Course Introduction
Business Finance
Test Preparation
Business Finance explores the fundamental principles and practices involved in financial decision-making within corporations and other business entities. The course covers topics such as financial analysis and planning, capital budgeting, sources of financing, risk and return assessment, working capital management, and the valuation of assets and firms. Students will develop an understanding of how financial markets operate and learn to use financial information for effective business management and strategic planning, with an emphasis on ethical considerations and the global financial environment.
Recommended Textbook
Financial Management Core Concepts 4th Edition by Raymond Brooks
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18 Chapters
1932 Verified Questions
1932 Flashcards
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Page 2
Chapter 1: Financial Management
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122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/51882
Sample Questions
Q1) ________ addresses the question of how to handle our day-to-day business needs.
A)Capital budgeting
B)Capital structure
C)Working capital management
D)Accounts receivable management
Answer: C
Q2) Which of the following is NOT a feature of the Sarbanes-Oxley Act?
A)The company and auditors must annually assess the effectiveness of financial controls.
B)The company must maintain effective internal financial controls.
C)The CEO and CFO must attest to the fairness of the financial reports.
D)Each of the above are features of the Sarbanes-Oxley Act.
Answer: D
Q3) Which of the following is NOT a function of a financial intermediary in the lending/borrowing process?
A)To help establish terms of the lending/borrowing agreement
B)To match the borrower and the lender
C)To bear the risk that the lender will not repay
D)To bear the risk that the borrower will not repay
Answer: C
Page 3
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Chapter 2: Financial Statements
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91 Verified Questions
91 Flashcards
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Sample Questions
Q1) Equity on the balance sheet refers to what the owners receive after liabilities have been satisfied.
A)True
B)False
Answer: True
Q2) Which of the following identities is TRUE?
A)Operating Cash Flow = EBIT - Depreciation + Taxes
B)Net Capital Spending = Ending Net Fixed Assets - Depreciation
C)Net Working Capital (NWC)= Current Assets - Current Liabilities
D)Cash Flow from Assets = Operating Cash Flow - Net Capital Spending
Answer: C
Q3) Describe some of the items often disclosed in the financial notes.
Answer: Some of the items often disclosed in the financial notes are: (1)How a specific item was computed (2)Additional information on a company's financial condition such as (a)Special issues concerning its debt or contingent accounts (b)Information on the potential impact of a pending lawsuit (c)Events regarding a loss or impairment (3)Methods used to prepare the financial statements (4)Difference between prior estimates and actual results
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4
Chapter 3: The Time Value of Money Part 1
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) The Rule of 72 can be used to quickly estimate interest rates necessary to double your money in a given time period without the use of a spreadsheet or calculator.However,the rule does NOT work for estimating growth rates.
A)True
B)False Answer: False
Q2) If interest rates are positive,then discounting increases the future value of an investment while compounding reduces the present value of an investment.
A)True
B)False Answer: False
Q3) The Present Value Interest Factor (PVIF)is the reciprocal of the Future Value Interest Factor (FVIF).
A)True
B)False Answer: True
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Page 5
Chapter 4: The Time Value of Money Part 2
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) What is the future value in year thirty-five of an ordinary annuity cash flow of $4,000 per year at an interest rate of 11.0% per year?
A)$1,366,358.22
B)$555,000.32
C)$196,694.12
D)$140,000.00
Q2) Which is greater,the present value of a five-year ordinary annuity of $300 discounted at 10%,or the present value of a five-year ordinary annuity of $300 discounted at 0% that has its first cash flow six years from today?
A)The first annuity because the cash flows occur sooner.
B)The second annuity because the cash flows are discounted at a 0% interest rate.
C)The two annuities are of equal value.
D)The answer to this question cannot be determined.
Q3) Weston Inc.just agreed to pay $8,000 today,$10,000 in one year,and $15,000 in two years to a landowner to explore for,but not extract,valuable minerals.If the landowner invests the money at a rate of 5.5% compounded annually,what is the investment worth two years from today?
Q4) Discuss the nature and importance of the TVM equation.
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Chapter 5: Interest Rates
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) The EAR is 5.85% if the APR is 5.85% and compounding is annual.
A)True
B)False
Q2) Suppose you deposit money in a certificate of deposit (CD)at a bank.Which of the following statements is TRUE?
A)The bank is borrowing money from you without a promise to repay that money with interest.
B)The bank is lending money to you with a promise to repay that money with interest.
C)The bank is technically renting money from you with a promise to repay that money with interest.
D)The bank is lending money to you,but not borrowing money from you.
Q3) To determine the interest paid each compounding period,we take the advertised annual percentage rate and simply divide it by the ________ to get the appropriate periodic interest rate.
A)number of compounding periods for the length of an investment
B)number of discounting periods for the length of an investment
C)number of compounding periods per year
D)number of compounding periods per month
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Chapter 6: Bonds and Bond Valuation
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Zero-coupon U.S.Government bonds are known as ________.
