Business Administration
Practice Questions
Course Introduction
Business Administration is a comprehensive course that introduces students to the fundamental principles and practices essential for managing and operating organizations effectively. Covering topics such as organizational behavior, marketing, finance, human resources, operations, and strategic management, this course provides a broad understanding of how businesses function in both local and global contexts. Through case studies, group projects, and practical applications, students develop problem-solving, leadership, and decision-making skills, preparing them for diverse roles in the business world or for advanced studies in management-related fields.
Recommended Textbook
Introduction to Corporate Finance 3rd Edition by John Graham
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Page 2
Chapter 1: The Scope of Corporate Finance
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Sample Questions
Q1) Maximizing profit as the manager's goal has several flaws,including:
A) Earnings figures focus on past performance rather than current or future performance
B) The timing of the profits may be ignored
C) Focusing on earnings does not mean that the firm will necessarily have enough cash on hand to pay its bills
D) Risk is ignored
E) All of the above
Answer: E
Q2) Working capital management:
A) Involves managing the firm's long-term assets,such as plant and equipment
B) Requires very little in terms of people skills as it mostly involves analyzing numbers
C) Deals with the firm's seasonal financing,inventory needs,collecting accounts receivable and investing surplus cash
D) All of the above
E) None of the above
Answer: C
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Page 3
Chapter 2: Financial Statement and Cash Flow Analysis
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Sample Questions
Q1) Which of the following statements is not required by the SEC for publicly traded firms?
A) the statement of cost of goods sold
B) the statement of retained earnings
C) the statement of cash flows
D) the balance sheet
Answer: A
Q2) Bavarian Sausage,Inc.has 100,000 shares of common stock outstanding,but no preferred stock.The current price of Bavarian's common stock is $15.What is the company's P/E-ratio?
A) 119.00
B) 1.26
C) 11.90
D) 12.60
Answer: C
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4
Chapter 3: The Time Value of Money
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Sample
Questions
Q1) You inherit $15,000 from your aunt.You decide to invest the money in a three-year CD that pays 4% interest to use as a down payment on a house.How much money will you have when the CD matures?
A) $13,334.95
B) $15,600.00
C) $16,800.00
D) $16,872.96
Answer: D
Q2) You wish to save $2,500,000 for your retirement by saving a certain sum every month for the next 40 years.If you can earn 9% compounded monthly,and you make your deposits at the BEGINNING of each month,how much would you have to deposit each month to achieve your objective?
A) $616.59
B) $534.04
C) $565.67
D) $530.06
E) None of the above
Answer: D
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Chapter 4: Valuing Bonds
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Sample Questions
Q1) Bonds issued by US states or local governments are called:
A) Treasury bonds.
B) Municipal bonds.
C) Corporate bonds.
D) Yankee bonds.
Q2) Winburn Sports & Entertainment has an outstanding $1,000 par value bond with a 11% coupon that pays SEMIANNUALLY at the end of each period.The bond matures in nine years.Bonds of similar risk have a required return of 10%.What is the market value of the Winburn bond?
A) $1,035.54
B) $1,057.59
C) $1,058.45
D) $1,073.05
Q3) Unsecured bonds that have legal claims inferior to other outstanding bonds are A) debentures.
B) mortgage bonds.
C) subordinated debentures.
D) discount bonds.
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6
Chapter 5: Valuing Stocks
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Sample Questions
Q1) Declining Corporation just paid a dividend of $1.23 and has an expected growth rate of -5% for the foreseeable future,if the discount rate is 7% what is the appropriate stock price today?
A) $ 9.74
B) $ 10.25
C) $ 9.67
D) $ 11.43
Q2) Debt holders:
A) are the residual owners of a corporation.
B) have little say in how the firm conducts its business.
C) cannot force the firm into bankruptcy court if it fails to make the scheduled interest and principal payments on time.
D) are willing to accept more risk than the stockholders in the corporation.
Q3) One of the most time-consuming aspects of preparing for an equity offering is:
A) preparing the necessary documents for filing with regulators.
B) putting on the road show so that managers can pitch their business plan to prospective investors.
C) oversubscribing the offering.
D) none of the above
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Page 7
Chapter 6: The Trade-Off Between Risk and Return
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Sample Questions
Q1) Refer to Bavarian Sausage.What is the total return of your stock investment?
