Business Finance
Practice Exam
Course Introduction
Business Finance introduces students to the fundamental principles and concepts of financial management in business organizations. This course covers essential topics such as financial statement analysis, time value of money, risk and return, capital budgeting, cost of capital, and working capital management. Students will explore methods for evaluating investment opportunities, managing financial resources, and making informed decisions that maximize shareholder value. By integrating theoretical knowledge with practical applications, the course provides a strong foundation for understanding how financial decisions impact both the short-term operations and long-term strategy of a business.
Recommended Textbook Principles of Finance 6th Edition by Scott Besley
Available Study Resources on Quizplus
17 Chapters
1889 Verified Questions
1889 Flashcards
Source URL: https://quizplus.com/study-set/3512
Page 2
Chapter 1: An Overview of Finance
Available Study Resources on Quizplus for this Chatper
42 Verified Questions
42 Flashcards
Source URL: https://quizplus.com/quiz/69785
Sample Questions
Q1) The finance function is fairly independent of most other corporate functions.Marketing decisions, for example, might affect the firm's need for funds but are not affected by conditions in financial markets or other financing issues.
A)True
B)False Answer: False
Q2) In the early 1900s the emphasis of managerial finance was on the legal aspects of mergers, the formation of new firms, and the various types of securities firms could issue to raise funds.
A)True
B)False
Answer: True
Q3) The major areas included in the study of finance are information technology, investments and managerial finance.
A)True
B)False Answer: False
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Financial Assets Instruments
Available Study Resources on Quizplus for this Chatper
111 Verified Questions
111 Flashcards
Source URL: https://quizplus.com/quiz/69784
Sample Questions
Q1) Which of the following statements is false?
A) Any bond sold outside the country of the borrower is called an international bond.
B) Foreign bonds and Eurobonds are two important types of international bonds.
C) Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold.
D) The term Eurobond specifically applies to any foreign bonds denominated in U.S.currency.
E) None of the above.
Answer: D
Q2) The par value of a share of common stock represents the minimum price at which new shares can be sold.All new issues of common stock must have a par value equal to the current market price of the share.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Financial Markets and the Investment Banking Process
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/69783
Sample Questions
Q1) The OTC market is a physical exchange, much like the New York Stock Exchange, where securities dealers provide trading in unlisted securities.
A)True
B)False
Answer: False
Q2) After a new issue is brought to market it is the marginal investor who determines the price at which the stock will trade.
A)True
B)False
Answer: True
Q3) ____ efficiency states that all information contained in past price movements only is fully reflected in the current market prices.
A) Weak-form
B) Semistrong-form
C) Strong-form
D) Economic
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Financial Intermediaries and the Banking System
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/69782
Sample Questions
Q1) Financial intermediaries are the end users of the funds that they get from those who wish save money for the future.
A)True
B)False
Q2) Most of the financial panics experienced by the United States in the past can be traced to the behavior of financial intermediaries who either took on too much risk or behaved unethically.
A)True
B)False
Q3) Which of the following is not an asset of a bank?
A) business deposits
B) consumer loans
C) deposits in other banks
D) government securities
E) All of the above are bank assets.
Q4) The maximum change in the money supply created by a fractional reserve banking system decreases whenever reserve requirements are increased.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: The Cost of Money Interest Rates
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/69781
Sample Questions
Q1) Assume that r* = 1.0%; the maturity risk premium is found as MRP = 0.2%(t 1) where t = years to maturity; the default risk premium for AT&T bonds is found as DRP = 0.07%(t 1); the liquidity premium is 0.50% for AT&T bonds but zero for Treasury bonds; and inflation is expected to be 7%, 6%, and 5% during the next three years and then 4% thereafter.What is the difference in interest rates between 10-year AT&T bonds and 10-year Treasury bonds?
A) 0.25%
B) 0.50%
C) 0.63%
D) 1.00%
E) 1.13%
Q2) Suppose that the annual expected rates of inflation over each of the next five years are 5 percent, 6 percent, 9 percent, 13 percent, and 12 percent, respectively.What is the average expected rate of inflation over the 5-year period?
A) 6%
B) 7%
C) 8%
D) 9%
E) 10%
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: Business Organizations and the Tax Environment
Available Study Resources on Quizplus for this Chatper
96 Verified Questions
96 Flashcards
Source URL: https://quizplus.com/quiz/69780
Sample Questions
Q1) Which of the following statements is correct?
A) A major disadvantage of a regular partnership or a corporation as a form of business is the fact that they do not offer their owners limited liability, whereas proprietorships do.
