Advanced Financial Management
Final Test Solutions
Course Introduction
Advanced Financial Management explores the strategic facets of corporate finance, focusing on the analysis, planning, and control of financial resources. The course covers advanced topics such as capital structure decisions, risk management, working capital optimization, mergers and acquisitions, and international financial management. Through case studies and real-world applications, students develop the analytical and decision-making skills necessary to solve complex financial problems, evaluate investment opportunities, and enhance shareholder value in a dynamic global marketplace.
Recommended Textbook
Financial Management Theory and Practice 3rd Canadian Edition by Eugene Brigham
Available Study Resources on Quizplus
24 Chapters
1934 Verified Questions
1934 Flashcards
Source URL: https://quizplus.com/study-set/3027
Page 2
Chapter 1: An Overview of Financial Management and the Financial Environment
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/60187
Sample Questions
Q1) Which of the following statements best describes firm organization?
A)It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship.
B)Corporate shareholders are exposed to unlimited liability.
C)Corporations generally face fewer regulations than sole proprietorships.
D)Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation.
Answer: A
Q2) Fighting recession with low interest rates is technically impossible when a country has large trade deficits and huge national debt.
A)True
B)False
Answer: True
Q3) Which of the following services will NOT be offered by insurance companies?
A)taking deposits
B)selling policies with saving features
C)administrating pension funds
D)making payments to beneficiaries
Answer: A
Page 3
To view all questions and flashcards with answers, click on the resource link above.
Chapter 2: Financial Statements, Cash Flow, and Taxes
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/60188
Sample Questions
Q1) In 2012,XYZ Inc.located in Ontario had income from operation of $3,850,000,received interest of $150,000,paid $200,000 in interest,received dividends from another Canadian corporation of $100,000,and paid $400,000 in dividends to its common shareholders.If the applicable income tax rate is 33%,what is the corporation's tax liability?
A)$1,155,000
B)$1,254,000
C)$1,287,000
D)$1,353,000
Answer: B
Q2) Analysts who follow Howe Industries recently noted that,relative to the previous year,the company's operating net cash flow increased,yet cash as reported on the balance sheet decreased.Which factor could explain this situation?
A)The company cut its dividend.
B)The company made a large investment in a profitable new plant.
C)The company sold a division and received cash in return.
D)The company issued new long-term debt.
Answer: B
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Analysis of Financial Statements
Available Study Resources on Quizplus for this Chatper
118 Verified Questions
118 Flashcards
Source URL: https://quizplus.com/quiz/60189
Sample Questions
Q1) Firms A and B have the same current ratio,0.75; the same amount of sales,and the same amount of current liabilities.However,Firm A has a higher inventory than B.Therefore,we can conclude that A's quick ratio must be smaller than B's.
A)True
B)False
Answer: False
Q2) Refer to Scenario: Pettijohn Inc.What is the firm's equity multiplier?
A)3.33
B)3.50
C)3.68
D)3.86
Answer: A
Q3) High current and quick ratios always indicate that a firm is managing its liquidity position well.
A)True
B)False Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Time Value of Money
Available Study Resources on Quizplus for this Chatper
121 Verified Questions
121 Flashcards
Source URL: https://quizplus.com/quiz/60190
Sample Questions
Q1) At a rate of 6.5%,what is the future value of the following cash flow stream: $0 at Time 0; $75 at the end of Year 1; $225 at the end of Year 2; $0 at the end of Year 3; and $300 at the end of Year 4?
A)$526.01
B)$553.69
C)$613.51
D)$645.80
Q2) You are considering investing in a bank account that pays a nominal annual rate of 6%,compounded monthly.If you invest $5,000 at the end of each month,how many months will it take for your account to grow to $200,000? Round fractional years up.
A)33
B)37
C)41
D)45
Q3) Which of the following are annuities due?
A)rent payments that come out of a chequing account at the end of each month
B)a cable bill payment that is made at the beginning of each month
C)an life insurance annuity that begins immediately
D)B and C are annuities due.
To view all questions and flashcards with answers, click on the resource link above.
Page 6
Chapter 5: Financial Planning and Forecasting Financial Statements
Available Study Resources on Quizplus for this Chatper
51 Verified Questions
51 Flashcards
Source URL: https://quizplus.com/quiz/60191
Sample Questions
Q1) Which of the following is NOT a key element in strategic planning as it is described in the text?
