Business Finance
Test Preparation
Course Introduction
Business Finance is an essential course that introduces students to the foundational principles and practices required to make informed financial decisions within a business environment. The course covers topics such as financial statement analysis, time value of money, risk and return, capital budgeting, cost of capital, and working capital management. Students learn how businesses raise capital, allocate resources, and maximize value for stakeholders. Through case studies and practical exercises, students develop analytical and problem-solving skills that prepare them to address real-world financial challenges faced by organizations today.
Recommended Textbook
Principles of Managerial Finance Brief 6th Edition by Lawrence J. Gitman
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15 Chapters
2750 Verified Questions
2750 Flashcards
Source URL: https://quizplus.com/study-set/3403
Page 2
Chapter 1: The Role of Managerial Finance
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133 Verified Questions
133 Flashcards
Source URL: https://quizplus.com/quiz/67564
Sample Questions
Q1) The financial manager is interested in the cash inflows and outflows of the firm, rather than the accounting data, in order to ensure
A) profitability.
B) the ability to pay dividends.
C) the ability to acquire new assets.
D) solvency.
Answer: D
Q2) The ________ has/have the ultimate responsibility in guiding corporate affairs and carrying out policies.
A) board of directors
B) chief executive officer
C) stockholders
D) creditors
Answer: A
Q3) The accountant may be responsible for any of the following EXCEPT
A) processing purchase orders and invoices.
B) ensuring accounts payable are paid on time.
C) preparing the monthly income statement.
D) analyzing the mix of current to fixed assets.
Answer: D
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Chapter 2: The Financial Market Environment
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91 Verified Questions
91 Flashcards
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Sample Questions
Q1) Unlike the organized exchanges, the OTC makes a market in both outstanding securities and new public issues, making it both a secondary and a primary market.
A)True
B)False
Answer: True
Q2) The shadow banking system describes a group of institutions that engage in lending activities, much like traditional banks, but these institutions do not accept deposits and are therefore not subject to the same regulations as traditional banks.
A)True
B)False
Answer: True
Q3) In the OTC market, the prices at which securities are traded result from both competitive bids and negotiation.
A)True
B)False
Answer: True
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Chapter 3: Financial Statements and Ratio Analysis
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209 Verified Questions
209 Flashcards
Source URL: https://quizplus.com/quiz/67556
Sample Questions
Q1) As a rule, the necessary inputs to an effective financial analysis include, at minimum, the income statement and the statement of cash flow.
A)True
B)False
Answer: False
Q2) The ________ ratio may indicate poor collections procedures or a lax credit policy.
A) average payment period
B) inventory turnover
C) average collection period
D) quick Answer: C
Q3) The return on equity for Dana Dairy Products for 2010 was ________. (See Table 3.2)
A) 0.6 percent
B) 5.6 percent
C) 0.9 percent
D) 50 percent
Answer: B
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Chapter 4: Cash Flow and Financial Planning
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185 Verified Questions
185 Flashcards
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Sample Questions
Q1) The number and type of intervals in the cash budget depend on the nature of the business. The more seasonal and uncertain a firm's cash flows, the greater the number of intervals and the shorter time intervals.
A)True
B)False
Q2) A firm plans to depreciate a five year asset in the next planning period. The statements that will be directly affected immediately are the
A) pro forma income statement, pro forma balance sheet, and cash budget.
B) pro forma balance sheet, cash budget, and statement of retained earnings.
C) cash budget and pro forma balance sheet.
D) pro forma income statement and pro forma balance sheet.
Q3) The firm may have increased long-term debts to finance (See Table 4.1)
A) an increase in gross fixed assets.
B) an increase in current assets.
C) a decrease in notes payable.
D) all of the above.
Q4) If a pro forma balance sheet dated at the end of May was prepared from the information presented, the accounts receivable would total ________. (See Table 4.3)
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Page 6
Chapter 5: Time Value of Money
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173 Verified Questions
173 Flashcards
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Sample Questions
Q1) Calculate the present value of $800 received at the beginning of year 1, $400 received at the beginning of year 2, and $700 received at the beginning of year 3, assuming an opportunity cost of 9 percent.
