Finance for Managers Exam Review
Course Introduction
Finance for Managers provides students with fundamental financial concepts and tools essential for effective decision-making in a managerial role. The course covers core topics such as financial statement analysis, budgeting, working capital management, time value of money, investment appraisal, and risk assessment. Emphasis is placed on interpreting financial data and using it to formulate business strategies, allocate resources efficiently, and assess organizational performance. Through practical case studies and real-world scenarios, students develop the analytical skills necessary to integrate financial insights into management practices and drive value creation within their organizations.
Recommended Textbook
Financial Management Concepts and Applications 1st Edition by Stephen Foerster
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Page 2
Chapter 1: Overview of Financial Management
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Sample Questions
Q1) The limited liability company (LLC)form of business organization is:
A)able to retain limited liability for its owners.
B)a cross between a partnership and a corporation.
C)it is taxed like a partnership.
D)All of the above.
Answer: D
Q2) The owners of a corporation enjoy limited liability.
A)True
B)False
Answer: True
Q3) The main duties of financial managers are:
A)assessing the current business situation and future financing needs.
B)developing long-term financing strategies.
C)assessing future investments.
D)All of the above.
Answer: D
Q4) Explain the differences between an S-corporation and a C corporation.
Answer: S corporations are limited to a maximum of 100 employees and they have the advantage of single taxation as the personal rate rather than taxing both the corporation and the individual.
Page 3
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Chapter 2: Sizing up a Business: a Non-Financial Perspective
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Sample Questions
Q1) The overall goal in sizing up each external and internal factor is to increase the value of the firm.
A)True
B)False
Answer: True
Q2) A firm is evaluating the best means to have a positive impact on potential buyers; which one of the four P's is the firm addressing?
A)Product
B)Price
C)Place
D)Promotion
Answer: D
Q3) The firm's supply risk can best be analyzed by examining:
A)the components of the firm's operations management.
B)the components of the firm's operations management compared with the key industry success factors.
C)the key industry success factors and their impact on profitability.
D)the behavior of the firm's major competitors.
Answer: A
Page 4
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Chapter 3: Understanding Financial Statements
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Sample Questions
Q1) A firm reports the following income statement items: sales of $60,550,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold $34,025,000; and interest expense of $750,000.What is the amount of the firm's EBIT?
A)$18,154,000
B)$14,935,000
C)$16,410,000
D)$7,775,000
Answer: C
Q2) Which of the following is NOT included as a tax-deductible expense?
A)Dividend expenses
B)Marketing expenses
C)Depreciation expenses
D)Cost of goods sold
Answer: A
Q3) How might inflation restrict the usefulness of the balance sheet as normally presented?
Answer: Inflation may significantly change the market value of assets and liabilities and be representative of actual values nor replacement costs.
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Chapter 4: Measuring Financial Performance
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Sample Questions
Q1) To create a common-size balance sheet for a firm one would typically divide each item on the balance sheet by:
A)total assets.
B)total equity.
C)net sales.
D)total liabilities.
Q2) A firm's Return on Equity (ROE)measures
A)its profitability relative to its total assets.
B)its profitability relative to its equity investment.
C)its return on sales.
D)its debt to equity ratio.
Q3) As long as a firm's cost of sales are primarily ________ then the firm's gross profit margin should be ________ from year to year.
A)variable; roughly equal
B)variable; vary widely
C)fixed; more likely to be the same
D)fixed; also fixed
Q4) In an annual report,who writes the letter to shareholders and what purpose is served by the letter?
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Chapter 5: Managing Day-To-Day Cash Flow
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Sample Questions
Q1) For a retail firm,it is unlikely that the working capital gap would change from period to period as a function of cyclical sales.
A)True
B)False
Q2) Which of the following is NOT an example of a type of inventory management activity?
A)JIT or just-in-time inventory control system
B)RFI or radio frequency identification systems.
C)EOQ or economic order quantity formulas.
D)All of the above are forms of inventory control.
Q3) Which of the following statements is NOT true?A line-of-credit from a commercial bank:
A)generally has a maximum stated amount available to the borrower.
B)generally charges the borrower interest only for the amount actually utilized
C)once granted generally never needs to be renewed.
