Business Finance
Test Bank
Course Introduction
Business Finance explores the fundamental principles and practices involved in managing an organization's financial resources. The course covers essential topics such as financial statement analysis, budgeting, capital structure, investment decision-making, risk and return assessment, and working capital management. Students will develop an understanding of how businesses raise capital, allocate funds, and maximize shareholder value while evaluating financial performance. Real-world case studies and financial modeling techniques equip students with practical skills to address financial challenges and make informed decisions in a dynamic business environment.
Recommended Textbook
Financial Management Theory and Practice 3rd Canadian Edition by Eugene Brigham
Available Study Resources on Quizplus
Chapters
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) Prior to changes in 2011,what was the main perceived attraction of income trusts?
A)reducing double taxation
B)unregulated business environment
C)fewer layers in the organizational structure
D)maintenance-free business assets
Answer: A
Q3) Today,trustee services can be arranged only with trust companies.
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 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) Which statement regarding the tax system is true?
A)For small Canadian-controlled private corporations, income less than $400,000 is exempt from taxes. Thus, government receives no tax revenue from these businesses.
B)All businesses, regardless of their legal form of organization, are taxed by the Canada Revenue Agency (CRA).
C)Corporate income taxes are influenced by the size and location of the companies and their income types.
D)All corporations other than nonprofit corporations are subject to corporate income taxes, which are 26.5% for the lowest amounts of income and 32.5% for the highest amounts of income.
Answer: C
Q2) The balance sheet is a financial statement that measures the flow of funds into and out of various accounts over time,while the income statement measures the firm's financial position at a point in time.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
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) Which of the following statements is correct?
A)If two firms have the same ROA, the firm with the most debt can be expected to have the lower ROE.
B)An increase in the DSO, other things held constant, could be expected to increase the total assets turnover ratio.
C)An increase in the DSO, other things held constant, could be expected to increase the ROE.
D)An increase in a firm's debt ratio, with no changes in its sales or operating costs, could be expected to lower the profit margin.
Answer: D
Q2) The basic earning power ratio (BEP) shows the earning power of a firm's assets after giving consideration to financial leverage and tax effects.
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) You are analyzing the value of a potential investment by calculating the sum of the present values of its expected cash flows.Which circumstance would lower the calculated value of the investment?
A)The discount rate increases.
B)The riskiness of the investment's cash flows decreases.
C)The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years.
D)The discount rate decreases.
Q2) Last year Toto Corporation's sales were $225 million.If sales grow at 6% per year,how large (in millions) will they be 5 years later?
A)$271.74 million
B)$286.05 million
C)$301.10 million
D)$316.16 million
Q3) If a bank compounds savings accounts quarterly,the nominal rate will exceed the effective annual rate.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
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 statements is correct?
A)The most important step when developing pro forma financial statements is to determine the breakdown of common equity between common stock and retained earnings.
B)The first, and perhaps the most critical, step in forecasting financial requirements is to forecast future sales.
C)In a financial plan, the way that liabilities and owner's equity are projected to change depends on the firm's sales forecast.
D)The capital intensity ratio gives us an idea of the physical condition of the firm's fixed assets.
Q2) The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales,assuming the firm is operating with a positive profit margin.
A)True
B)False
Q3) Pro forma financial statements are used primarily to assess a firm's historical performance.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 7
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) If the required rate of return on a bond (r<sub>d</sub>) is greater than its coupon interest rate and will remain above that rate,then the market value of the bond will always be below its par value until the bond matures,at which time its market value will equal its par value.(Accrued interest between interest payment dates should not be considered when answering this question.)
A)True
B)False
Q2) Which of the following is NOT true regarding bonds?
A)As interest rates (yield to maturity) rises, the price of bonds with similar risks will also rise.
B)If the market interest equals the coupon rate of a bond the price of the bond will be equal to its par value
C)Assuming no bankruptcy, as the maturity date of a bond approaches, a bond's price will approach its par value.
D)A bond that is trading at a price above its par value is often referred to as a premium bond.
To view all questions and flashcards with answers, click on the resource link above.
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) Even if the correlation between the returns on two securities is +1.0,if the securities are combined in the correct proportions,the resulting two-asset portfolio will have less risk than either security held alone.