Q2) Last Christmas, Danny received an annual bonus of $1,500. These annual bonuses are expected to grow by 5 percent for the next 5 years. How much will Danny have at the end of the fifth year if he invests his Christmas bonuses (including the most recent bonus) in a project paying 8 percent per year?
Q3) The nominal (stated) annual rate is the rate of interest actually paid or earned.
A)True
B)False
Q4) The greater the interest rate and the longer the period of time, the higher the present value.
A)True
B)False
Q5) The effective rate of interest is the contractual rate of interest charged by a lender or promised by a borrower.
A)True
B)False
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Chapter 6: Interest Rates and Bond Valuation
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224 Verified Questions
224 Flashcards
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Sample Questions
Q1) The ________ rate of interest is typically the required rate of return on a three-month U.S. Treasury bill.
A) nominal
B) real
C) risk-free
D) premium
Q2) The return expected from an asset is fully defined by its A) risk and cash flow.
B) cash flow and timing.
C) discount rate.
D) beta.
Q3) When the required return is constant but different from the coupon rate, the price of a bond as it approaches its maturity date will A) remain constant.
B) increase.
C) decrease.
D) approach par.
Q4) A trustee is a paid party representing the bond issuer in the bond indenture. A)True
B)False
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Chapter 7: Stock Valuation
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188 Verified Questions
188 Flashcards
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Sample Questions
Q1) A prospectus is another term for a firm's annual report showing the firm's prospects for the coming year.
A)True
B)False
Q2) The liquidation value per share of common stock is the amount per share of common stock that would be received if all of the firm's assets were sold for their accounting value and the proceeds remaining were divided among common stockholders.
A)True
B)False
Q3) Supervoting shares of common stock provide shareholders with ten times the voting power of ordinary shares of common stock.
A)True
B)False
Q4) Preferred stock is valued as if it were a
A) fixed-income obligation.
B) bond.
C) perpetuity.
D) common stock.
Q5) Calculate the estimated dividend for 2004. (See Table 7.2)
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Chapter 8: Risk and Return
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190 Verified Questions
190 Flashcards
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Sample Questions
Q1) Two assets whose returns move in the opposite directions and have a correlation coefficient of -1 are both either risk-free assets or low-risk assets.
A)True
B)False
Q2) Assume your firm produces a good which has high sales when the economy is expanding and low sales during a recession. This firm's overall risk will be higher if it invests in another product which is counter cyclical.
A)True
B)False
Q3) Strikes, lawsuits, regulatory actions, and increased competition are all examples of A) diversifiable risk.
B) nondiversifiable risk.
C) economic risk.
D) systematic.
Q4) The security market line is not stable over time and shifts in it can result in a change in required return.
A)True
B)False
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Page 10
Chapter 9: The Cost of Capital
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) The firm's after-tax cost of debt is ________. (See Table 9.1)
A) 3.25 percent
B) 4.6 percent
C) 8 percent
D) 8.13 percent
Q2) Weights that use accounting values to measure the proportion of each type of capital in the firm's financial structure are called book value weights.
A)True
B)False
Q3) In general, floatation costs include two components, underwriting costs and administrative costs.
A)True
B)False
Q4) The Gordon model is based on the premise that the value of a share of stock is equal to sum of all future dividends it is expected to provide over an infinite time horizon.
A)True
B)False
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11
Chapter 10: Capital Budgeting Techniques
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167 Verified Questions
167 Flashcards
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Sample Questions
Q1) On a purely theoretical basis, NPV is a better approach to capital budgeting than IRR because NPV implicitly assumes that any intermediate cash inflows generated by an investment are reinvested at the firm's cost of capital.
A)True
B)False
Q2) Net present value (NPV) assumes that intermediate cash inflows are reinvested at the cost of capital, whereas internal rate of return (IRR) assumes that intermediate cash inflows can be reinvested at a rate equal to the project's IRR.
A)True
B)False
Q3) Sophisticated capital budgeting techniques do not
A) examine the size of the initial outlay.
B) use net profits as a measure of return.
C) explicitly consider the time value of money.
D) take into account an unconventional cash flow pattern.
Q4) In spite of the theoretical superiority of IRR, financial managers prefer to use NPV.
