Business Finance
Final Exam
Course Introduction
Business Finance provides students with an essential understanding of the principles and practices of financial management within a business context. The course covers fundamental topics such as financial statement analysis, time value of money, risk and return, capital budgeting, cost of capital, and working capital management. Through a combination of theoretical frameworks and practical applications, students learn how financial decisions affect a firms overall strategy and value. The course also explores tools and techniques for effective financial planning and control, enabling students to make informed decisions in areas such as investment, financing, and dividend policies.
Recommended Textbook
NEW Corporate Finance Online 1st Edition by Stanley Eakins
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16 Chapters
1371 Verified Questions
1371 Flashcards
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Page 2
Chapter 1: Overview of Finance
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47 Verified Questions
47 Flashcards
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Sample Questions
Q1) ________ are long-term debt instruments business and government use to raise large sums of money.
A) T-bills
B) Bonds
C) Common stocks
D) Preferred stocks
E) Commercial papers
Answer: B
Q2) In a broad sense,every business asset is ultimately owned by
A) individuals.
B) the federal government.
C) foreign governments.
D) trust funds.
E) none of the above
Answer: A
Q3) Preferred stock pays a variable dividend.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Financial Statements and Ratio Analysis
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69 Verified Questions
69 Flashcards
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Sample Questions
Q1) What is a firms times interest earned if it posts revenues of $200,000,taxes of $35,000,expenses of $100,000,and interest of $30,000
A) 3.3 times
B) 2.0 times
C) 2.2 times
D) 0.5 times
E) 1.3 times
Answer: A
Q2) Which of the following is one of the financial statements critical to financial statement analysis?
A) 8-K
B) SEC registration statement
C) Disclosure
D) 10-Q
E) Statement of Cash Flows
Answer: E
Q3) All else held constant,an increase in leverage should increase the ROE.
A)True
B)False
Answer: True
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Chapter 3: Time Value of Money - Introduction
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) Your Godmother established a $3,000 bank account for you when you were born.For the first 10 years the interest rate on the account was 10%.It has been 7.5% since then.You are now 25 years old and would like to withdraw the funds.How much money do you have?
A) $23,023.70
B) $18,295.02
C) $32,504.12
D) $25,828.32
E) $23,445.80
Answer: A
Q2) Jordan will need $20,000 at the end of 6 years to put a down payment on a house.What rate of return will he need to earn if he can invest $9,110 today?
A) 14.0%
B) 13.0%
C) 13.5%
D) 14.5%
E) 15.0%
Answer: A
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Chapter 4: Time Value of Money - Streams and Valuations
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) Molly,president of Molly's Muffins,is considering franchising.She has a potential franchise agreement that would see her receive payments of $28,000,$24,000,and $20,000 at the end of years 1,2,and 3 respectively,and then $12,000 per year after that for 17 years.If Molly requires a return of 10%,then what is the present value of this stream of cash flows? (Round answer to the nearest whole dollar)
A) $132,636
B) $145,900
C) $143,354
D) $156,574
E) $124,440
Q2) Your company is planning to borrow $1,000,000 on a 5-year,15%,annual payment,fully amortized term loan.What fraction of the payment made at the end of the second year will represent repayment of principal?
A) 29.83%
B) 57.18%
C) 35.02%
D) 64.45%
E) 72.36%
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Chapter 5: Risk and Return - Introduction
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46 Verified Questions
46 Flashcards
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Sample Questions
Q1) If the required return from an asset is 10%,and the asset has a 60% probability of yielding a 20% return and a 40% probability of earning a 5% return,you should:
A) Not acquire the asset since the expected return of 32% exceeds the required return.
B) Purchase the asset since the expected return of 14% exceeds the required return.
C) Buy the asset because the expected return of 32% exceeds the required return.
D) Forgo the investment opportunity since the expected return of 14% is too low.
E) Buy the asset because the expected return of 12.5% exceeds the required return.
Q2) A year ago,you purchased IBM stock for $94 a share.Today,IBM stock is selling for $93 a share.Additionally,you just received a check for $1.20 per share.Your holding period return is
A) 0.21% B) 2.34% C) -2.34% D) 2.13% E) 1.06%
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Chapter 6: Portfolio Theory
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136 Flashcards
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Sample Questions
Q1) The beta of the market
A) is 1.
