Finance for Business Test Preparation
Course Introduction
Finance for Business introduces students to the foundational principles and practices of financial management within an organizational context. The course covers key topics such as financial statement analysis, budgeting, working capital management, investment decisions, and sources of business financing. Students explore how financial data is used in decision-making, examine risk and return, and learn techniques for maximizing shareholder value. Emphasis is placed on practical applications and real-world scenarios, enabling students to develop critical skills for managing and interpreting financial information in various business environments.
Recommended Textbook
Essentials of Corporate Finance 2nd Australia Edition by Stephen Ross
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18 Chapters
871 Verified Questions
871 Flashcards
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Page 2
Chapter 1: Introduction to Financial Management
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Sample Questions
Q1) Which one of the following best matches the primary goal of financial management?
A)increasing the dollar amount of each sale
B)increasing traffic flow within the firm's stores
C)transforming fixed costs into variable costs
D)increasing the firm's liquidity
E)increasing the market value of the firm
Answer: E
Q2) Elizabeth is employed as a loans officer for the Commonwealth Bank.Her job falls into which of the following areas of finance?
A)international finance
B)financial institutions
C)corporate finance
D)capital management
E)investments
Answer: B
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Chapter 2: Financial Statements, Taxes, and Cash Flow
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Sample Questions
Q1) A fixed asset by definition:
A)has a relatively long life
B)has a life of one year or more and is a tangible asset
C)includes both highly liquid assets and intangible assets
D)is equal to total assets minus net working capital
E)converts to cash within one year
Answer: A
Q2) An increase in which of the following will increase net income?
A)fixed costs
B)depreciation
C)marginal tax rate
D)revenue
E)dividends
Answer: D
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Page 4
Chapter 3: Working With Financial Statements
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Sample Questions
Q1) Which of the following statements identify problems with financial statement analysis?
I: It is not always easy to identify a suitable benchmark for comparison purposes.
II: As many firms are conglomerates owning more than one line of business it is sometimes difficult to identify groups of firms that are directly comparable.
III: Firms in the same industry operate globally and comparison may be difficult due to different accounting standards used in the preparation of financial statements.
IV: Unusual events may affect financial performance which may give misleading signals when comparing firms' results.
A)I only
B)I,II,III and IV
C)I,II and IV
D)I and III
E)III and IV
Answer: C
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Chapter 4: Introduction to Valuation: the Time Value of Money
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Sample Questions
Q1) When you were born,your parents opened an investment account in your name and deposited $500 into the account.The account has earned an average annual rate of return of 4.8 per cent.Today,the account is valued at $36 911.22.How old are you?
A)74.47 years
B)76.67 years
C)81.08 years
D)87.33 years
E)91.75 years
Q2) A financially wise individual would prefer a loan based on __________ interest and an investment earning __________ interest.
A)compound;compound
B)compound;simple
C)simple;compound
D)simple;simple
E)complex;compound
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6
Chapter 5: Discounted Cash Flow Valuation
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Sample Questions
Q1) Webster Mining is considering the purchase of a new sorting machine.The quote consists of a quarterly payment of $29 600 for 7 years at 8 per cent interest.What is the purchase price of the equipment?
A)$621 380.92
B)$629 925.66
C)$687 418.22
D)$774 311.28
E)$836 267.35
Q2) The manager of Gloria's Boutique has approved Carla's application for credit.The maximum payment that has been approved is $65 a month for 24 months.The APR is 15.7 per cent.What is the maximum initial purchase that Carla can make given this credit approval?
A)$1288.90
B)$1300.00
C)$1331.42
D)$1350.00
E)$1428.46
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Chapter 6: Interest Rates and Bond Valuation
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Sample Questions
Q1) Which party to a bill is the borrower?
A)the acceptor
B)the drawer
C)the bank
D)the endorser
E)the discounter
Q2) The liquidity premium is the portion of a nominal interest rate that represents Compensation for:
A)the lack of the ability to sell the bond at its fair value in a timely manner
B)the difference between short-term and long-term tax rates
C)the fluctuation in market prices throughout the trading day
D)the difference in the maturity term of a short-term versus a long-term bond
E)the changes in interest rates and the resulting changes in bond prices
Q3) Investors of government bonds require an 8% per annum real return.The inflation rate (CPI)is 5.50%.What is the exact nominal rate?
