Finance for Managers Exam Bank
Course Introduction
Finance for Managers provides an essential foundation in financial principles and decision-making for professionals in managerial roles. The course covers core topics such as financial statement analysis, budgeting, capital budgeting, working capital management, and the evaluation of investment opportunities. Emphasis is placed on equipping managers with the skills to interpret financial information, make informed decisions that enhance organizational value, and communicate effectively with finance professionals. Real-world examples and case studies are used to illustrate the strategic role that finance plays in business planning and management.
Recommended Textbook Financial Management for Decision Makers 2nd Canadian Edition by Peter Atrill
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14 Chapters
590 Verified Questions
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Page 2
Chapter 1: Introduction to Financial Management
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Sample Questions
Q1) When a business seeks to provide each stakeholder group with a satisfactory return, it is said to be achieving a business objective of
A) Profit distribution
B) Good corporate citizenship
C) Satisficing
D) Stakeholder cooperation
E) Economic egalitarianism
Answer: C
Q2) Prendle-Robinson Inc., has capital invested of $1,200,000 on 50,000 common shares outstanding. If the Company's net income for the year was $144,000, the company's EPS, Earnings Per Share, rounded to two decimal places is
A) $.12
B) $.35
C) $2.88
D) $8.33
E) $24
Answer: C
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Page 3
Chapter 2: Accounting - the Language of Business
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Q1) Long Ltd. received cash from various activities as follows: $50,000 from interest earned on bonds it had purchased from IBM; $200,000 from a sale of inventory to GM; and $1,000,000 from a sale of its own shares to Manulife. How would these items appear on the cash flow statement?
A) Operating activities $50,000; investing activities $200,000; financing activities $1,000,000.
B) Operating activities $200,000; investing activities $1,000,000; financing activities $50,000.
C) Operating activities $1,000,000; investing activities $50,000; financing activities $200,000.
D) Operating activities $(50,000); investing activities $(200,000); financing activities $(1,000,000).
E) Operating activities $200,000; investing activities $0; financing activities $1,050,000. Answer: E
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4
Chapter 3: Financial Planning and Pro Forma Financial Statements
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Q1) In which of the following aspects of business planning do Pro Forma Financial Statements play a key role?
A) Communicating the business plan to stakeholders
B) Collecting data required to formulate the businesses of options
C) Evaluating and selecting the most suitable business option
D) Setting the teams and objectives of the business
E) Identifying the business options available to the business
Answer: C
Q2) The disadvantage in holding cash balances, is that cash
A) Is not easily transferred electronically
B) Cannot be used to pay offshore invoices
C) Cannot be easily secured against theft
D) Can be easily counterfeited
E) Earns no, or low, return for the business
Answer: E
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Page 5
Chapter 4: Analyzing and Interpreting Financial Statements
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Sample Questions
Q1) Which Altman Z-score indicates a company will likely decare bankruptcy eventually?
A) 1.50
B) 2.00
C) 2.50
D) 3.00
E) 3.50
Q2) Two companies have the same sales revenue for the year which equalled $22,550,000. Co. A has average total assets of $10,560,000 and current liabilities of $1,200,000. Co. B has average long-term liabilities of $3,750,000 in total shareholder equity of $5,610,000. When examining how well a company uses its assets
A) Co. B. is 2.4 times more efficient than Co. A
B) The data provided are insufficient to make a reliable comparison
C) Co. A. is as efficient as Co. B
D) Co. B. is more efficient than Co. A. by 12%
E) Co. A. is 3x more efficient than Co. B
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6
Chapter 5: The Time Value of Money
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Q1) What is the maximum price Genome Inc. can pay for a machine that is expected to produce marginal revenues of $20,000, $25,000, $30,000, $35,000, and $40,000 at the beginning of each year for five years if the interest rate is 10%?
A) $100,111
B) $110,122
C) $113,724
D) $121,137
E) $150,000
Q2) What quarterly payment at the beginning of each period for ten years should Mountain Leasing charge for a $100,000 chalet when interest rates are 12%?
A) $3,000
B) $5,040
C) $5,190
D) $18,960
E) $21,240
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Chapter 6: Making Capital Investment Decisions
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Q1) In periods of accelerating interest rates, what are the best measures to use when deciding between investment alternatives?