D)is often an alternative to and/or in addition to another form of lending already provided by the bank.
Q4) What is LIBOR,how are LIBOR interest rates determined,and for what are they used?
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Page 7
Chapter 6: Projecting Financial Requirements and Managing Growth
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Sample Questions
Q1) When estimating a cash budget,which of the following items should the firm NOT include in the process?
A)dividends
B)taxes paid by the firm
C)wages
D)All of the above should be included
Q2) A firm's pro forma balance sheet typically starts with liabilities and equity and THEN proceeds to assets
A)True
B)False
Q3) Which of the following choices will lead to a DECREASE in loan requirements?
A)an increased age of accounts receivable
B)an increased age of accounts payable
C)a shortened age of inventory
D)Each of the above will lead to a decrease in loan requirements.
Q4) Consider the four components identified by the author in the sustainable growth equation.Which if nay of these components are heavily influenced by executive management?
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Chapter 7: Time Value of Money Basics and Applications
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Sample Questions
Q1) Preferred stock is often referred to as a hybrid security for which of the following reasons?
A)Preferred stock dividends are fixed like bond payments but the maturity is indefinite like common stock.
B)Preferred stockholders have preference over common stock holders in bankruptcy,but are subordinate to bondholders.
C)Both A and B are typically true.
D)Neither A nor B are typically true.
Q2) Blanton Consulting Inc.just paid a $2.00 per share dividend.The firm also announced that it anticipates a long-run growth in dividends of 3% per year.Inflation is also expected to be 3% per year,and the firms required rate of return on common stock is 11%.What is the current price per share of the firm's stock?
A)$14.71
B)$14.29
C)$25.75
D)$25.00
Q3) Zero coupon bonds pay no intermediate cash flows prior to maturity.
A)True
B)False
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Page 9
Chapter 8: Making Investment Decisions
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Sample Questions
Q1) The IRR method of capital budgeting tells us what particular discount rate will result in a ________ NPV project.
A)positive
B)negative
C)zero
D)none of the above
Q2) Capital budgeting decisions are more complex when:
A)projects are mutually exclusive.
B)comparison projects are not of equal length.
C)capital is rationed.
D)All of the above are true.
Q3) Capital budgeting techniques are ________ assessment tools to determine whether a firm should proceed with an investment in ________.
A)qualitative; a project.
B)qualitative; working capital.
C)quantitative; a project.
D)quantitative; working capital.
Q4) What are the primary strengths and weaknesses of the Net Present Value method of capital budgeting?
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Chapter 9: Overview of Capital Markets: Long-Term
Financing
Instruments
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Sample Questions
Q1) The cumulative feature of preferred stock means that preferred dividends cannot be paid until all common dividends have been paid.
A)True
B)False
Q2) In the last 50 years it has been far more common for U.S.IPOs to suffer negative first-day returns on average.
A)True
B)False
Q3) Advantages to going public with a firm include all but WHICH of the following?
A)The ability for management to offer stock options as a recruiting tool for key employees.
B)A greater ability for the firm to raise capital.
C)A more liquid market for owners to sell their ownership shares.This liquidity typically leads to higher prices.
D)An overall decreased public awareness of the firm.
Q4) If a financial market is semi-strong form efficient,then it must also be at least weak-form efficient.
A)True
B)False
11
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Chapter 10: Assessing the Cost of Capital: What Return
Investors Require
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Sample Questions
Q1) Carbon Fiber Design and Build Inc.is considering the purchase of new a new carbon molding machine for use in their Sports Operations department.The investment would be an expansion of an industry segment that the firm knows well.You have been tasked with helping the division manager determine the WACC in advance of an analysis of the expected cash flows for the project.You have collected the following information: The firm has no preferred stock outstanding and plans to issue new preferred stock.The estimated tax rate for the firm is 30%.The firm currently has 500 10-year $1,000 face value bonds outstanding with 7% semi-annual coupons that are selling for $1,036.35.The firm also has 31,888 shares of common stock outstanding at a price of $32.50 per share.You estimate that the market risk premium is 6%,the current yield to maturity on 10-year Treasury bonds is 3%,and the firm's beta is 0.95.Given this information,calculate the after-tax cost of debt,the cost of equity,and the firm's WACC.