A)2.50%
B)10.50%
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Chapter 7: Equity Markets and Stock Valuation
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Sample Questions
Q1) The required return:
A)tends to be low for the share of a firm which is experiencing rapid growth
B)provides an estimate of the return an investor might expect if he or she purchases a share at today's market price
C)places more emphasis on the capital gains yield than on the dividend yield
D)is based on the assumption that a share will maintain a constant dividend
E)is based on the projected dividend and share price for next year
Q2) Shoreline Foods pays a constant annual dividend of $1.60 a share and currently sells for $28.50 a share.What is the rate of return?
A)5.39 per cent
B)5.61 per cent
C)6.91 per cent
D)6.63 per cent
E)4.56 per cent
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9
Chapter 8: Net Present Value and Other Investment Criteria
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Sample Questions
Q1) The average net income of a project divided by the project's average book value is referred to as the project's:
A)required return
B)market rate of return
C)internal rate of return
D)average accounting return
E)discounted rate of return
Q2) The payback rule works best in evaluating which one of the following?
A)a low-cost project which pays back slowly
B)a low-cost project which pays back rapidly
C)a high-cost project with equal cash inflows over a long period of time
D)a high-cost project with increasing cash inflows over time
E)projects requiring significant research and development time
Q3) Discounted cash flow valuation is the process of discounting an investment's:
A)assets
B)future profits
C)liabilities
D)costs
E)future cash flows
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Chapter 9: Making Capital Investment Decisions
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Sample Questions
Q1) A debt-free firm has net income of $128 400,taxes of $46 200,and depreciation of $21
300.What is the operating cash flow?
A)$82 200
B)$103 500
C)$107 100
D)$149 700
E)$195 900
Q2) Sensitivity analysis:
A)looks at the most reasonably optimistic and pessimistic results for a project
B)helps identify the variable within a project that presents the greatest forecasting risk
C)is used for projects that cannot be analysed by scenario analysis because the cash flows are unconventional
D)is generally conducted prior to scenario analysis just to determine if the range of potential outcomes is acceptable
E)illustrates how an increase in operating cash flow caused by changing both the revenue and the costs simultaneously will change the net present value for a project
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11
Chapter 10: Some Lessons From Capital Market History
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Sample Questions
Q1) Which one of the following is the positive square root of the variance?
A)standard deviation
B)mean
C)risk-free rate
D)average return
E)real return
Q2) Which one of the following combinations will always result in an increased dividend yield?
A)increase in the stock price combined with a lower dividend amount
B)increase in the stock price combined with a higher dividend amount
C)decrease in the stock price combined with a lower dividend amount
D)decrease in the stock price combined with a higher dividend amount
E)increase in the stock price combined with a constant dividend amount
Q3) If the financial markets are strong-form efficient,then:
A)only the most talented analysts can determine the true value of a security
B)only company insiders have a marketplace advantage
C)technical analysis provides the best tool to use to gain a marketplace advantage
D)no one person has an advantage in the marketplace
E)the only true advantage in the marketplace is having insider information
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Page 12
Chapter 11: Risk and Return
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Sample Questions
Q1) The slope of the security market line is equal to:
A)the return on the market
B)the market risk premium
C)1 minus the risk-free rate of return
D)the risk-free rate plus the market risk premium
E)the risk-free rate of return,plus beta times the market risk premium
Q2) Consider the following information on three securities: Security ______ has the greatest total risk,and security _______ will have the highest risk premium.
A)B;C
B)A;B
C)C;B
D)C;A
E)A;A
Q3) The beta of a risk-free security is _____ and the beta of the overall market is:
A)1;0
B)infinite;1
C)1;1
D)0;0
E)0;1
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Chapter 12: Long-Term Financing
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Sample Questions
Q1) The 7 per cent preferred stock of Winslow and Winslow is selling for $54 a share.What is the firm's cost of preferred shares (face value $100)?
A)12.96 per cent
B)17.56 per cent
C)3.78 per cent
D)7.71 per cent
E)18.52 per cent
Q2) A firm uses its weighted average cost of capital to evaluate the proposed projects for all of its varying divisions.By doing so,the firm:
A)automatically maximises the total value created for its shareholders
B)allocates capital funds evenly amongst its divisions
C)encourages the division managers to only recommend their most conservative projects
D)maintains the current risk level and capital structure of the firm
E)automatically gives preferential treatment in the allocation of funds to its riskiest division
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Chapter 13: Leverage and Capital Structure
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Sample Questions
Q1) The corporate tax rate is 37%.The MaPol Company has a $100 million debenture issue outstanding with a coupon rate of 6.84% per annum.Face value of one debenture is $10 000 and investors require a 7% return on debentures with similar credit rating.What is the present value of the tax shield?