A)STRIPS
B)muni-bonds
C)Uncle Sam's Empty Pockets
D)BLANKS
Q2) The ________ is the written contract between the bond issuer and the bondholder.
A)debenture
B)sinking fund
C)indenture
D)corpus
Q3) Exotic bonds are ________ difficult to price than ordinary bonds and they attract ________ potential buyers.
A)more; more
B)less; more
C)more; fewer
D)less; fewer
Q4) A callable bond allows the bond issuer to "call-in" the bond prior to maturity.
A)True
B)False
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Chapter 7: Stocks and Stock Valuation
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) Which of the statements below is FALSE?
A)Shortcomings of the dividend pricing models suggest that we need a pricing model that is more inclusive and that can estimate expected returns for stocks without the need for a stable dividend history.
B)A firm's dividend in 2008 was less than its dividend in 2003.This means that the estimated growth rate is negative,and this produces a negative expected return.
C)The dividend models (growth or constant dividend)appeal to a fundamental concept of financial assets,that is,the value of the financial asset is determined by the future cash flow the owner is entitled to while holding the asset.
D)Lack of a dividend pattern is not a problem for the dividend models to work.
Q2) You buy a stock for which you expect to receive an annual dividend of $2.10 for the ten years that you plan on holding it.After 10 years,you expect to sell the stock for $26.15.What is the present value of a share for this company if you want an 8% return?
A)$7.72
B)$15.97
C)$26.20
D)$31.41
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Page 9
Chapter 8: Risk and Return
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119 Verified Questions
119 Flashcards
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Sample
Questions
Q1) Lila purchased Hampton Industries Inc.stock for $18.35 and sold it 6 months later for $21.45 after receiving a $0.50 dividend.What was her holding period return (HPR),Annual Percentage Rate (APR),and Effective Annual Rate (EAR)?
A)20.34%,40.68%,9.70%
B)14.17%,28.34%,30.35%
C)19.62%,39.24%,43.09%
D)20.34%,40.68%,44.82%
Q2) The ________ is the intercept on the Security Market Line.
A)prime rate
B)risk-free rate
C)market rate of return
D)beta
Q3) Robert invested in stock and received a positive return over a 9-month period.Which of the following types of returns will be greater?
A)Holding period return (HPR)
B)Effective annual return
C)Annual percentage rate
D)There is not enough information to make a definitive choice.
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10
Chapter 9: Capital Budgeting Decision Models
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99 Flashcards
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Sample Questions
Q1) The ________ method is economically sound and properly ranks projects across various sizes,time horizons,and levels of risk,without exception for all independent projects.
A)NPV
B)Discounted Payback Period
C)Profitability Index
D)Modified IRR
Q2) Which of the statements below describes the IRR decision criterion?
A)The decision criterion is to accept a project if the IRR falls below the desired or required return rate.
B)The decision criterion is to reject a project if the IRR exceeds the desired or required return rate.
C)The decision criterion is to accept a project if the IRR exceeds the desired or required return rate.
D)The decision criterion is to accept a project if the NPV is positive.
Q3) To be considered acceptable,a project must have an NPV greater than 1.0.
A)True
B)False
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Chapter 10: Cash Flow Estimation
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) Which of the statements below is FALSE?
A)A company could show a loss for the operating period but have generated positive cash flow for the business.
B)Profits are an accounting measure of performance during a specific period of time.
C)To obtain the operating cash flow,given the net income,we add back depreciation and subtract taxes.
D)Cash flow is an accounting measure of performance during a specific period of time.
Q2) ________ costs each year do not reflect cash flow because the actual purchase and installation (outflow of dollars)of the asset have already taken place.
A)Depreciation
B)Sunk
C)Opportunity
D)Working Capital
Q3) What is an incremental cash flow for a project? What concepts do we need to examine to help understand how to estimate the incremental cash flow of a project? What else is needed for deciding whether or not to choose a project?
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Chapter 11: The Cost of Capital
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) The cost of debt could be which of the following?
A)The required return on money borrowed as a long-term loan from a bank
B)The required return on money borrowed from a venture capitalist
C)The yield-to-maturity on money raised by selling bonds
D)All of the choices above could be considered the cost of debt.
Q2) Use the dividend growth model to determine the required rate of return for equity.Your firm intends to issue new common stock.Your investment bankers have determined that the stock should be offered at a price of $20.00 per share and that you should anticipate paying a dividend of $0.50 in one year.If you anticipate a constant growth in dividends of 4.00% per year and the investment banking firm will take 10.00% per share as flotation costs,what is the required rate of return for this issue of new common stock?
A)6.78%
B)7.08%
C)7.19%
D)10.20%
Q3) The cost of retained earnings is the cost of issuing new common stock without flotation costs.
A)True
B)False
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Chapter 12: Forecasting and Short-Term Financial Planning
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109 Flashcards
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Sample Questions
Q1) Based on the sales forecast,the finance manager estimates the receipt of cash based on cash and ________.
A)credit sales
B)inventory sales
C)accounts receivables
D)net income
Q2) Financial forecasts are seldom right on the money,so to speak,but they do provide a yardstick by which a company can measure ________.
