Q2) A 10-year bond pays 11% interest on a $1,000 face value annually.If it currently sells for $1,195,what is its approximate yield to maturity?
A) 8.33%
B) 12.95%
C) 11.00%
D) 8.08%
Q3) The market determined required rate of return is also called the discount rate.
A)True
B)False
Q4) The inflation premium is based on past and current inflation levels.
A)True
B)False
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Chapter 11: Cost of Capital
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Sample Questions
Q1) If the investor desires less risk than the market,he or she:
A) buys stocks with alphas of zero.
B) buys stocks with betas less than 1.0.
C) makes sure the risk-free rate is higher than the expected market return.
D) buys stocks only when the slope of the security market line is on a 45 degree angle.
Q2) There may be a change in the marginal cost of capital curve because:
A) the tax rate charged to investors changes.
B) the firm has exhausted its supply of retained earnings.
C) the firm is limited in the amount of amortization it can take.
D) the firm has invested in a new project.
Q3) A firm's cost of financing,in an overall sense,is equal to its:
A) weighted average cost of capital.
B) yield from various kinds of marketable securities.
C) rate of return from various kinds of marketable securities.
D) rate of return of debt required by its investors.
Q4) Modigliani and Miller originally suggested that firm value and the use of debt were independent.
A)True
B)False
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Chapter 12: The Capital Budgeting Decision
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Sample Questions
Q1) Using higher discount rates,:
A) accelerated amortization is more valuable than straight line amortization.
B) straight-line amortization is more valuable than accelerated amortization.
C) amortization policy makes no difference.
D) later year amortization has a higher net present value.
Q2) A strength of the average accounting return is that it uses accounting numbers in its calculation.
A)True
B)False
Q3) The first administrative consideration in any capital budgeting process is collection of data.
A)True
B)False
Q4) At higher tax rates,CCA amortization is:
A) more beneficial.
B) less beneficial.
C) decreased.
D) unaffected.
Q5) List the 5 steps in the decision making process of a good capital budgeting program.
14
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Chapter 13: Risk and Capital Budgeting
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Sample Questions
Q1) Which of the following is a characteristic of beta?
A) Beta measures only the volatility of returns on an individual bond relative to a bond market index.
B) A beta of 1.0 is of equal risk with the market.
C) A beta of greater than 1.0 has less risk than the market.
D) Beta measures the correlation between the risk free rate and the market rate of risk.
Q2) The firm's highest risk-adjusted discount should be applied to:
A) the repair of old machinery.
B) a new product in a related field.
C) a new product in a foreign market.
D) the purchase of new equipment.
Q3) This project's expected profit is ________.
A) $5,000
B) $5,499
C) $8,250
D) $12,890
Q4) The cost of capital is assumed to contain no risk for the firm.
A)True
B)False
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Chapter 14: Capital Markets
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Sample Questions
Q1) Well functioning capital market include the following attributes except?
A) Liquidity
B) Static prices
C) Competitiveness
D) Transparency
Q2) Over-the-counter securities are securities where dealers transact purchases and sales of securities by trading from their own inventory of securities.
A)True
B)False
Q3) Non-resident holdings of Canadian securities are most significant in:
A) the money market.
B) the stock market.
C) the bond market.
D) the OTC market.
Q4) In general when interest rates are expected to rise,financial managers:
A) try to lock in long-term financing at low cost.
B) re-balance the company's debt structure towards more short-term debt.
C) accept more risk.
D) rely more on internal sources of funds rather than external sources.
Q5) List 5 funding sources of nonfinancial institutions as described in the text.
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Chapter 15: Investment Banking: Public and Private Placement
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Q1) Laura's Design is about to go public.Its present shareholders own 800,000 shares.The new public issue will represent 1,200,000 shares.The shares will be priced at $30 to the public with a 5% spread.The out-of pocket costs will be $700,000.What are the net proceeds to the firm?
A) $34,200,000
B) $36,000,000
C) $33,500,000
D) $11,400,000
Q2) Market stabilization:
A) is the action by the managing investment dealer to keep the price of newly issued securities from falling below the issue price to the public.
B) usually lasts 30-365 days if a security is difficult to distribute. C) always keeps prices of securities from falling.
D) is similar to profit sharing.
Q3) As a middleperson,the investment dealer is responsible for designing and packaging a security offering and selling it to the public.
A)True
B)False
Q4) Define private placement and explain its advantages.