A)True
B)False
Q2) A firm can change its beta through managerial decisions,including capital budgeting and capital structure decisions.
A)True
B)False
Q3) The long-run nominal growth rate of the economy is a good measure of which of the following?
A)the inflation rate
B)the government deficit
C)the risk-free interest rate
D)the foreign trade surplus
Q4) If investors become less averse to risk,the slope of the Security Market Line (SML) will increase.
A)True
B)False
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) Clinton's preferred stock pays a dividend of $1.00 per quarter.If the price of the stock is $50.00,what is its effective annual (not nominal) rate of return?
A)7.52%
B)7.76%
C)8.00%
D)8.24%
Q2) You are considering buying a zero growth stock.If the firm pays a $5.00 annual dividend,and your required rate of return is 5%,what is the maximum price you would pay for this stock?
A)$10
B)$100
C)$25
D)$125
Q3) 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%
Page 10
To view all questions and flashcards with answers, click on the resource link above.
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) ABC Canada pays a $2.50 dividend on its preferred shares.If the price of its preferred shares is $48 and floatation costs would be 5% per share,what is the required rate of return on ABC's preferred shares?
A)4.08%
B)5.48%
C)6.00%
D)3.00%
Q2) Jackson Inc.uses only equity capital,and it has two equally sized divisions.Division A's cost of capital is 10.0%,Division B's cost is 14.0%,and the composite WACC is 12.0%.All of Division A's projects have the same risk,as do all of Division B's projects.However,the projects in Division A have less risk than those in Division B.Which of the following projects should Jackson accept?
A)a Division B project with a 13% return
B)a Division B project with a 12% return
C)a Division A project with an 11% return
D)a Division A project with a 9% return
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.
Page 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) Mills Corp.is considering two mutually exclusive machines.Machine A requires an up-front expenditure at t = 0 of $450,000,has an expected life of two years,and will generate positive after-tax cash flows of $350,000 per year (all cash flows are realized at the end of the year) for two years.At the end of two years,the machine will have zero salvage value,but every two years the company can purchase a replacement machine with the same cost and identical cash inflows.Alternatively,it can choose Machine B,which requires an expenditure of $1 million at t = 0,has an expected life of four years,and will generate positive after-tax cash flows of $350,000 per year (all cash flows are realized at year-end).At the end of four years,Machine B will have an after-tax salvage value of $100,000.The cost of capital is 10%.What is the NPV (on an extended four-year life) of the better machine?
A)$157,438
B)$177,754
C)$287,552
D)$355,508
Q2) A firm should never undertake an investment if accepting the project would lead to an increase in the firm's cost of capital.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 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) Which of the following is NOT a cash flow and thus should not be reflected in the analysis of a capital budgeting project?
A)changes in net operating working capital
B)shipping and installation costs
C)cannibalization effects
D)sunk costs that have been expensed for tax purposes
Q2) Which of the following does NOT have incremental cash flow effects and thus should NOT be considered in capital budgeting decisions?
A)A new product will generate new sales, but some of those new sales will be from customers who switch from one of the firm's current products.
B)A firm must obtain new equipment for the project, and $1 million of costs for shipping and installing the new machinery will be required.
C)A firm has spent $2 million on R&D associated with a new product. These costs have been expensed for tax purposes, and they cannot be recovered if the new project is rejected.
D)A firm can produce a new product, and the existence of that product will stimulate sales of some of the firm's other products.
To view all questions and flashcards with answers, click on the resource link above.
Page 13
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) In a perfect world of no taxes,which statement regarding MM propositions is true?
A)According to proposition I, a firm is able to find its optimal capital structure.
B)Proposition II implies that an increase in leverage raises the risk of equity and thereby the required return on equity.
C)According to proposition II, changes in the capital mix of a firm will not affect the debt and equity values of the firm.
D)Proposition I states that the total firm value critically depends on capital structure.
Q2) If Miller and Modigliani had incorporated the costs of bankruptcy into their model,it is unlikely that they would have concluded that 100% debt financing is optimal.