A)True
B)False
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Page 12
Chapter 11: Capital Budgeting Cash Flows and Risk
Refinements
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195 Verified Questions
195 Flashcards
Source URL: https://quizplus.com/quiz/67562
Sample Questions
Q1) Calculate the risk-adjusted discount rates for project X and project Y. (See Table 11.11)
Q2) If the projects have five-year lives, the range of the net present value for Project B is approximately ________. (See Table 11.7)
A) $80,560
B) $201,000
C) $255,410
D) $303,280
Q3) Calculate the initial investment required for the new asset. (See Table 11.6)
Q4) Using the risk-adjusted discount rate method of project evaluation, the better investment for Tangshan Mining is (See Table 11.9)
A) Project M.
B) Project N.
C) They are equivalent.
D) none of the above.
Q5) Simulation is an approach that evaluates the impact on return of simultaneous changes in a number of variables.
A)True
B)False
Page 13
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Chapter 12: Leverage and Capital Structure
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217 Verified Questions
217 Flashcards
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Sample Questions
Q1) A firm is analyzing two possible capital structures 30 and 50 percent debt ratios. The firm has total assets of $5,000,000 and common stock valued at $50 per share. The firm has a marginal tax rate of 40 percent on ordinary income. The number of common shares outstanding for each of the capital structures would be
A) 30 percent debt ratio: 30,000 shares and 50 percent debt ratio: 50,000 shares.
B) 30 percent debt ratio: 50,000 shares and 50 percent debt ratio: 70,000 shares.
C) 30 percent debt ratio: 70,000 shares and 50 percent debt ratio: 100,000 shares.
D) 30 percent debt ratio: 70,000 shares and 50 percent debt ratio: 50,000 shares.
Q2) The effect of financial leverage is such that an increase in the firm's earnings before interest and taxes (EBIT) results in a more than proportional increase in the firm's earnings per share (EPS), while a decrease in the firm's EBIT results in a less than proportional decrease in EPS.
A)True
B)False
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Page 14
Chapter 13: Payout Policy
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) The shareholder receiving a stock dividend receives a share of common stock of equal value to their existing shares of common stock.
A)True
B)False
Q2) The level of dividends a firm expects to pay is generally unrelated to how rapidly it expects to grow as well as the level of asset investments required.
A)True
B)False
Q3) Mr. R. owns 20,000 shares of ABC Corporation stock. The company is planning to issue a stock dividend. Before the dividend Mr. R. owned 10 percent of the outstanding stock, which had a market value of $200,000, or $10 per share. Upon receiving the 10 percent stock dividend the value of his shares is
A) $220,000.
B) $210,000.
C) $200,000.
D) greater, but cannot be determined.
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Chapter 14: Working Capital and Current Assets Management
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340 Verified Questions
340 Flashcards
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Sample Questions
Q1) Working capital represents refers to a firm's long term capital.
A)True
B)False
Q2) One major risk a firm assumes in an aggressive financing strategy is
A) the possibility that collections will be slower than expected.
B) the possibility that long-term funds may not be available when needed.
C) the possibility that short-term funds may not be available when needed.
D) the possibility that it will run out of cash.
Q3) When managing accounts receivable, a good strategy to employ without losing future sales is to
A) send the accounts to a collection agency.
B) tighten the credit terms.
C) offer cash discount.
D) make frequent personal visits to the customer.
Q4) A firm's credit selection is the process of determining the minimum requirements for extending credit to a customer.
A)True
B)False
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Chapter 15: Current Liabilities Management
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171 Verified Questions
171 Flashcards
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Sample Questions
Q1) Tangshan Mining borrowed $10,000 for one year under a revolving credit agreement that authorized and guaranteed the firm access to $20,000. The revolving credit agreement had a stated interest rate of 8 percent and charged the firm a half percent commitment fee on the unused portion of the agreement. Based on this information, the effective annual interest rate on the loan was 8.50 percent.
A)True
B)False
Q2) Inventory is attractive as collateral since it normally has a market value greater than its book value, which is used to establish its value as collateral.
A)True
B)False
Q3) The cost of borrowing through the sale of commercial paper is typically ________ the prime bank loan rate. A) lower than B) the same as C) unrelated to D) higher than
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