A) 5.91%
B) 13.44%
C) 26.69%
D) 19.35%
Q2) Which of the following statements is true?
A) While finance teaches that investments with higher risk should have higher returns there is no historical evidence in the capital markets to suggest this relationship exists.
B) Finance teaches that investments with higher risk should have higher returns and historical evidence in the capital markets suggests this relationship exists.
C) When individuals decide how to invest their money they must weigh the expected benefits (returns)against the costs of additional risk.
D) Both (a)and (c)are true.
E) Both (b)and (c)are true.
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8
Chapter 7: Risk,return,and the Capital Asset Pricing Model
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Sample Questions
Q1) The stock of Alpha Company has an expected return of 0.10 and a standard deviation of 0.25.The stock of Gamma Company has an expected return of 0.16 and a standard deviation of 0.40.The correlation coefficient between the two stock's return is 0.2.If a portfolio consists of 40% of Alpha Company and 60% of Gamma Company,what's the expected return of the portfolio?
A) 0.126
B) 0.136
C) 0.160
D) 0.130
Q2) Given Exhibit 7-2,what is the expected return?
A) 10.75%
B) 13.00%
C) 16.00%
D) 17.75%
Q3) The country with the highest level of systematic risk is:
A) Russia
B) Poland
C) Taiwan
D) USA
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Page 9
Chapter 8: Capital Budgeting Process and Decision Criteria
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Sample Questions
Q1) Delta Pharmaceuticals has 200 million shares outstanding with a current market price of $30 per share.Its stock rose to $32 on the news that Delta Pharmaceuticals' long-awaited new drug Zentac is to hit the market next month.What's the market's consensus of the NPV that the new drug will generate for Delta Pharmaceuticals?
A) $400 million
B) $6,400 million
C) $6,000 million
D) None of the above
Q2) If Gamma Electronics has a 15% cost of capital,what's the NPV of the investment?
A) $213,745
B) $185,865
C) $713,745
D) $500,000
Q3) Potential problems in using the IRR as a capital budgeting technique include:
A) the timing problem
B) multiple IRRs
C) the scale problem
D) all of the above
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Chapter 9: Cash Flow and Capital Budgeting
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Sample Questions
Q1) Which of the following statements is true?
A) Accountants measure cash flows on a cash basis rather than an accrual basis.
B) Financial analysts focus solely on accrual basis values rather than cash flows when evaluating potential investments.
C) Incremental cash flows effectively represent the marginal costs and marginal benefits expected to result from undertaking a proposed investment.
D) Both (a)and (c)are true.
E) All of the above statements are true.
Q2) A machine costs $3 million and has zero salvage value.Assume a discount rate of 10% and a 40% tax rate.The machine is depreciated straight-line over 3 years for tax purpose.What is the present value of depreciation tax savings associated with this machine?
A) $1,200,000
B) $994,741
C) $1,090,900
D) $400,000
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Chapter 10: Risk and Capital Budgeting
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Sample Questions
Q1) One major flaw in decision trees is that:
A) the risk of many investments changes as one moves from one point in the decision tree to another.
B) Establishing the base case scenario requires many iterations.
C) The necessary computing power to run a decision tree is expensive.
D) all of the above
E) none of the above
Q2) If a company decides to change one input at a time in its net present value analysis,in order to measure the NPV impact of such a change then the firm is performing
A) a Monte Carlo simulation.
B) scenario analysis.
C) a sensitivity analysis.
D) none of the above
Q3) The right to invest additional resources in investments that enjoy early success is known as a(n):
A) expansion option
B) abandonment option
C) follow-on investment option
D) flexibility option
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Chapter 11: Raising Long-Term Financing
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Sample Questions
Q1) Refer to Smith Enterprises 2.What are the net proceeds per share?
A) $15
B) $16
C) $14.10
D) $17.20
Q2) Roxy International recently conducted an IPO,Roxy received $32 per share and the offer price was $34 per share and the stock price rose to $35 per share.What was the underwriter discount?
A) 5.71%
B) 6.25%
C) 2.86%
D) 5.88%
Q3) Louis International recently conducted an IPO,Louis received $22 per share and the offer price was $25 per share and the stock price rose to $35 per share.What was the underwriter discount?
