Finance for Managers Exam Review
Course Introduction
Finance for Managers offers a comprehensive overview of key financial concepts and tools essential for effective decision-making in managerial roles. The course covers fundamental topics such as financial statement analysis, budgeting, capital investment decisions, risk assessment, and working capital management. Emphasizing practical application, it equips students with the skills to interpret financial data, evaluate financial performance, and make informed strategic choices that drive organizational success. Designed for non-financial managers, the course bridges the gap between finance theory and real-world business practice, enabling participants to confidently contribute to their organizations financial objectives.
Recommended Textbook
Foundations of Financial Management 16th Edition by Stanley Block
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Chapter 1: The Goals and Activities of Financial Management
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119 Verified Questions
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Sample Questions
Q1) One of the major disadvantages of a sole proprietorship is A) that there is unlimited liability to the owner.
B) the simplicity of decision making.
C) high organizational costs.
D) high operating costs.
Answer: A
Q2) Sole proprietorship means single-person ownership and offers the advantages of simplicity of decision making and low organizational and operating costs.
A)True
B)False
Answer: True
Q3) If a company has a written code of ethics, they will generally avoid ethical problems.
A)True
B)False
Answer: True
Q4) Maximizing the earnings of the firm is the main goal of financial management. A)True
B)False
Answer: False
Page 3
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Chapter 2: Review of Accounting
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Sample Questions
Q1) A firm's purchase of plant and equipment would be considered a
A) use of cash for financing activities.
B) use of cash for operating activities.
C) source of cash for operating activities.
D) use of cash for investment activities.
Answer: D
Q2) Liquidity means that the items that can convert to cash show up as cash on the balance sheet.
A)True
B)False
Answer: False
Q3) Depreciation is a source of cash inflow because
A) it is a non-cash expense, so it needs to be added back to net income when using the indirect method.
B) it supplies cash for future asset purchases.
C) it is a tax-deductible cash expense.
D) it is a taxable expense.
Answer: A
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Chapter 3: Financial Analysis
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Sample Questions
Q1) The DuPont system of analysis emphasizes that profit generated by assets can be derived by a combination of profit levels and how fast an asset can turnover.
A)True
B)False
Answer: True
Q2) A current ratio of 2 to 1 is always acceptable for a company in any industry.
A)True
B)False
Answer: False
Q3) Replacement cost accounting (current cost method) during a period of inflation will usually
A) increase assets, decrease net income before taxes, and lower the return on equity.
B) increase assets, increase net income before taxes, and increase the return on equity.
C) decrease assets, increase net income before taxes, and increase the return on equity.
D) None of the options apply.
Answer: A
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Chapter 4: Financial Forecasting
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Sample Questions
Q1) Pro forma financial statements are
A) the most comprehensive means of financial forecasting.
B) often required by prospective creditors.
C) projections of financial statements for a future period.
D) All of the options are true.
Q2) Sales projections and the ability to accurately predict the future have a large impact on cash flow expectations.
A)True
B)False
Q3) When using the percent-of-sales method in forecasting the funds needed, which of the following is not true?
A) Required new funds increase as sales decrease.
B) Required new funds decrease as profit margin increases.
C) Required new funds increase as assets increase.
D) As the tax rate increases, the required new funds increase.
Q4) Profit is generally adequate to finance significant growth.
A)True
B)False
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Chapter 5: Operating and Financial Leverage
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Sample Questions
Q1) Conservatively leveraged Firm A and highly leveraged Firm B operate at the same level of earnings before interest and taxes. Which firm has a higher change in volume?
A) Firm A
B) Firm B
C) The change in volume does not affect the amount of leverage.
D) There is not enough information to answer the question.
Q2) The degree of operating leverage may be defined as A) the percent change in operating income divided by the percent change in unit volume.
B) Q(P - VC) divided by Q(P - VC) - FC.
C) S - TVC divided by S - TVC - FC.
D) All of the options are true.