A)its past adherence to its long-term plan
B)its past deviation from its long-term plan
C)its adherence to or deviation from its short-term plan
D)its current deviation from its future plan
Q3) It is ________ of cash flow that is important to the financial manager.
A)the timing and amount
B)just the timing
C)just the amount
D)None of the above
Q4) A line of credit does not resemble a personal credit card.
A)True
B)False
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Chapter 13: Working Capital Management
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105 Flashcards
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Sample Questions
Q1) In order to shorten the financing period of the cash conversion cycle,a manager can speed up the collection period or slow down the payable cycle.
A)True
B)False
Q2) Changes in working capital are considered insignificant and thus ignored when considering capital projects.
A)True
B)False
Q3) Which of the following does NOT reduce the length of time of collection float for a firm?
A)Electronic fund transfers (EFT)
B)Lockboxes
C)Direct payment via online checking
D)All of the above reduce the length of time of collection float for a firm.
Q4) Refer to the Monthly Sales for the Jetton Company.If Jetton were to shorten the amount of time firms have to pay their accounts receivable,then the firm may lose some credit customers and lose sales.
A)True
B)False
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Chapter 14: Financial Ratios and Firm Performance
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80 Verified Questions
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Sample Questions
Q1) What does it mean to benchmark by industry? Why is this needed when conducting a financial ratio analysis?
Q2) The higher the current ratio,the better.
A)True
B)False
Q3) To determine market value for a company,we cannot rely exclusively on its financial statements for our information.
A)True
B)False
Q4) The revenue is $30,000,the cost of goods sold is $16,000,the selling,general and administrative expenses are $7,000,interest expense is $2,000,addition to inventory is $1,000,and depreciation is $3,000.What is the EBIT?
A)$1,000
B)$4,000
C)$7,000
D)$13,000
Q5) Briefly describe what benchmarking does.
Q6) Describe the three components of the DuPont ratio.
Q7) Name and describe three of the five classes of financial ratios.
Page 16
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Chapter 15: Raising Capital
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Sample Questions
Q1) Ventures that have low burn or bleed rates may require less ________ compared to a venture with a high bleed rate.
A)time from the financier
B)monitoring by the venture capitalist
C)performance benchmarks
D)All of the above
Q2) By making a/an ________,the investment banker agrees to buy an entire issue of new securities from a firm and then attempt to sell the securities to the public.
A)firm commitment
B)best effort
C)IPO
D)due diligence
Q3) The venture capitalist's objective is to help small business owners qualify for loans when they may not be able to qualify through the normal lending policies of a commercial lender.
A)True
B)False
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Chapter 16: Capital Structure
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Sample Questions
Q1) The return to the investor is the cost to the seller.
A)True
B)False
Q2) APM Inc.is in the property management business and has a required return on its assets of 14%.It can borrow in the debt market at 7%.If there are no taxes and M&M's proposition II holds,what is the cost of equity if there is 30% equity financing and 70% debt financing?
A)55%
B)40%
C)30%
D)16%
Q3) Oprah lends $150,000 for each new idea.Oprah's history is that she selects low-risk projects or ideas that hit 40% of the time.What rate of return must each successful project pay Oprah for her to break even?
A)0%
B)50%
C)150%
D)200%
Q4) Describe the Pecking Order Hypothesis.
Q5) Describe the Static Theory of Capital Structure.
Page 18
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Chapter 17: Dividends, Dividend Policy, and Stock Splits
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Sample Questions
Q1) Dividend Reinvestment Plans (DRIPS)can be found in ________.
A)brokerage-run programs
B)transfer-agent-run programs
C)company-run programs
D)all of the above
Q2) Identify and explain two reasons for reverse stock splits.
Q3) ACME Inc.has decided on a 25% stock dividend.If the firm currently has 800,000 shares outstanding,how many shares will be outstanding after the stock split?
A)1,250,000 shares
B)1,000,000 shares
C)600,000 shares
D)200,000 shares
Q4) Historically,the average price on the ________ has been in the $20-$40 per share range.
A)Dow Jones Industrial Average
B)New York Stock Exchange
C)S and P 500
D)Wilshire 2000
Q5) Identify and define three reasons for stock splits.
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Chapter 18: International Financial Management
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Which of the statements below is FALSE?
A)Multinational capital budgeting is a straightforward application of the NPV model with one twist: we can do the analysis in either domestic currency or foreign currency.
B)If we are using foreign currency for the NPV decision,all we have to do is restate all the foreign incremental cash flow in terms of future value and use the current exchange rate.
C)In calculating a multinational NPV,one must be careful to avoid differences with rounding of exchange rates,discount rates,and cash flow to produce the correct value.
D)With the foreign currency approach in NPV analysis,if we know the appropriate discount rate in the home country and the expected inflation rates in the two countries,we can determine the appropriate foreign discount rate.
Q2) The relationship between the American or direct rate and the European or indirect rate is simply ________.
A)a reversal
B)an inversal
C)a reciprocal
D)all of these
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Page 20