B) is greater than 1.
C) cannot be determined.
D) is less than 1.
Q2) You want to buy $20,000 worth of shares in Tootsie Roll Industries Inc.on margin,but you only have $10,000 of your own money to invest.The remaining $10,000 is borrowed by issuing T-Bills; assume the cost of borrowing is the risk-free rate.What is the portfolio weight for the risk free asset (T-Bills)?
A) -1.00
B) -0.50
C) 1.00
D) 0.50
E) 2.00
Q3) The ________ shows the possible risk/return combinations for a portfolio.
A) Portfolio Possibility Line
B) Portfolio Beta
C) Modern Portfolio Theory
D) Momentum Effect
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Page 8
Chapter 7: Interest Rates and Bond Valuation
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84 Verified Questions
84 Flashcards
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Sample Questions
Q1) The economy is slowing and many forecasters predict a recession.You expect the monetary authorities to relax monetary policy which will cause interest rates to fall.You expect the yield on the Walt Disney 10-year bond to fall from 5% to 4%.The bond has a face value of $1,000,and a coupon of 3.25%.If you want to make $5,000 by investing in bonds to profit from the interest rate change,what position do you take?
A) Buy 67 bonds
B) Buy 81 bonds
C) Buy 48 bonds
D) Short sell 55 bonds
E) Short sell 92 bonds
Q2) Acme Inc.just issued a bond with a $10,000 face value and a coupon rate of 7%.If the bond has a life of 30 years,pays semi-annual coupons,and the yield to maturity is 9%,what will the bond sell for?
A) $7,936.20
B) $4,349.49
C) $7,945.27
D) $10,000
E) $7,904.45
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Page 9
Chapter 8: Stock Valuation and Market Efficiency
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) In 2001,Ryder Corp.paid a dividend of $2.20.In 1995,Ryder paid a dividend of $1.50.What is Ryder's dividend growth rate?
A) 47%
B) 70%
C) 10%
D) 8%
E) 12%
Q2) A share of common stock has just paid a dividend of $2.If the expected long-run growth rate for this stock is 15%,and if investors require a 19% rate of return,what is the price of the stock?
A) $57.50
B) $62.25
C) $71.86
D) $64.00
E) $44.92
Q3) Preferred stock is valued as if it were
A) a fixed-income obligation.
B) a bond.
C) a perpetuity.
D) a common stock.
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Chapter 9: Capital Budgeting Techniques
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86 Flashcards
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Sample Questions
Q1) Perhaps the greatest disadvantage of using the IRR method to evaluate investment opportunities is:
A) dealing with uncertain cash flows from the project.
B) the assumption that all cash flows from the project will be reinvested at the IRR.
C) the inability to calculate most IRRs without a computer.
D) the need to compare IRR with the firm's cost of capital which cannot be estimated precisely.
E) the fact that the technique does not account for risk.
Q2) Los Angeles Lumber Company (LALC)is considering a project with a cost of $1,000 at Time = 0 and inflows of $300 at the end of Years 1-5.LALC's cost of capital is 10%.What is the project's modified IRR (MIRR)?
A) 10.0%
B) 12.9%
C) 15.2%
D) 18.3%
E) 20.7%
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Chapter 10: Capital Budgeting - Cash Flows
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Sample Questions
Q1) Meals on Wings Inc.,which supplies prepared meals for corporate aircraft,needs to purchase new broilers.The new broilers would replace broilers purchased 10 years ago for $105,000,which are being depreciated on a straight-line basis to a zero salvage value (15-year depreciable life).The old broilers can be sold today for $63,000.The new broilers will cost $202,000,installed (not counting funds already spent),and will be depreciated using straight-line depreciation over their 5-year life.They will be sold at their book value at the end of the 5th year.The firm expects to increase its revenues by $27,000 per year if the new broilers are purchased,but cash expenses will also increase by $3,000 per year.Annual interest expense will be $2,000,and net working capital will increase by $5,000.The new broilers will occupy space currently leased to another firm for $530 per month,and $5,000 has already been spent preparing the building for new broilers.The firm's tax rate is 40%.What are the terminal year cash flows? Round your answers to the nearest dollar.
A) $22,744
B) $23,944
C) $27,442
D) $28,944
E) $32,442
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Page 12
Chapter 11: Cost of Capital
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Sample Questions
Q1) The market risk premium:
A) varies over time as both the risk-free rate of return and the market rate of return vary.