Q3) If a firm sells 40,000 units and the contribution margin on the firm's single product is $4.00 per unit and fixed costs are $60,000, what is the firm's breakeven point in units?
A) 100,000 units
B) 15,000 units
C) 60,000 units
D) 40,000 units
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Chapter 6: Working Capital and the Financing Decision
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Sample Questions
Q1) Working capital management is relatively unimportant for a small business.
A)True
B)False
Q2) Long-term financing is usually less expensive than short-term financing because firms have longer periods of time to pay off long-term debt.
A)True
B)False
Q3) Kuznets Rental Center requires $500,000 in financing over the next two years. Kuznets can borrow long-term debt at 8 percent interest per year for two years. Alternatively, Kuznets can borrow short-term debt at 6 percent interest in the first year and 9 percent interest in the second year. Assuming Kuznets pays off the interest at the end of each year, which of the following statements is true?
A) Kuznets will end up paying more in total interest under the long-term financing plan.
B) Kuznets will end up paying less in total interest under the long-term financing plan.
C) Kuznets will pay less in the first year under the long-term financing plan.
D) Kuznets will pay less in the second year under the short-term financing plan.
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Chapter 7: Current Asset Management
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Sample Questions
Q1) The "economic ordering quantity" helps a firm determine the most efficient order size to place.
A)True
B)False
Q2) Inventories are usually the most liquid, but lowest-yielding, current asset of a firm.
A)True
B)False
Q3) The most subjective and also significant segment of the 5 Cs of credit for giving final approval is
A) capacity.
B) collateral.
C) character.
D) conditions.
Q4) Which of the following is not a valid quantitative measure for accounts receivable collection policies?
A) Average collection period
B) Aging of accounts receivables
C) Ratio of debt to equity
D) Ratio of bad debts to credit sales
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Chapter 8: Sources of Short-Term Financing
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Sample Questions
Q1) The effective rate on a $20,000 installment loan with quarterly payments and $2,000 in total interest for two years is approximately ______.
A) 16%
B) 7.4%
C) 29.5%
D) 8.9%
Q2) The effective rate on a loan with a 7% stated rate and 15% compensating balance is approximately ______.
A) 11%
B) 7.2%
C) 8.2%
D) 1.1%
Q3) The London Interbank Offered Rate (LIBOR) is used to set a base lending rate for some U.S. domestic corporate loans.
A)True
B)False
Q4) It is difficult to acquire a loan in U.S. dollars outside the United States.
A)True
B)False
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Chapter 9: The Time Value of Money
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Sample Questions
Q1) Ian would like to save $2,000,000 by the time he retires in 30 years. If he believes that he can achieve a 6% rate of return, how much does he need to deposit each year, starting one year from now, to achieve his goal?
A) $12,065
B) $37,500
C) $5,790
D) $25,298
Q2) To calculate "Future or Present Values of an "Annuity Due," we must assume that payments happen twice as often.
Annuities Due simply move TVM calculations back to the beginning of a year, rather than the end.
A)True
B)False
Q3) When adjusting for semi-annual compounding of an annuity, the adjustments include multiplying the periods and annuity payment amount by 2.
A)True
B)False
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Chapter 10: Valuation and Rates of Return
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Sample Questions
Q1) Historically, the real rate of return has been about 2% to 3%.
A)True
B)False
Q2) The "risk premium" is primarily concerned with business risk, financial risk, and inflation risk.
The risk premium includes the business and financial risk elements only.
A)True
B)False
Q3) Which of the following regarding preferred stock is true?
A) If the price decreases, the required rate of return has decreased.
B) If the required rate of return increases, the price decreases.
C) If the required rate of return increases, the price increases.
D) The price in the market remains at par.
Q4) The growth rate for the firm's common stock is 7%. The firm's preferred stock is paying an annual dividend of $3. What is the preferred stock price if the required rate of return is 8%?
A) $3.00
B) $37.50
C) $50.00
D) None of these options
Page 12
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Chapter 11: Cost of Capital
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Sample Questions
Q1) Flotation cost is the
A) cost of holding stock on hand.