A) 8.57%
B) 13.64%
C) 28.57%
D) 12.00%
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Page 13
Chapter 12: Capital Structure
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Sample Questions
Q1) Roxy International has an EBIT of $25 million,debt with a market value of $40 Million and a required return on assets of 15%.Assuming no taxes,what is the firm 's value?
A) $166,666,667
B) $266,666,667
C) $291,666,667
D) $100,000,000
Q2) If a firm increases its financial leverage,then what would we generally expect for the effect of that increased leverage on EPS to be if the firm's EPS is already quite high?
A) EPS would be lower with financial leverage
B) EPS would always be the same with financial leverage
C) EPS would be higher with financial leverage
D) it is not possible to determine
Q3) What is the Bavarian Brew's required return on levered equity after the restructuring?
A) 10.25%
B) 10.92%
C) 6.00%
D) 12.75%
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Chapter 13: Long-Term Debt and Leasing
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Sample Questions
Q1) Refer to Bavarian Brew Bond.What is the NPV of the proposed bond refinancing?
A) $907,484
B) -$907,484
C) -$895,453
D) $895,453
Q2) Refer to Bavarian Brew Bond.What are the annual after tax interest payments on the old bond?
A) $1,544,400
B) $2,340,000
C) $795,600
D) $1,858,900
Q3) Refer to Bavarian Brew Bond.What are the annual tax savings from the amortization of the discount on the old bond?
A) $1,500,000
B) $30,600
C) $160,000
D) $61,200
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Chapter 14: Payout Policy
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Sample Questions
Q1) Emma International has earnings per share of $3.29; just paid dividend $1.25 and expects a ROI next year (and the foreseeable future)of 14%.If the stock has a beta of 1.2,and the current risk -free and market premium is 4% and 5% respectively,what is the intrinsic value of the stock?
A) $ 90.567
B) $ 94.758
C) $ 102.984
D) Not enough information
Q2) The fictitious widget industry is composed of two firms.One firm is a quality firm and the other is a less-than-quality firm.Given the signaling model of dividends,how might the quality firm convey to the market that it is the quality firm?
A) tell the market (through analysts)that it is the quality firm
B) cut its dividend payment to signal that it has a large number of quality projects on the horizon
C) increase its dividend payment beyond what the less-than-quality firm could afford D) there is nothing that the firm could do to address the situation
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Chapter 15: Financial Planning
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Sample Questions
Q1) If Bavarian Brew starts the year with a cash balance of $500,what is the cash balance at the end of January? Assume that December sales were $450 and November sales were $550.
A) $483
B) $493
C) $497
D) $500
Q2) Refer to Kooshy.Suppose pro forma net income is $50 and pro forma total assets are $525.If accounts payable maintain the same percent of sales,no new long term debt is issued,and the only addition to owners' equity is to retained earnings,what will be the pro forma balance in notes payable for a forecasted 20% increase in sales? (That is,use notes payable as the balancing account.)
A) $39
B) $74
C) $83
D) $4
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Chapter 16: Cash Conversion, inventory, and Receivables Management
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Sample Questions
Q1) The time from the receipt of raw materials to the collection of the cash of the sale of the finished good is called a firm's
A) operating cycle
B) cash conversion cycle
C) inventory period
D) accounts receivables period
Q2) Franconia Notch Blowers would like to find the optimum size order given that it annually sells 10,000 snow blowers per year.It costs Franconia $75 each time it processes an order for snow blowers and the carrying cost for each blower is $50 per year.What is the optimum order size for Franconia?
A) 30,000
B) 15,000
C) 173.21
D) 122.47
Q3) What is Competitive's expected increase in bad debt expense?
A) $720,000
B) $400,000
C) $320,000
D) there is not enough information given
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Chapter 17: Cash, payables, and Liquidity Management
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Sample Questions
Q1) Roxy is evaluating a Treasury Bill.It is a $1 million face value with a discount of 2.75% and maturing in 182 days.What is the bond equivalent yield?
A) 2.789%
B) 2.828%
C) 2.750%
D) 2.788%
Q2) A 60-day treasury bill is priced at a 4% discount rate.What is the bond-equivalent yield of the security?
A) 4.00%
B) 4.03%
C) 4.08%
D) 6.67%
Q3) The primary purpose of the accounts payable function
A) is to examine all incoming invoices and determine the proper amount to be paid.
B) is to generate float for the firm.
C) is to pay invoices as soon as possible.
D) none of the above.