B) plus the risk-free rate of return equals the cost of capital for any firm with a beta of zero.
C) is equal to one percent for a risk-free asset.
D) is equal to the risk-free rate of return multiplied by the beta of a firm.
E) is modified by the standard deviation when computing the cost of equity.
Q2) A firm's pre-tax cost of debt is 10%.If the firm is of average risk,what is the cost of equity using the bond yield plus premium approach?
A) 15%
B) 13%
C) 14%
D) 10%
E) 11%
Q3) A firm can raise its value without earning at least the WACC.
A)True
B)False
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Chapter 12: Capital Structure
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Sample Questions
Q1) Fred's Frankfurters posted an EBIT of $67,256.He paid $5,360 in interest and $7,521 in taxes.Calculate the interest tax shield.
A) $621.13
B) $599.25
C) $534.99
D) $593.89
E) $575.35
Q2) A company posts a 25% increase in sales,a degree of financing leverage of 2.4,and a degree of total leverage of 3.2.Find the % change in the earnings per share.
A) 50%
B) 33.33%
C) 80%
D) 24%
E) 30%
Q3) What is the optimal capital structure?
A) The capital structure that frees up the most cash flow
B) The capital structure that makes management the most money
C) The capital structure that produces the highest firm value
D) The capital structure that keeps the most control within the company
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Page 14
Chapter 13: Dividends, repurchases, and Splits
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57 Flashcards
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Sample Questions
Q1) Some investors think that Prestige Entertainment's repurchase program was a bad deal for shareholders,because the company paid too much for its repurchased shares.Over the last quarter,Prestige repurchased 717.16 million shares at an average price of $17.35 per share.Shares outstanding are now 11,235.51M and the stock price is $12.01,which analysts regard as its fair value.What price was Prestige trading for before the repurchase?
A) $11.28
B) $12.01
C) $12.33
D) $13.06
E) $14.03
Q2) Stark Industries currently trades for $50 per share and has 175M shares outstanding.It announces that it will execute a reverse-split on a 1-for-3 basis.How many shares will be outstanding after the split?
A) 52.50 M
B) 58.33 M
C) 116.67 M
D) 175.00 M
E) 233.33 M
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Page 15
Chapter 14: Financial Planning
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Sample Questions
Q1) Referring to Schwety,what are total cash disbursements in February?
A) $7.09
B) $8.59
C) $9.75
D) $10.59
E) $11.25
Q2) Referring to Schwety,what is the cash balance at the end of March?
A) $10.90
B) $11.50
C) $12.70
D) $13.00
E) $13.70
Q3) Referring to Schwety,what are Schwety's raw materials purchases in January?
A) $5.09
B) $5.22
C) $5.76
D) $6.12
E) $6.50
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Chapter 15: The Management of Working Capital
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80 Flashcards
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Sample Questions
Q1) ________ float can be calculated by subtracting a firm's book balance from the firm's available balance.
A) Net
B) Collection
C) Electronic funds transfer (EFT)
D) Compensating
E) Disbursement
Q2) Frank's Franks posted a cost of goods sold of $5,000 and had an average payables of $125.Calculate the Accounts Payable Period.
A) 10.2
B) 9.125
C) 13.41
D) 7.65
E) 8.54
Q3) Net float equals
A) disbursement float + collection float.
B) the available balance the firm's book balance.
C) disbursement float collection float the firm's book balance.
D) disbursement float collection float.
E) disbursement float + collection float the firm's available balance.
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Chapter 16: International Finance
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80 Flashcards
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Sample Questions
Q1) All of the following are reasons money will adhere to PPP accurately EXCEPT
A) Electronic transfers
B) Universal value
C) Easily determined price
D) Not substitutable
Q2) 1 year ago $1 would buy 6.5 pesos.Today $1 buys 7.5 pesos.If the US had an inflation rate of 3%,calculate Mexico's inflation rate.
A) 3.1%
B) 18.38%
C) 4.2%
D) 7.8%
Q3) As long as the flow of currencies is ________,the exchange rate can remain ________.
A) out of balance; constant
B) equal; in flux
C) there is no relationship between the two
D) equal; constant
Q4) It is more difficult to deal with political risk than exchange rate risk.
A)True
B)False
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