A)the mission statement
B)the statement of the corporation's scope
C)the statement of cash flows
D)the statement of corporate objectives
Q2) Last year Canada MasterCorp.had $10 million of sales and $7.5 million of fixed assets,so its FA/Sales ratio was 75%.However,its fixed assets were used at only 50% of capacity.Now the company is developing its financial forecast for the coming year.As part of that process,the company wants to set its target Fixed Assets/Sales ratio at the level it would have had had it been operating at full capacity.What target FA/Sales ratio should the company set?
A)75%
B)60.0%
C)45%
D)10%
To view all questions and flashcards with answers, click on the resource link above.
Chapter 6: Bonds, Bond Valuation, and Interest Rates
Available Study Resources on Quizplus for this Chatper
160 Verified Questions
160 Flashcards
Source URL: https://quizplus.com/quiz/60192
Sample Questions
Q1) Assume that a 10-year Treasury bond has a 12% annual coupon,while a 15-year T-bond has an 8% annual coupon.Assume also that the yield curve is flat,and all Treasury securities have a 10% yield to maturity.Which of the following statements is correct?
A)If interest rates decline, the prices of both bonds will increase, but the 15-year bond would have a larger percentage increase in price.
B)If interest rates decline, the prices of both bonds will increase, but the 10-year bond would have a larger percentage increase in price.
C)The 10-year bond would sell at a discount, while the 15-year bond would sell at a premium.
D)The 10-year bond would sell at a premium, while the 15-year bond would sell at par.
Q2) Where are bonds mainly sold?
A)in the over-the-counter market
B)in the auction market
C)in banks
D)in the Montreal or Toronto stock markets
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Risk, Return, and the Capital Asset Pricing Model
Available Study Resources on Quizplus for this Chatper
152 Verified Questions
152 Flashcards
Source URL: https://quizplus.com/quiz/60193
Sample Questions
Q1) Which of the following statements is correct?
A)Collections Inc. is in the business of collecting past-due accounts for other companies, i.e., it is a collection agency. Collections' revenues, profits, and stock price tend to rise during recessions. This suggests that Collections Inc.'s beta should be quite high, say 2.0, because it does so much better than most other companies when the economy is weak. B)Suppose the returns on two stocks are negatively correlated. One has a beta of 1.2 as determined in a regression analysis using data for the last 5 years, while the other has a beta of -0.6. The returns on the stock with the negative beta will be negatively correlated with returns on most other stocks in the market during that 5-year period.
C)Suppose you are managing a stock portfolio, and you have information that leads you to believe the stock market is likely to be very strong in the immediate future. That is, you are convinced that the market is about to rise sharply. You should sell your high-beta stocks and buy low-beta stocks in order to take advantage of the expected market move.
D)You think that investor sentiment is about to change, and investors are about to become more risk averse. This suggests that you should rebalance your portfolio to include more high-beta stocks.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Stocks, Stock Valuation, and Stock Market
Equilibrium
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/60194
Sample Questions
Q1) Which of the following statements is correct?
A)The dividend yield on a constant growth stock must be equal to the stock's expected total return less its expected capital gains return.
B)A stock's dividend yield can never exceed its expected growth rate.
C)A required condition for one to use the constant growth model is that the stock's expected growth rate exceeds its required rate of return.
D)Other things held constant, the higher a company's beta coefficient, the lower its required rate of return.
Q2) If D<sub>1</sub> = $1.25,g (which is constant) = 5.5%,and P<sub>0</sub> = $44,what is the stock's expected total return for the coming year?
A)7.73%
B)7.93%
C)8.13%
D)8.34%
Q3) The existence of dual-class shares allows a minority shareholder to have significant control of a firm.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: The Cost of Capital
Available Study Resources on Quizplus for this Chatper
89 Verified Questions
89 Flashcards
Source URL: https://quizplus.com/quiz/60195
Sample Questions
Q1) Chambliss Inc.hired you as a consultant to help estimate its cost of capital.You have been provided with the following data: D<sub>0</sub> = $0.90; P<sub>0</sub> = $27.50; and g = 8.00% (constant).Based on the DCF approach,what is the cost of equity from retained earnings?
A)10.41%
B)10.96%
C)11.53%
D)12.11%
Q2) A company's perpetual preferred stock currently trades at $87.50 per share,and it pays an $8.00 annual dividend.If the company were to sell a new preferred issue,it would incur a flotation cost of 5.00% of the issue price.What is the firm's cost of preferred stock?