B) An advantage of the corporate form for many businesses is the fact that the corporate tax rate always exceeds the personal tax rate, which is the rate at which proprietorships and partnerships are taxed.
C) There are more partnerships and sole proprietorships than corporations in the U.S., but corporations produce more goods and services than do other forms of business.
D) Because corporations enjoy the benefits of limited liability, easy transferability of ownership interest, unlimited life, and favorable tax status relative to the situation for partnerships and proprietorships, most large businesses choose to incorporate.
E) Because lawyers have the incorporation process so automated (e.g., word processors for drawing up the necessary papers), it is less expensive to form a corporation than to form a proprietorship or partnership.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Analysis of Financial Statements
Available Study Resources on Quizplus for this Chatper
123 Verified Questions
123 Flashcards
Source URL: https://quizplus.com/quiz/69779
Sample Questions
Q1) Since ROA measures the firm's effective utilization of assets (without considering how these assets are financed), two firms with the same EBIT must have the same ROA.
A)True
B)False
Q2) Retailers Inc.and Computer Corp.each have assets of $10,000 and a return on common equity equal to 15%.Retailers has twice as much debt and twice as many sales relative to Computer Corp.Retailers' net income equals $750, and its total asset turnover is equal to 3.What is Computer Corp.'s profit margin?
A) 2.50%
B) 5.00%
C) 7.50%
D) 10.00%
E) 12.50%
Q3) Funds supplied by common stockholders mainly include capital stock, paid-in capital, and retained earnings, while total equity is comprised of common equity plus preferred stock.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 8: Financial Planning and Control
Available Study Resources on Quizplus for this Chatper
122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/69778
Sample Questions
Q1) A typical sales forecast, though concerned with future events, will usually be based on recent historical trends and events as well as on forecasts of economic prospects.
A)True
B)False
Q2) Other things held constant, a high degree of operating leverage will mean that a relatively small change in sales will result in a large change in operating income.
A)True
B)False
Q3) If a small change in sales results in a large change in EPS, then it must be caused by the financial leverage associated with the firm.
A)True
B)False
Q4) The higher a firm's operating leverage, the higher is its business risk. A)True
B)False
Q5) Operating costs include variable costs, depreciation and interest charges. A)True B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Time Value of Money
Available Study Resources on Quizplus for this Chatper
132 Verified Questions
132 Flashcards
Source URL: https://quizplus.com/quiz/69777
Sample Questions
Q1) Your company is planning to borrow $1,000,000 on a 5-year, 15 percent, 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%
Q2) Suppose the present value of a 2-year ordinary annuity is $100.If the discount rate is 10 percent, what must be the annual cash flow?
A) $65.45
B) $82.64
C) $57.62
D) $53.78
E) $79.22
Q3) The effective annual rate is always greater than the simple rate as a result of compounding effects.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Valuation Concepts
Available Study Resources on Quizplus for this Chatper
126 Verified Questions
126 Flashcards
Source URL: https://quizplus.com/quiz/69776
Sample Questions
Q1) Which of the following is not true about bonds? In all of the statements, assume other things are held constant.
A) Price sensitivity, that is, the change in price due to a given change in the required rate of return, increases as a bond's maturity increases.
B) For a given bond of any maturity, a given percentage point increase in the interest rate (r<sub>d</sub>) causes a larger dollar capital loss than the capital gain stemming from an identical decrease in the interest rate.
C) For any given maturity, a given percentage point increase in the interest rate causes a smaller dollar capital loss than the capital gain stemming from an identical decrease in the interest rate.
D) From a borrower's point of view, interest paid on bonds is tax-deductible.
E) A 20-year zero-coupon bond has less reinvestment rate risk than a 20-year coupon bond.
Q2) Which of the following will generally result in a higher price for a bond?
A) Higher coupon rate.
B) Longer maturity.
C) Shorter maturity.
D) Higher required rate of return.
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: Risk and Rates of Return
Available Study Resources on Quizplus for this Chatper
104 Verified Questions
104 Flashcards
Source URL: https://quizplus.com/quiz/69775
Sample Questions
Q1) You hold a diversified portfolio consisting of a $5,000 investment in each of 20 different common stocks.The portfolio beta is equal to 1.15.You have decided to sell one of your stocks, a lead mining stock whose = 1.0, for $5,000 net and to use the proceeds to buy $5,000 of stock in a steel company whose = 2.0.What will be the new beta of the portfolio?
A) 1.12
B) 1.20
C) 1.22
D) 1.10
E) 1.15
Q2) Choose the correct answer for the following: (1) Which is the best measure of risk for choosing an asset which is to be held in isolation? (2) Which is the best measure for choosing an asset to be held as part of a diversified portfolio?