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Chapter 18: International Financial Management
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Sample Questions
Q1) The type of risk primarily concerned with converting revenues and costs denominated in foreign currencies into a firm's domestic currency is
A) economic exposure.
B) transaction exposure.
C) translation exposure.
D) none of the above.
Q2) If a firm operates strictly in one country and has cash flows in only one currency then:
A) it can easily avoid any sort of exchange rate risk.
B) it will still face exchange rate risk if it produces a good or service that competes with imports in the home market.
C) it will still face exchange rate risk if it uses an imported product or service in production.
D) All of the above
E) Both (b)and (c)
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Chapter 19: Options
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Sample Questions
Q1) Which of the following factors will affect the price of an option?
A) The strike price of the option
B) The amount of time until expiration
C) The price of the underlying stock
D) All of the above
Q2) All of the following options are call options on Nixon Industries,which currently is trading at $35.They all have the same expiration date.Which of the following options should trade at the highest price.
A) A call option with a strike price of 20
B) A call option with a strike price of 30
C) A call option with a strike price of 40
D) A call option with a strike price of 50
Q3) Bill Henricksen,purchased a put option on Cycle Inc.for $4.The put option has a strike price of $40 and currently Cycle Inc.shares trade for $44.The expiration date of the option is 6 months from today.What is Henricksen's maximum gain on his put option?
A) $4
B) $36
C) $40
D) $44
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Page 21
Chapter 20: Entrepreneurial Finance and Venture Capital
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Sample Questions
Q1) If the value of BST stock is $21.50 at the end of the first trading day,what is the value of WIMMP's investment?
A) $48.375M
B) $80.625M
C) $63.425M
D) $37.557M
Q2) Which of the following is not a difference between entrepreneurial finance and "ordinary" finance?
A) entrepreneurial companies generally have faster growth than ordinary companies
B) most of the assets of entrepreneurial companies are often intangible assets
C) entrepreneurial companies must attract,motivate,compensate,and retain highly skilled technical and entrepreneurial talent with minimal cash flow
D) none of the above
Q3) Which country shows a great potential for future private equity investment?
A) Canada
B) China
C) India
D) Japan
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22
Chapter 21: Mergers, acquisitions, and Corporate Control
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Sample Questions
Q1) If,six months later at the completion of the merger,Milner's stock price has dropped to $14 per share,what is the completed control premium percentage?
A) -44.0%
B) -15.15%
C) -0.50%
D) -2.0%
Q2) When a subsidiary of the bidder merges with the target firm
A) subsidiary merger
B) statutory merger.
C) subsidiary merger .
D) reverse triangle merger
E) consolidation
Q3) For Smith and Miller,what would be the exchange ratio in a pure stock exchange merger?
A) 57.48%
B) 34.48%
C) 63.48%
D) 25.42%
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23
Chapter 22: Bankruptcy and Financial Distress
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Sample Questions
Q1) Gizmo Co.has the following financial measures: working capital to total assets ratio of 0.05,retained earnings to total assets ratio of 0.10,EBIT to total assets ratio of 0.3,market value of equity to book value of equity ratio of 1.1,and sales to total assets ratio of 0.4.What is Gizmo's Z-score?
A) 2.40
B) 2.35
C) 2.30
D) 2.25
Q2) Suppose a firm's creditors decide that replacing current management is a requirement in a voluntary reorganization.This is called
A) an extension reorganization.
B) a composition reorganization.
C) a creditor control reorganization.
D) a cram-down reorganization.
Q3) A simplified form of restructuring for farmers
A) Chapter 9
B) Chapter 12
C) Chapter 13
D) Chapter 15
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Page 24
Chapter 23: Risk Management
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Sample Questions
Q1) You are looking to hedge a position and you require that the hedge that you take on be extremely liquid.Therefore you
A) look to the forward market to hedge.
B) look to the futures market to hedge.
C) both of the above are extremely liquid
D) none of the above are very liquid
Q2) Which of the following assets would probably not lend itself to a futures contract?
A) paper
B) water
C) real estate
D) microchips
Q3) Currently the Brazilian Real is trading at R/$ 1.7531; if the current anticipated inflations are 4% (U.S)and 7.3% (Brazil)over the next year what is the fair one-year forward price? (R/$)
A) 1.686
B) 1.699
C) 1.809
D) 1.634
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