A)8.25%
B)8.69%
C)9.14%
D)9.62%
Q3) The component costs of capital are based on embedded costs.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: The Basics of Capital Budgeting: Evaluating Cash Flows
Available Study Resources on Quizplus for this Chatper
125 Verified Questions
125 Flashcards
Source URL: https://quizplus.com/quiz/60196
Sample Questions
Q1) Which statement regarding normal cash flows is correct?
A)If a project has normal cash flows, then its IRR must be positive.
B)If a project has normal cash flows, then its MIRR must be positive.
C)If a project has normal cash flows, then it will have exactly two real IRRs.
D)If a project has normal cash flows, then it can have only one real IRR, whereas a project with non-normal cash flows might have more than one real IRR.
Q2) Which of the following is INCORRECT regarding a project's NPV?
A)If a project's NPV exceeds its IRR, then the project should be accepted.
B)If a project's NPV is less than its IRR, then the project should be accepted.
C)If a project's NPV exceeds its IRR, then the project should be rejected
D)If a project's NPV is greater than zero, the project should be accepted.
Q3) Which statement about multiple IRRs is true?
A)For a project to have more than one IRR, both IRRs must be greater than the WACC.
B)If two projects are mutually exclusive, then they are likely to have multiple IRRs.
C)If a project is independent, then it cannot have multiple IRRs.
D)Multiple IRRs can occur only if the signs of the cash flows change more than once.
To view all questions and flashcards with answers, click on the resource link above.
12
Chapter 11: Cash Flow Estimation and Risk Analysis
Available Study Resources on Quizplus for this Chatper
76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/60197
Sample Questions
Q1) What is the best approach to take into account the relative risk of a proposed project?
A)adjusting the discount rate upward if the project is judged to have above-average risk
B)reducing the NPV by 10% for risky projects
C)picking a risk factor equal to the average discount rate
D)ignoring risk because project risk cannot be measured accurately
Q2) If an investment project would make use of land that the firm currently owns,the project should be charged with the opportunity cost of the land.
A)True
B)False
Q3) It is extremely difficult to estimate the revenues and costs associated with large,complex projects that take several years to develop.This is why subjective judgment instead of a discounted cash flow analysis is recommended for such projects. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: Capital Structure Decisions
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/60198
Sample Questions
Q1) Suppose a firm has a debt-to-equity ratio (D/E) of 0.5,return on assets of 22%,and return on debt of 15%.What will be its return on equity?
A)24.33%
B)15.00%
C)20.00%
D)21.17%
Q2) What is the value of the firm according to MM with corporate taxes?
A)$475,875
B)$528,750
C)$587,500
D)$646,250
Q3) On which of the following items will an increase in the debt ratio generally have no effect?
A)business risk
B)total risk
C)financial risk
D)market risk
Q4) The MM model employs the concept of arbitrage to develop its theory.
A)True
B)False
Page 14
To view all questions and flashcards with answers, click on the resource link above.
Chapter 13: Distributions to Shareholders: Dividends and Repurchases
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/60199
Sample Questions
Q1) If management wants to maximize its stock price,and if it believes that the dividend irrelevance theory is correct,then it must adhere to the residual distribution policy.
A)True
B)False
Q2) Reverse stock splits reduce the number of shares outstanding,and thus have which of the following effects on stock price?
A)A reverse split reduces the number of shares outstanding, and thus reduces share price.
B)A reverse split reduces the number of shares outstanding, and increases share price.
C)A reverse split has no effect on the number shares outstanding and thus no effect on share price.
D)A reverse split reduces the number of shares outstanding in proportion to the debt outstanding and thus increases share price.
Q3) Share repurchases result in a decrease in EPS.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
15
Chapter 14: Initial Public Offerings Investment Banking and Financial Restructuring
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/60200
Sample Questions
Q1) Refer to Scenario: ABC Waste.The amortization of flotation costs reduces taxes and thus provides an annual cash flow.What will be the net increase or decrease in the annual flotation cost tax savings if refunding takes place?
A)$6,480
B)$7,200
C)$8,000
D)$8,800
Q2) Which of the following entities does NOT belong to the TMX Group?
A)Toronto Stock Exchange
B)ICE Futures Canada
C)Montreal Exchange
D)TSX Venture Exchange
Q3) An underwriter follows a best efforts basis to sell 2 million shares at $10 each.Such a public offering price has included a $1 spread.How much will the issuer receive if only 1.5 million shares are sold in this issue?
A)$20.0 million
B)$18.0 million
C)$15.0 million
D)$13.5 million
Page 16
To view all questions and flashcards with answers, click on the resource link above.