B) cost of issuing new debt.
C) cost of issuing new stock.
D) sales price of common stock.
Q2) As the risk-free rate increases, the required rate of return for common stock decreases.
"K" is utilized in all cost of capital decisions and bears a direct relationship to increases and decreases in R<sub>f</sub>.
A)True
B)False
Q3) The weighted average cost of capital calculates the average cost of issued or new issuance of debt and equity for a firm.
A)True
B)False
Q4) A firm's cost of preferred stock is equal to the preferred dividend divided by the net price after flotation costs.
A)True B)False
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Chapter 12: The Capital Budgeting Decision
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Sample Questions
Q1) With non-mutually exclusive projects,
A) the payback method will select the best project.
B) only one project can be accepted.
C) the IRR, NPV, and payback methods are all treated equally in the decision making process.
D) the net present value and the internal rate of return methods will usually accept or reject the same project.
Q2) At higher tax rates, depreciation is
A) more beneficial.
B) less beneficial.
C) unaffected.
D) None of these options are correct.
Q3) How would the salvage value be treated in a net present value calculation?
A) Disregard the salvage
B) As a positive cash flow in the final year that the asset is used
C) As a negative cash flow in the final year that the asset is used
D) As a negative cash flow in the first year that the asset is used
Q4) The payback method is not really a theoretically correct approach.
A)True
B)False
Page 14
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Chapter 13: Risk and Capital Budgeting
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Sample Questions
Q1) Projects with high positive correlation are sometimes valuable because they allow us to smooth out the overall performance of the firm during a business cycle. Positively correlated assets react in kind, so they will not generally provide a smoothing effect.
A)True
B)False
Q2) A correlation coefficient of _____ provides no risk reduction.
A) 0
B) -1
C) +1
D) +.5
Q3) Using the risk-adjusted discount rate approach, the firm's weighted average cost of capital is applied to projects with A) no risk.
B) low risk.
C) normal risk.
D) high risk.
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Chapter 14: Capital Markets
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Sample Questions
Q1) The largest net supplier of funds is the U.S. Treasury and other agencies of the government.
A)True
B)False
Q2) The future of the NYSE is uncertain due to their unwillingness to adapt to the increase in internationalization and electronic trading in the markets. The NYSE is adapting to both aspects through acquisitions/mergers.
A)True
B)False
Q3) The efficient market hypothesis is generally concerned with the impact of information on the behavior of stock prices.
A)True
B)False
Q4) The Federal National Mortgage Association buys mortgage loans from local lenders, bundles them together, and resells them as securities.
A)True
B)False
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Chapter 15: Investment Banking
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Sample Questions
Q1) Raybac is about to go public. Its present stockholders own 500,000 shares. The new public issue will represent 700,000 shares. The shares will be priced at $25 to the public with a 5% spread. The out-of-pocket costs in addition to the spread will be $450,000. What are the net proceeds to Raybac?
A) $17,500,000
B) $17,050,000
C) $17,075,000
D) $16,175,000
Q2) When a firm issues new stock, it always results in a dilution of earnings in the long run.
When dilution occurs because of a new issue, it typically takes time for the new equity infusion to boost earnings per share, but this condition is temporary in most cases.
A)True
B)False
Q3) The term "underwriter" is synonymous with risk-taker or risk-bearer.
A)True
B)False
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Chapter 16: Long-Term Debt and Lease Financing
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Sample Questions
Q1) Leasing is a popular form of financing because A) lease provisions are generally less restrictive than a bond indenture.
B) the lessor likely has experience with the equipment being leased.
C) the lessee may not be financially able to purchase.
D) all of these options are true.
Q2) When a company is obligated contractually to pay interest on debt, it must pay the interest even if it shows no profit for the year, or else it may go bankrupt.
A)True
B)False
Q3) Allais Company's bond has an $85 annual interest payment that will mature in 10 years at a value of $1,000. The bond has a current market price of $1,140. What is the nominal yield of the bond?