A) Variance; correlation coefficient.
B) Standard deviation; correlation coefficient.
C) Beta; variance.
D) Coefficient of variation; beta.
E) Beta; beta.
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: The Cost of Capital
Available Study Resources on Quizplus for this Chatper
115 Verified Questions
115 Flashcards
Source URL: https://quizplus.com/quiz/69774
Sample Questions
Q1) The cost of debt is equal to one minus the marginal tax rate multiplied by the coupon rate on outstanding debt.
A)True
B)False
Q2) Refer to Global Advertising Company.What is the break point due to retained earnings being used up?
A) $17,000
B) $30,000
C) $56,000
D) $24,000
E) $10,000
Q3) The cost of capital used to evaluate investment opportunities should be calculated as a weighted average of the various types of funds generally used, regardless of the specific financing used to fund a particular project.
A)True
B)False
Q4) Flotation costs lower the cost of capital to a firm when issuing new securities.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Capital Budgeting
Available Study Resources on Quizplus for this Chatper
201 Verified Questions
201 Flashcards
Source URL: https://quizplus.com/quiz/69773
Sample Questions
Q1) The post-audit is used to
A) Improve cash flow forecasts.
B) Stimulate management to improve operations and bring results into line with forecasts.
C) Eliminate potentially profitable but risky projects.
D) All of the above are correct.
E) Only answers a and b are correct.
Q2) ____ are decisions about whether to purchase capital projects and add them to existing assets so as to increase existing operations.
A) Replacement decisions
B) Expansion decisions
C) Independent decisions
D) Mutually exclusive decisions
Q3) The main reason that the NPV method is regarded as being conceptually superior to the IRR method for evaluating mutually exclusive investments is that multiple IRRs may exist.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Capital Structure and Dividend Policy Decisions
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/69772
Sample Questions
Q1) Which of the following types of dividends is (are) never paid out in the form of cash?
A) Regular dividend.
B) Stock dividend.
C) Extra dividend.
D) Liquidating dividend.
E) All of the above are paid in the form of cash.
Q2) The degree of financial risk is the single most important determinant of a firm's capital structure.
A)True
B)False
Q3) If a firm uses no debt, the uncertainty inherent in projections of future returns on equity can be described as business risk.
A)True
B)False
Q4) Business risk depends on all of the following factors except ____.
A) sales variability
B) interest rates
C) input price variability
D) change in output prices
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Working Capital Management
Available Study Resources on Quizplus for this Chatper
174 Verified Questions
174 Flashcards
Source URL: https://quizplus.com/quiz/69771
Sample Questions
Q1) For the Cook County Company, the average age of accounts receivable is 60 days, the average age of accounts payable is 45 days, and the average age of inventory is 72 days.Assuming a 360-day year, what is the length of the firm's cash conversion cycle?
A) 87 days
B) 90 days
C) 65 days
D) 48 days
E) 66 days
Q2) The average accounts receivables balance is determined jointly by the volume of credit sales and the days sales outstanding.
A)True
B)False
Q3) A revolving credit agreement is a formal line of credit usually used by large firms.The firm will pay a fee on the unused balance of the committed funds to compensate the bank for the commitment to extend those funds.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 17
Chapter 16: Investment Concepts
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/69770
Sample Questions
Q1) The degree of risk adversity exhibited by investors varies among individuals at any point in time and changes for individuals across time.
A)True
B)False
Q2) An investor earned a holding period return equal to 10 percent on a stock that she purchased for $27.50.During the time she held the stock, the company paid a $2 dividend.For what price did the investor sell the stock?
A) $26.75
B) $26.25
C) $30.25
D) $29.50
E) $28.25
Q3) The relative amount of personal funds, or initial equity, an investor can borrow from the broker when purchasing stocks on margin is called the initial margin requirement.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Security Valuation and Selection
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/69769
Sample Questions
Q1) What are the stages of a typical industry life cycle?
A) Introductory stage, expansionary or contractionary stage (depending on the business cycle), mature stage.
B) Speculative, expanding growth, declining growth.
C) If the industry is cyclical then it will not follow a life cycle because it expands and contracts with the business cycle.
D) Introductory stage, Expansion stage, Mature stage.
E) Introductory stage, Expansion stage, Stable stage.
Q2) When the economy is in a recession, the Federal Reserve generally attempts to increase business activity by easing credit via lower interest rates, which is accomplished by decreasing reserves (money supply).
A)True
B)False
Q3) Technical analysts probably would agree that fundamental analysts can find the intrinsic value of a firm, but, by the time fundamentalists finish their analysis, it is too late to take advantage of the result.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 19