Chapter 15: Lease Financing
Available Study Resources on Quizplus for this Chatper
45 Verified Questions
45 Flashcards
Source URL: https://quizplus.com/quiz/60201
Sample Questions
Q1) When will a lower lease payment possibly arise?
A)when there is a lower tax rate for the lessee
B)when there is a lower tax rate for the lessor
C)when there is a lower purchase cost for the asset
D)when there is a lower CCA tax shield
Q2) Consider the following information: original investment = $1,900,PV of CCA tax shield = $1,000,PV of after-tax lease payments = $900.What is the NAL?
A)$2,550
B)$1,650
C)$0.00
D)-$350
Q3) A synthetic lease is a combination of derivative securities and asset purchases that mimic the cash flows of an operating lease.
A)True
B)False
Q4) A fully taxable recapture exists if the lease provides the lessee with an option to purchase the asset at a bargain price.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Capital Market Financing: Hybrid and Other Securities
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/60202
Sample Questions
Q1) Refer to Scenario: Canada Corp.How much is the firm's total earnings after conversion?
A)$1.71 million
B)$2.04 million
C)$2.40 million
D)$3.17 million
Q2) Asset securitizations allow investors to expand the scope of their investment choices.
A)True
B)False
Q3) The design of stepped-up exercise prices is to control the timing of equity capital raised for the firm.
A)True
B)False
Q4) Convertible bonds usually have higher credit ratings than the basic nonconvertible bonds.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Working Capital Management and Short-Term Financing
Available Study Resources on Quizplus for this Chatper
124 Verified Questions
124 Flashcards
Source URL: https://quizplus.com/quiz/60203
Sample Questions
Q1) A line of credit can be either a formal or an informal agreement between a borrower and a bank regarding the maximum amount of credit the bank will extend to the borrower subject to certain conditions,including the borrower's maintaining its financial strength.
A)True
B)False
Q2) Which statement best describes compensating balances?
A)Compensating balance requirements apply only to businesses, not to individuals.
B)Compensating balances are essentially costless to most firms, because those firms would normally have such funds on hand to meet transactions needs anyway.
C)If the required compensating balance is larger than the transactions balance the firm would ordinarily hold, then the effective cost of any loan requiring such a balance is increased.
D)Banks are prohibited from earning interest on the compensating balances they hold.
Q3) The calculated cost of trade credit can be reduced by paying late.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 19
Chapter 18: Current Asset Management
Available Study Resources on Quizplus for this Chatper
119 Verified Questions
119 Flashcards
Source URL: https://quizplus.com/quiz/60204
Sample Questions
Q1) Which statement best describes float?
A)A lack of synchronization of cash inflows and outflows will result in larger cash balances than would be necessary with better synchronization, but the cash balances can be reduced by increasing disbursement float and decreasing collections float.
B)The size of a firm's net float is primarily a function of its natural cash flow synchronization and how it clears its cheques.
C)Lockbox systems are used both for security purposes and to decrease the firm's net float.
D)If a firm speeds up its collections and slows down its disbursements, this will reduce its net float.
Q2) A firm's collection policy,i.e.,the procedures it follows to collect accounts receivable,plays an important role in keeping its average collection period short,although too strict a collection policy can reduce profits due to lost sales.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
20
Chapter 19: Financial Options and Applications in Corporate Finance
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/60205
Sample Questions
Q1) Since investors tend to dislike risk and like certainty,the more volatile a stock,the less valuable will be an option to purchase the stock,other things held constant.
A)True
B)False
Q2) Which of the following does NOT affect the value of an option,other things held constant?
A)the strike price
B)the variability of the stock price
C)the option's time to maturity
D)the stock beta
Q3) Which term refers to an option that gives the holder the right to buy a stock at a specified price at some future time?
A)a call option
B)a put option
C)a naked option
D)a covered option
To view all questions and flashcards with answers, click on the resource link above.
21
Chapter 20: Enterprise Risk Management
Available Study Resources on Quizplus for this Chatper
17 Verified Questions
17 Flashcards
Source URL: https://quizplus.com/quiz/60206
Sample Questions
Q1) Suppose the quoted price for a June 2008 10-year CGB futures contract has changed from 118.72 to 118.77.What is the corresponding change in value in this futures contract?
A)$70
B)$60
C)$50
D)$30
Q2) A swap is a method used to reduce financial risk.Which statement about swaps is NOT correct?
A)A swap involves the exchange of cash payment obligations.
B)The earliest swaps were currency swaps, in which companies traded debt denominated in different currencies, say, dollars and pounds.