A) Payback
B) ARR and Payback
C) Payback and NPV
D) NPV and IRR
E) IRR
Q2) Which of the following is essential to consider when making the calculations required for NPV, IRR, PP or APP?
A) Deciding as to whether to include amortization costs or not.
B) Determining the amount of interest payments to be included in expenses.
C) Reviewing the assumptions on which the revenue forecasts are based.
D) Including the total of costs that have already been incurred.
E) Determining the extent of management's support of the project.
Q3) What is the primary factor in the creation of positive cash flow?
A) Expense reduction
B) Increases in sales revenue
C) Effective investment appraisal
D) An expanding economy
E) Product innovation
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Chapter 7: Making Capital Investment Decisions: Further Issues
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Q1) The Oakley-Brown, a frozen food processor, is considering buying a curly-fry extruder with potato preparation attachments for $90,000. It expects to sell 2,500 cases the first year and 4,500 cases for four years after that while the craze lasts. Price per case will be $30. Cost of goods, selling and administration expenses equal $62,500 in the first year and $100,500 in the subsequent years. What price drop will bring NPV to near zero if the company's hurdle rate is 14%?
A) $0.06
B) $0.15
C) $0.67
D) $1.00
E) $1.50
Q2) Which of the following terms is also used to describe diversifiable risk?
A) Avoidable risk.
B) Macroeconomic Risk.
C) Microeconomic Risk.
D) Entrenched Risk.
E) Systematic Risk.
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Chapter 8: Financing a Business 1: Sources of Funds
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Q1) To establish the credit ratings that are used in the financial industry to represent the level of default risk associated with a bond, what do credit rating agencies do?
A) Collaborate with governmental taxation and finance departments.
B) Operate within the provincial securities departments.
C) Assess multiple sources and institutions and work independently.
D) Cooperate with national stock exchanges and investment dealers.
E) Interact with the World Bank and International Monetary Fund to accurately assess all relevant risks.
Q2) What is the value that will be entered on both sides of Atlas Asbestos Ltd.'s balance sheet if the company's capital leasing contract calls for quarterly payments of $3,535 for five years beginning three months from now at an interest rate of 12% compounded four times year?
A) $52,592
B) $94,987
C) $12,743
D) $22,457
E) $26,404
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Chapter 9: Financing a Business 2: Raising Long-Term Funds
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Q1) RAJ Inc. would like to issue one million common shares and has an unpublished reserve price of $4.75. The company's investment dealer received the following response to its tender offer. 200,000 shares could be sold at $5.45, 350,000 at $5.25, 350,000 at $5.05, 600,000 at $4.90, 525,000 at $4.75, 725,000 at $4.50 and 700,000 at $4.25. What is the resulting striking price and the distribution of shares to each shareholder?
A) $5.45 with the one investor taking all that are available.
B) $5.05 with each investor allotted 4 for each 5 tendered.
C) $4.88 with each investor allotted 2 shares for each 5 tendered.
D) $4.75 with each investor receiving 4 for every 5 tendered.
E) $4.90 with each investor allotted 2 for each 3 tendered.
Q2) Which of the following is an example of a primary capital market?
A) The government issues new securities to raise short term funds.
B) Forward contracts and derivatives are bought and sold.
C) Shares that have been previously purchased are offered for sale to others.
D) Equity shares held in another company are sold.
E) Dealers trade in shares not listed on the stock exchanges.
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Chapter 10: The Cost of Capital and the Capital Structure
Decision
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Q1) Markle Ltd. has issued $7.5 million worth of bonds with an interest rate of 10%, payable annually, and redemption in 10 years. The issue price of the bond is $85 per $100 of nominal value. If Markle's tax rate is 35%, what is the cash flow each year that is associated with this debt?
A) Year 0 has an inflow of $7.5 million. Each of Years 1-19 have an outflow of $637,500 and Year 5 has an outflow of $8.14 million.
B) Year 0 has an inflow of $7.5 million. Year 5 has an outflow of $9.94 million.
C) Year 0 has an inflow of $6.38 million and Year 5 has an outflow of $11.25 million.