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Chapter 16: Long-Term Debt and Lease Financing
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Sample Questions
Q1) With regards to interest rates and bond prices it can be said that:
A) a 1% change in interest rates will cause a greater change in long-term bond prices than short-term prices.
B) a 1% change in interest rates will cause a greater change in short-term bond prices than long-term prices.
C) long-term rates are more volatile than short-term rates.
D) a decrease in interest rates will cause bond prices to fall.
Q2) Bonds with a call premium generally trade at higher yields than bonds without call premiums.
A)True
B)False
Q3) The call premium tends to increase with the passage of time.
A)True B)False
Q4) If a company has promised to pay interest on debt,it must pay the interest even if it shows no profit for the year,or else it may go bankrupt.
A)True
B)False
Q5) Discuss the advantages and disadvantages of debt as a financing method.
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Chapter 17: Common and Preferred Stock Financing
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Q1) Share classes are similar to bond ratings in that they are used to rank the performance of different corporation's stock.
A)True
B)False
Q2) Both preferred and common shareholders are entitled to receive all or a portion of a corporation's residual income.
A)True
B)False
Q3) American Depositary Receipts:
A) do not have annual reports.
B) pay dividends in euros.
C) are less liquid and less expensive to buy than foreign stock.
D) are more liquid and less expensive to buy than foreign stock.
Q4) Participating preferred stock may receive an extra dividend in a particularly good year when earnings are above a stated level.
A)True
B)False
Q5) Describe income trusts.What is the purpose of an income trust?
Q6) Define and describe the characteristics of American Depositary Receipts (ADRs).
Page 19
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Chapter 18: Dividend Policy and Retained Earnings
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Q1) The main concern over the investor preference for dividends or reinvestment is centred on tax implications.
A)True
B)False
Q2) Dividend policy is relevant because:
A) shareholders apply a lower discount rate to yield a lower valuation to funds retained in the business as opposed to paid out.
B) shareholders apply a lower discount rate to yield a higher valuation to funds retained in the business as opposed to paid out.
C) shareholders apply a higher discount rate to yield a higher valuation to funds retained in the business as opposed to paid out.
D) shareholders apply a higher discount rate to yield a lower valuation to funds retained in the business as opposed to paid out.
Q3) The "marginal principle of retained earnings" holds that corporate investment should provide a return equal to or higher than that a shareholder could earn elsewhere.
A)True
B)False
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Chapter 19: Convertibles, Warrants and Derivatives
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Sample Questions
Q1) The minimum theoretical value of a warrant to buy 5 shares of ACD stock at $45 per share is $10.What is the current market price of ACD stock?
A) $45.50
B) $50.00
C) $47.00
D) $37.50
Q2) Most corporations include call provisions in agreements relating to the issue of warrants.
A)True
B)False
Q3) To entice investors who are looking for a financial sweetener,convertible bonds are often sold at a discount.
A)True
B)False
Q4) The theoretical floor value for a convertible bond is its:
A) conversion price.
B) conversion value.
C) par value.
D) pure bond value.
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Chapter 20: External Growth Through Mergers
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Q1) The elimination of overlapping functions and the meshing of two firms' strong areas or products creates the managerial incentive for mergers known as:
A) horizontal integration.
B) vertical integration.
C) synergy.
D) the portfolio effect.
Q2) Assume Company A pays a 20% premium for Company B in a pooling of interests' transaction.Calculate the post-merger EPS for Company
A) $10.00
B) $5.00
C) $7.50
D) $6.00
Q3) An unfriendly takeover can always be stopped by invoking a poison pill under the Companies Act.
A)True
B)False
Q4) Goodwill may be created when a pooling of interests' merger is utilized.
A)True
B)False
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Chapter 21: International Financial Management
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Q1) A forward rate reflects the future value of a currency based on expectations.
A)True
B)False
Q2) A firm exposed to exchange rate risk can hedge its risk by all of the following except:
A) using the forward exchange market.
B) borrowing in international money markets.
C) utilizing foreign currency futures markets.
D) speculating in foreign currency.
Q3) Which of the following hedging strategies involves a loan without a futures contract?
A) Eurobond market
B) Forward exchange market
C) Money market
D) IMM contract
Q4) The eurobond market offers tax flexibility for borrowers and investors.
A)True
B)False
Q5) List and discuss the 3 risks of international financial management.
Q6) List and discuss in detail the main factors that influence exchange rates.
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