C)Swaps are very often arranged by a financial intermediary, which may or may not take the position of one of the counterparties.
D)A problem with swaps is the short maturities, which has prevented the development of a secondary market.
To view all questions and flashcards with answers, click on the resource link above.
22
Chapter 21: International Financial Management
Available Study Resources on Quizplus for this Chatper
53 Verified Questions
53 Flashcards
Source URL: https://quizplus.com/quiz/60207
Sample Questions
Q1) Which of the following is NOT likely to be a reason that companies move into international operations?
A)to take advantage of lower production costs in regions where labour costs are relatively low
B)to develop new markets for the firm's products
C)because important raw materials are located abroad
D)to diversify the risk of global terrorist attacks
Q2) Which of the following best describes the work of a financial analyst in a multinational context?
A)Multinational financial management requires that financial analysts consider the effects of changing currency values.
B)Multinational financial management requires that financial analysts consider the effects of changing public policy values.
C)Multinational financial management requires that financial analysts consider the effects of changing languages.
D)Multinational financial management requires that financial analysts consider the effects of changing values of commodity prices.
To view all questions and flashcards with answers, click on the resource link above. Page 23
Chapter 22: Corporate Valuation and Governance
Available Study Resources on Quizplus for this Chatper
27 Verified Questions
27 Flashcards
Source URL: https://quizplus.com/quiz/60208
Sample Questions
Q1) A company forecasts the free cash flows (in millions) shown below.The weighted average cost of capital is 13%,and the FCFs are expected to continue growing at a 5% rate after Year 3.Assuming that the ROIC is expected to remain constant in Year 3 and beyond,what is the Year 0 value of operations,in millions? \(\begin{array}{llll}
\text { Year: } & 1 & 2 & 3 \\
\text { Free cash flow: } & -\$ 15 & \$ 10 & \$ 40 \end{array}\)
A)$331
B)$348
C)$367
D)$386
Q2) Suppose BC Corp.'s free cash flow in the previous year was $50,000,and FCF is expected to grow at a constant rate of 3%.If the company's weighted average cost of capital is 15%,what is the value of its operations?
A)$416,667
B)$500,000
C)$900,000
D)$429,167
To view all questions and flashcards with answers, click on the resource link above.
Page 24
Chapter 23: Mergers,Acquisitions,and Restructuring
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/60209
Sample Questions
Q1) Dunbar Hardware,a national hardware chain,is considering purchasing a smaller chain,Eastern Hardware.Dunbar's analysts project that the merger will result in incremental free flows and interest tax savings with a combined present value of $72.52 million,and they have determined that the appropriate discount rate for valuing Eastern is 16%.Eastern has 4 million shares outstanding and no debt.Eastern's current price is $16.25.What is the maximum price per share that Dunbar should offer?
A)$16.25
B)$16.97
C)$17.42
D)$18.13
Q2) Which of the following best describes why defensive mergers typically occur?
A)Defensive mergers occur as a result of shareholders' needs to maximize personal wealth.
B)Defensive mergers occur as a result of unions' actions to maximize shareholders' wealth.
C)Defensive mergers occur as a result of government policies to maximize shareholders' wealth.
D)Defensive mergers occur as a result of managers' actions to maximize shareholders' wealth.
To view all questions and flashcards with answers, click on the resource link above.
Page 25
Chapter 24: Decision Trees,real Options and Other Capital Budgeting Techniques
Available Study Resources on Quizplus for this Chatper
20 Verified Questions
20 Flashcards
Source URL: https://quizplus.com/quiz/60210
Sample Questions
Q1) Refer to Scenario: Diplomat.com.If Diplomat.com goes ahead with this project today,it will obtain knowledge that will give rise to additional opportunities 5 years from now (at t = 5).The company can decide at t = 5 whether or not it wants to pursue these additional opportunities.Based on the best information available today,there is a 35% probability that the outlook will be favourable,in which case the future investment opportunity will have a net present value of $6 million at t = 5.There is a 65% probability that the outlook will be unfavourable,in which case the future investment opportunity will have a net present value of -$6 million at t = 5.Diplomat.com does not have to decide today whether it wants to pursue the additional opportunity.Instead,it can wait to see what the outlook is.However,the company cannot pursue the future opportunity unless it makes the $3 million investment today.What is the estimated net present value of the project,after consideration of the potential future opportunity?
A)-$1,104,607
B)-$875,203
C)$199,328
D)$561,947
Q2) Real options are most valuable when the underlying source of risk is very low. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 26