D) Year 0 has an inflow of $6.38 million. Each of Years 2-9 has an outflow of $487,500. Year 10 is an outflow of $7.99 million.
E) Year 0 has an inflow of $6.38 million. Each of Years 1-9 has an outflow of $750,000. Year 10 has an outflow of $8.25 million.
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Chapter 11: Developing a Dividend Policy
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Q1) The PetroTracking and Extraction Ltd.'s, a Calgary-based company, is experiencing double-digit growth in earnings. Given that its Board of Directors has adopted a traditional view of dividend policy, what should the company's dividend policy be?
A) Retain its earnings to provide shareholders with immediate capital gains.
B) Retain its earnings, to be used for immediate investment, to provide shareholders with greater future earnings.
C) Target a 15% dividend payout ratio to balance the conflicting needs of shareholders who want capital gains with those who want immediate income.
D) Target a maximum dividend payout to provide shareholders with cash now instead of in the future.
E) Decide on dividend levels in each period based primarily on the dividend policies of competing companies.
Q2) How is a dividend is paid out?
A) Only in cash.
B) In cash and/or common shares.
C) In cash and/or preferred shares.
D) In cash, common shares and/or preferred shares.
E) In cash, common shares and/or other assets.
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Chapter 12: Managing Working Capital
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Q1) Which of the following is the best way to reduce a company's losses due to bad debts?
A) Increase sales volume by lowering their prices to make their products more affordable.
B) Do not grant credit to companies that use a bank overdraft as a source of financing.
C) Manage the accounts payable so that they become an automatic source of financing.
D) Direct more customers to purchase from their on-line website using PayPal.
E) Press the customer for immediate payment when the customer exceeds its terms of credit.
Q2) Harrison Grocers Ltd., an important customer of J&P Meat Packers, has been paying its invoices in 120 days. If Harrison has a cost of capital of 9.2%, what is the minimum discount level can J&P offer the company to encourage cash on deliver, in other words, immediate cash payment?
A) 2.3%
B) 3.0%
C) 5.4%
D) 7.5%
E) 9.2%
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Page 14
Chapter 13: Measuring and Managing for Shareholder Value
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Q1) Air Ltd. has operating costs equal to 40% of sales. Air Ltd. is forecasting two scenarios. Scenario 1 is that operating costs will rise 10% but taxes will decrease 10%. Scenario 2 is that operating costs will decrease by 10% and taxes will increase 10%. Which scenario would have the biggest impact on free cash flow?
A) Scenario 1, which will increase cash flows by 2.1%.
B) Scenario 2, which will increase cash flows by 2.7%.
C) Scenario 1, which will decrease cash flows by 2.1%.
D) Scenario 2, which will decrease cash flows by 2.7%.
E) Both scenarios will impact free cash flows equally.
Q2) What is the critical feedback loop to determine whether shareholder value has been created?
A) Measure shareholder returns.
B) Focus on maximizing shareholder returns.
C) Determine an appropriate shareholder return measure.
D) Recognize the importance of shareholders.
E) Set appropriate objectives for shareholders.
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Chapter 14: Mergers, Acquisitions, and the Valuation of Shares
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Q1) Body Guards Ltd.'s (BG) balance sheets showed total assets of $100 million and total liabilites of $42 million. Fair values of assets and liabilities were equal to their book values except for a ten year old building whose appraised value was $5 million higher than book. BG has 10 million shares outstanding. BG earned $2.00 per share and paid a dividend of $0.50. Dividends grow at 6% per year. BG enjoys a P/E multiple of 5. BG's cost of capital is 12%. What is the value of a share using the balance sheet method, the liquidation method, the P/E ratio method, and the dividend growth method respectively?
A) $4.80, $5.30, $9.00, and $10.83.
B) $6.80, $6.70, $11.00, and $8.42.
C) $5.80, $7.50, $4.23, and $7.52.
D) $7.47, $3.66, $12.30, and $6.77.
E) $5.80, $6.30, $10.00, and $8.83.
Q2) Granastein Grocers purchased Ridgway Food Warehousing and Logistics Inc. What is this type of merger?
A) Vertical
B) Conglomerate
C) Unilateral
D) Stratified
E) Horizontal
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