A)$25 300 800
B)$7 000 000
C)$6 840 000
D)$30 160 000
E)$37 000 000
Q2) Kline Construction is an all-equity firm that has projected perpetual earnings before interest and taxes of $879 000.The current cost of equity is 18.3 per cent and the tax rate is 34 per cent.The company is in the process of issuing $6.2 million of 8.5 per cent annual coupon bonds at par.What is the levered value of the firm?
A)$5 278 164
B)$6 422 225
C)$7 385 695
D)$6 713 185
E)$5 541 085
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Page 15
Chapter 14: Dividends and Dividend Policy
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Sample Questions
Q1) Which one of the following would tend to favour a low dividend payout?
A)high flotation cost for equity issues
B)higher tax rates on capital gains than on dividend income
C)endowment fund investors who cannot spend principal
D)elimination of the tax-deferral on capital gains
E)investors' desire for a high dividend yield
Q2) Assume there are no taxes or imperfections.Given this assumption,which one of the following statements is correct?
A)Stock repurchases decrease the market value per share.
B)A cash dividend decreases shareholder wealth.
C)A share repurchase has the same effect on a firm's market value balance sheet as does a cash dividend.
D)A cash dividend has no effect on the market price of the payer's stock.
E)Both a cash dividend and a share repurchase increase a firm's PE ratio.
Q3) The ex-dividend date is defined as _____ business days before the date of_____:
A)four;record
B)three;declaration
C)two;payment
D)three;payment
E)three;record
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Chapter 15: Raising Capital
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Sample Questions
Q1) Which one of the following tends to be true for the average investor?
A)They are protected from losses by ASX regulations.
B)They often encounter the 'winner's curse'.
C)Average investors are not allowed to purchase IPOs at the offer price.
D)They frequently earn initially high returns on IPOs when shares are undersubscribed.
E)They generally receive their full allocation of shares even when an IPO is oversubscribed.
Q2) A public issue of securities which are first offered to existing shareholders is best defined as a(n):
A)IPO
B)rights offer
C)private placement
D)general cash offer
E)general offer
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Chapter 16: Short-Term Financial Planning
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Sample Questions
Q1) Which of the following are sources of cash?
I.decreasing accounts receivable
II.increasing inventory
III.increasing accounts payable
IV.increasing common stock
A)II and IV only
B)II and III only
C)I,III and IV only
D)I and III only
E)I and IV only
Q2) Short-term uncommitted loan facilities are often used to finance temporary needs,such as:
A)all of the given answers
B)none of the given answers
C)paying trade creditors to earn any trade discounts
D)one-off transactions
E)meeting salary payments when the collection of trade receivables is slow
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Chapter 17: Working Capital Management
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Sample Questions
Q1) When are funds generally transferred into zero-balance accounts?
A)as needed
B)never
C)daily
D)monthly
E)weekly
Q2) Which one of the following is evidence of indebtedness?
A)concentration policy
B)credit policy
C)credit instrument
D)credit cost curve
E)terms of sale
Q3) An increase in a firm's average collection period generally indicates that:
A)the cash flows of the firm have increased
B)the majority of a firm's receivables are delinquent
C)an increased number of customers are taking advantage of the cash discount offered
D)at least some customers are taking longer to pay
E)customers are paying more promptly
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19
Chapter 18: International Aspects of Financial Management
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Sample Questions
Q1) The concept that the difference in interest rates between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:
A)exchange rate equilibrium
B)exchange rate parity
C)interest rate equilibrium
D)foreign equalisation
E)interest rate parity
Q2) Currently,you can exchange US$1 for £0.53.Assume that the average inflation rate in the US over the next four years will be 4 per cent annually as compared to 5 per cent in the UK Based on relative purchasing power parity,you should expect the _____ over the next 4 years.
A)US dollar to appreciate against all currencies
B)British pound to appreciate against all currencies
C)both the US dollar and the British pound to appreciate against all other currencies
D)US dollar to appreciate against the British pound
E)British pound to appreciate against the US dollar
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