A)True
B)False
Q3) The MM model with corporate taxes is the same as the Miller model,but with zero personal taxes.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
14
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) Grullon Co.is considering a 7-for-3 stock split.The current stock price is $75.00 per share,and the firm believes that its total market value would increase by 5% as a result of the improved liquidity that it thinks would follow the split.What is the stock's expected price following the split?
A)$32.06
B)$33.75
C)$35.44
D)$37.21
Q2) Ting Technology has a capital budget of $850,000,it wants to maintain a target capital structure of 35% debt and 65% equity,and it also wants to pay a dividend of $400,000.If the company follows a residual dividend policy,how much net income must it earn to meet its capital budgeting requirements and pay the dividend,all while keeping its capital structure in balance?
A)$904,875
B)$952,500
C)$1,000,125
D)$1,050,131
To view all questions and flashcards with answers, click on the resource link above.
Page 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) What is an example of a seasoned equity offering?
A)Shares are sold by founding members from their holdings in the primary market.
B)Unsubscribed new shares from the previous IPO are sold in the secondary market.
C)New shares are sold to the general public by companies in the primary market.
D)Used shares are sold to existing shareholders in the secondary market.
Q2) What is one of the advantages of going private?
A)reduced managerial flexibility
B)lower shareholder participation
C)higher cost in security registration
D)increased managerial efficiency
Q3) The phrase "leaving money on the table" refers to the situation where an investment bank makes a very low bid for the right to underwrite a firm's new stock offering.The banker is in effect "buying the job" with the low bid and thus not getting all the money his firm would normally earn on the job.
A)True
B)False
Q4) Best efforts deals are commonly used by well-known,established issuers.
A)True
B)False
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) 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
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) From the lessee viewpoint,the riskiness of the cash flows,with the possible exception of the residual value,is about the same as which of the following?
A)the lessee's equity cash flows
B)the lessee's capital budgeting project cash flows
C)the lessee's debt cash flows
D)the lessee's pension fund cash flows
To view all questions and flashcards with answers, click on the resource link above.
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) A warrant is an option,and as such,it cannot be used as a "sweetener."
A)True
B)False
Q2) Which of the following is correct regarding the interaction of a firm's share price and the value of issued warrants?
A)The value of the warrant increases as the market price of the underlying shares rises. B)The value of the warrant decreases as the market price of the underlying shares eclines.
C)The value of the warrant increases as the market price of the underlying shares declines.
D)There is no relationship between the value of a warrant and its stock price.
Q3) Refer to Scenario: Canada Corp.What is the fully diluted EPS?
A)$1.57
B)$1.59
C)$1.62
D)$1.71
Q4) Convertible bonds typically have a call provision.
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) Which of the following methods CANNOT be employed by lenders to control inventory that has been used as security for a loan?
A)blanket liens
B)trust receipts
C)warehousing
D)compensating balance
Q2) The prime rate charged can vary greatly (e.g.,as much as 2 to 4 percentage points) across banks due to banks' ability to differentiate themselves and because particular banks develop particular clienteles,such as making loans to specialty retailers.
A)True
B)False
Q3) The calculated cost of trade credit can be reduced by paying late.
A)True
B)False
Q4) Minimizing cash holdings,inventories,or receivables,and maximizing payables or accruals are the aims of relaxed working capital policies.
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) The primary reason to monitor aggregate accounts receivable is to see if customers,on average,are paying more slowly.
A)True
B)False
Q2) Refer to Scenario: Fashion Clothiers.What is the firm's EOQ?
A)13,563
B)26,833
C)30,040
D)43,987
Q3) If easing a firm's credit policy lengthens the collection period and results in a worsening of the aging schedule,then why might a firm take this action?
A)to slow down an unsustainable growth in sales
B)to meet competitive pressures
C)to increase the payments deferral period
D)to shorten the cash collection cycle
Q4) Two methods for improving the collection process are the use of a lockbox system and moving funds by electronic transfer.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 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) Which of the following statements is correct?
A)Call options generally sell at a price less than their exercise value.
B)If a stock becomes riskier (more volatile), call options on the stock are likely to decline in value.
C)Call options generally sell at prices above their exercise value, but for an in-the-money option, the greater the exercise value in relation to the strike price, the lower the premium on the option is likely to be.
D)Because of the put-call parity relationship, under equilibrium conditions, a put option on a stock must sell at exactly the same price as a call option on the stock.