Q2) A firm with a beta of 2.0 should:
A)be forced to stop trading until the market perceives less risk.
B)require twice the return on the market portfolio.
C)require twice the market risk premium.
D)require twice the risk-free rate of return.
Q3) How do speculative risk and pure risk differ? Which is of greater concern to a corporate executive? Why?
Page 12
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Chapter 11: Understanding Financing and Payout Decisions
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Sample Questions
Q1) Modigliani and Miller (M&M)proposed a model in which,given certain restrictive assumptions,the capital structure of a firm does not impact the value of the firm.
A)True
B)False
Q2) Which of the following statements is NOT correct? Under conditions of perfect capital markets:
A)investors do not pay taxes,but firms do.
B)firms do not pay taxes,but investors do.
C)capital structure matters because it can change the value of the firm.
D)capital structure does not matter because it cannot change the value of the firm.
Q3) The majority of firms view cutting dividends as a way to send a POSITIVE signal to the market as an indication that they have increased opportunities to invest earnings. A)True B)False
Q4) Dividend payments and share repurchases are conceptually equivalent. A)True B)False
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Chapter 12: Designing an Optimal Capital Structure
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Sample Questions
Q1) Consider a corporation that was originally 100% family owned.Which of the following statements is TRUE?
A)Each time the company issues new shares family control may be reduced.
B)If the family owns more than 50% of the shares they still have effective control of the firm.
C)Even if the family owns less than 50% of the outstanding shares they may still retain effective control of the firm,especially if there are no other large shareholders.
D)All of the above are true.
Q2) If a firm has a positive debt-equity ratio,and a positive tax rate,then then levered beta for the firm must be ________ the unlevered beta for the firm.
A)less than
B)greater than C)equal to D)Can not definitively answer this question.
Q3) If a firm has a positive debt-equity ratio,then the unlevered beta is greater than the levered beta.
A)True
B)False
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Chapter 13: Measuring and Creating Value
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Sample Questions
Q1) MegaToy Inc.is considering acquiring Action Figures Inc.,both publicly traded firms in the toy industry.Action Figures is currently trading at $18 per share and has 15 million shares outstanding.The executive team at MegaToy believes that the present value of potential synergies is $70 million if the firms combine.What is the highest bid price per share that MegaToy should consider paying for Action Figure shares? What is the largest percentage premium over the current share price MegaToy would be willing to pay?
Q2) Which of the following is NOT a positive attribute of the price-earnings multiple valuation model?
A)It is easy to use.
B)It implicitly assumes that comparable firms are already fairly pried in the market place.
C)It is forward-looking.
D)It is based on relative market measures rather than book measures.
Q3) EVA assumes a business is worth the present value of anticipated net cash flows discounted by the cost of capital,less the amount invested in order to generate future cash flows.
A)True
B)False
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Chapter 14: Comprehensive Case Study: Wal-Mart
Stores,inc
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Sample Questions
Q1) Which of the following statements is TRUE?
A)V<sub>E</sub> = EV<sub>0</sub> + V<sub>D</sub> - value of other claims
B)V<sub>E</sub> = EV<sub>0</sub> + V<sub>D</sub> + value of other claims
C)V<sub>E</sub> = EV<sub>0</sub> - V<sub>D</sub> - value of other claims
D)V<sub>E</sub> = EV<sub>0</sub> -V<sub>D</sub> + value of other claims
Q2) Net operating profit after taxes (NOPAT)is equal to:
A)EBITDA * (1 - tax rate).
B)EBITDA * (1 + tax rate).
C)EBIT * (1 - tax rate).
D)EBIT * (1 + tax rate).
Q3) Assess the economic conditions facing U.S.firms in 2012.In you assessment,be sure to address the economy-wide recovery from the recession of 2007-2009,inflationary expectations,the political situation,expected economic growth,and consumer confidence.
Q4) For purposes of liquidity,it is better to have a negative net working capital.
A)True
B)False
Q5) In 2012,Walmart bought back over 100 million shares of stock.
A)True
B)False
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