A) 6.5%
B) 12.4%
C) 8.5%
D) 10%
Q4) Bonds may be recalled only if there is a specific call provision in the bond.
A)True
B)False
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Chapter 17: Common and Preferred Stock Financing
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Sample Questions
Q1) The floating rate feature on preferred stock allows the shareholders
A) to receive more dividends than the quoted yield when the firm enjoys a good year.
B) to pay lower taxes when the dividend yield increases.
C) to receive dividends that the corporation did not pay in previous years.
D) to receive a higher or lower dividend yield depending on current competitive market conditions.
Q2) Floating rate preferred stock allows shareholders to receive more or less than the quoted dividend based on the firm's success.
A)True
B)False
Q3) Stock classes are similar to bond ratings in that they are used to rank the performance of different corporations' stock.
A)True
B)False
Q4) The market price of "floating rate" preferred stock is less volatile than that of regular preferred stock.
A)True
B)False
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Chapter 18: Dividend Policy and Retained Earnings
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Sample Questions
Q1) The "ex-dividend date" will typically be before the "holder of record date."
A)True
B)False
Q2) Investors in the retirement phase of their life cycle tend to prefer reinvestment of dividends by firms.
A)True
B)False
Q3) A firm may repurchase its own stock in the market because
A) it will increase the stockholders' wealth.
B) the firm's stock is temporarily depressed.
C) it provides positive informational content.
D) all of these options are correct.
Q4) Which of the following does not affect a company's dividend policy?
A) Legal rules concerning capital impairment
B) The efficient market hypothesis
C) Access to capital markets
D) The tax position of shareholders
Q5) Stock dividends and stock splits have the same impact on retained earnings.
A)True
B)False
20
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Chapter 19: Convertibles, Warrants, and Derivatives
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Sample Questions
Q1) "Futures contracts" can lock in prices, interest rates, and foreign currency exchange rates, compelling both parties to complete a transaction in accordance with these terms at a later date.
A)True
B)False
Q2) A warrant is of huge benefit to the company when the stock rises far above the exercise price.
A)True
B)False
Q3) The Burma Hat Company's warrant is trading for $10.20. The warrant carries the option to purchase two shares of common stock for $48. What is the speculative premium if the stock price is $51.30?
A) $3.30
B) $3.60
C) $6.60
D) $10.20
Q4) Basic earnings per share includes all convertible bonds outstanding.
A)True
B)False
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Chapter 20: External Growth Through Mergers
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Sample Questions
Q1) Under the Financial Accounting Standards Board's SFAS 141 and 142, which of the following occurred?
A) Goodwill is now amortized.
B) At least four times per year, goodwill must be tested to determine if it is impaired.
C) It allowed a one-time write-down of all past goodwill impairment.
D) It created pooling of interests accounting.
Q2) When a tobacco firm merges with a steel company, it would be called
A) a horizontal merger.
B) a vertical merger.
C) a conglomerate merger.
D) a consolidation.
Q3) Nonfinancial motives for mergers include
A) synergy.
B) the portfolio effect.
C) vertical integration.
D) synergy and vertical integration.
Q4) A motive for selling stockholders may be the bias against smaller companies.
A)True
B)False
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Chapter 21: International Financial Management
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Sample Questions
Q1) When Country A's currency strengthens against Country B's, citizens of Country A will
A) pay less to buy Country B's products.
B) pay more to buy Country B's products.
C) pay more to buy domestically produced products.
D) not be affected by the change in their currency's value.
Q2) Which of the following statements about foreign affiliates is (are) true?
A) In general, foreign affiliates are more profitable than domestic businesses.
B) Foreign affiliates usually lower the portfolio risk of the parent company.
C) Foreign affiliates may have a significant positive impact on the host company's economic growth, employment, trade, and balance of payments.
D) All of these options are true.
Q3) A "bear market" (declining stock prices) will tend to exert a depressing effect on the value of a country's currency.
A)True
B)False
Q4) Transaction exposure results in foreign exchange gains and losses.
A)True
B)False
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