Q2) If a company announces a change in its dividend policy from a zero target payout ratio to a 100% payout policy,this action could be expected to increase the value of long-term options (say 5-year options) on the firm's stock.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 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) Which statement best describes forward and/or futures contracts?
A)One advantage of forward contracts is that they are default free.
B)Futures contracts generally trade on an organized exchange and are marked to market daily.
C)Goods are never delivered under forward contracts, but are almost always delivered under futures contracts.
D)While futures contracts can be constructed to accommodate both parties, forward contracts are standardized.
Q2) Which of the following best describes counterparty risk?
A)the risk that one party defaults on its counterparty risk
B)the risk that one party defaults on its bond coupon payments
C)the risk that one party defaults on its derivatives contract obligations
D)there is no such thing as counterparty risk in derivatives markets
Q3) Which of the following best describes a natural hedge?
A)a situation in which only farm products are hedged
B)a situation in which total risk is reduced by a derivatives transaction between two parties
C)a hedge on two strongly related currencies, such as, the USD and the CAD
D)a hedge transaction in which arbitrage profits are naturally occurring.
To view all questions and flashcards with answers, click on the resource link above.
Page 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) Individuals and corporations can buy or sell forward currencies to hedge their exchange rate exposure.Essentially,the process involves simultaneously selling the currency expected to appreciate in value and buying the currency expected to depreciate.
A)True
B)False
Q2) Due to advanced communications technology and the standardization of general procedures,working capital management for multinational firms is no more complex than it is for large domestic firms.
A)True
B)False
Q3) If one Swiss franc can purchase 0.966 Canadian dollars,how many Swiss francs can one Canadian dollar buy?
A)0.50
B)0.71
C)1.00
D)1.04
Q4) Exchange rate quotations consist solely of direct quotations.
A)True
B)False
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) Suppose Yon Sun Corporation's free cash flow during the just-ended year (t = 0) was $100 million,and FCF is expected to grow at a constant rate of 5% in the future.If the weighted average cost of capital is 15%,what is the firm's value of operations,in millions?
A)$948
B)$998
C)$1,050
D)$1,103
Q2) Simonyan Inc.forecasts a free cash flow of $40 million in Year 3,i.e.,at t = 3,and it expects FCF to grow at a constant rate of 5% thereafter.If the weighted average cost of capital is 10% and the cost of equity is 15%,what is the horizon value,in millions at t = 3?
A)$840
B)$882
C)$926
D)$972
Q3) A poison pill is also known as a corporate restructuring.
A)True
B)False
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) A taxable merger offer is one where the acquiring company offers to purchase the target company with cash.However,the same deal is not taxable if the merger is paid by exchanging stocks.Such nontaxable bids should be more popular by far.
A)True
B)False
Q2) The income statement of the post-merger firm will be the same regardless of the accounting method used.
A)True
B)False
Q3) Which of the following is a valid,acceptable reason for a closely held firm proposing a merger activity?
A)synergistic benefits arising from mergers
B)reduction in competition resulting from mergers
C)attempts to stabilize earnings by diversifying
D)minimizing taxes when disposing of excess cash
Q4) A spin-off is a type of divestiture in which the assets of a division are sold to another firm.
A)True
B)False
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) Commodore Corporation is deciding whether to invest in a project today or to postpone the decision until next year.The project has a positive expected NPV,but its cash flows could be less than expected,in which case the NPV could be negative.No competitors are likely to invest in a similar project if Commodore decides to wait.Which of the following issues should Commodore consider most seriously when making this investment decision?
A)The more uncertainty about the future cash flows, the more logical it is for Commodore to go ahead with this project today.
B)Since the project has a positive expected NPV today, this means that its expected NPV will be even higher if it chooses to wait a year.
C)Since the project has a positive expected NPV today, this means that it should be accepted in order to lock in that NPV.
D)Waiting would probably reduce the project's risk.
Q2) Which of the following is NOT a real option?
A)the option to expand production if the product is successful
B)the option to buy shares of stock if its price goes up
C)the option to expand into a new geographic region
D)the option to switch the type of fuel used in an industrial furnace
To view all questions and flashcards with answers, click on the resource link above. Page 26