Finance for Managers Final Exam
Course Introduction
Finance for Managers equips students with the foundational concepts and practical tools necessary to understand and apply financial principles in managerial decision-making. The course covers topics such as financial statement analysis, budgeting, capital investment appraisal, working capital management, and risk assessment. Emphasis is placed on interpreting financial data to guide strategic business decisions, evaluating the financial health of organizations, and utilizing key financial metrics to support long-term planning. Real-world case studies and problem-solving exercises help students develop the practical skills needed to navigate financial challenges and drive organizational success.
Recommended Textbook
Principles of Managerial Finance Brief 7th Edition by Lawrence
J. Gitman
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Chapter 1: The Role of Managerial Finance
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Sample Questions
Q1) Managerial finance is concerned with design and delivery of advice and financial products to individuals,businesses,and governments.
A)True
B)False
Answer: False
Q2) Which of the following is a duty of a financial manager in a business firm?
A) developing marketing plans
B) controlling the stock price
C) raising financial resources
D) auditing financial records
Answer: C
Q3) A sole proprietor has unlimited liability; his or her total investment in a business,but not his or her personal assets,can be taken to satisfy creditors.
A)True
B)False
Answer: False
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Chapter 2: The Financial Market Environment
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Q1) Which of the following is true of mortgage-backed securities?
A) Mortgage-backed securities assure a flat 15% return.
B) Mortgage-backed securities are guaranteed by the U.S. government.
C) Mortgage-backed securities can only be purchased by investment banks.
D) Mortgage-backed securities represent claims on the cash flows generated by a pool of homeloans.
Answer: D
Q2) As a key participant in financial transactions,individuals are ________.
A) net demanders of funds because they save more money than they borrow
B) net users of funds because they save less money than they borrow
C) net suppliers of funds because they save more money than they borrow
D) net purchasers of funds because they save more money than they borrow
Answer: C
Q3) Financial markets are intermediaries that channel the savings of individuals,businesses,and government into loans or investments.
A)True
B)False
Answer: False
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Chapter 3: Financial Statements and Ratio Analysis
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Q1) Current ratio provides a firm's ability to meet its long-term obligations.
A)True
B)False
Answer: False
Q2) The less fixed-cost debt (financial leverage)a firm uses,the greater will be its risk and return.
A)True
B)False
Answer: False
Q3) Information on the accounting policies,procedures,calculations,and transactions underlying entries in the financial statements can be found on ________.
A) the notes to the financial statements
B) the statement of retained earnings
C) the proxy statement
D) the management discussion and analysis (MD&A)
Answer: A
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Page 5
Chapter 4: Cash Flow and Financial Planning
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Q1) As the typical cash budget shows cash flows on a monthly basis,the information provided by the cash budget is adequate for ensuring solvency.
A)True
B)False
Q2) The external funds requirement results primarily from ________.(See Table 4.5)
A) the payment of dividends
B) the retirement of debt and purchase of new fixed assets
C) low profit margin
D) high cost of sales
Q3) A corporation ________.
A) must use the straight-line depreciation method for tax purposes and double declining depreciation method financial reporting purposes
B) can use straight-line depreciation method for tax purposes and MACRS depreciation method financial reporting purposes
C) can use different depreciation methods for tax and financial reporting purposes
D) must use different depreciation method for tax purposes, but strictly mandated depreciation methods for financial reporting purposes
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Chapter 5: Time Value of Money
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Sample Questions
Q1) The future value of $200 received today and deposited at 8 percent compounded semiannually for three years is ________.
A) $380
B) $158
C) $253
D) $252
Q2) When computing the number of deposits needed to accumulate a future sum,it will take longer if the interest rates are higher,holding the future value and deposit size constant.
A)True B)False
Q3) In their meeting with their advisor,Mr.and Mrs.O'Rourke concluded that they would need $40,000 per year during their retirement years in order to live comfortably.They will retire 10 years from now and expect a 20-year retirement period.How much should Mr.and Mrs.O'Rourke deposit now in a bank account paying 9 percent to reach financial happiness during retirement?
Q4) The nominal and effective rates are equivalent for annual compounding.
A)True B)False
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Chapter 6: Interest Rates and Bond Valuation
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Sample Questions
Q1) A company's bonds will experience more trading activity (in terms of the number of bonds traded on a given day)compared to its stock.
A)True
B)False
Q2) The possibility that the issuer of a bond will not pay the contractual interest or principal payments as scheduled is called default risk.
A)True
B)False
Q3) An inverted yield curve is a downward-sloping yield curve that indicates that short-term interest rates are generally higher than long-term interest rates.
A)True
B)False
Q4) The lower a bond's default risk,the higher is the interest rate. A)True
B)False
Q5) Draw a graph of a typical Treasury yield curve and discuss why it usually takes that shape.
Q6) Explain liquidity,default risk,and maturity risk premiums.
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Chapter 7: Stock Valuation
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Q1) ________ is the value of a firm's ownership in the event that all assets are sold for their exact accounting value and the proceeds remaining after paying all liabilities (including preferred stock)are divided among common stockholders.
A) Liquidation value
B) Book value
C) The P/E multiple
D) The present value of the common stock
Q2) A call feature is a feature that allows preferred stockholders to change each share into a stated number of shares of common stock.
A)True
B)False
Q3) Which of the following is true of common stock?
A) It is often considered quasi-debt due to fixed payment obligation.
B) It has less restrictive covenants than debt.
C) It gives the holder voting rights which permit selection of the firm's directors.
D) Its holders have priority over preferred stockholders in the event of liquidation of assets.
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Chapter 8: Risk and Return
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Q1) Beta coefficient is an index of the degree of movement of an asset's return in response to a change in the risk-free asset.
A)True
B)False
Q2) What is Nico's portfolio beta if he invests an equal amount in Asset X with a beta of 0.60,Asset Y with a beta of 1.60,and the risk-free asset?
A) 1.24
B) 1.00
C) 0.73
D) 0.66
Q3) Combining negatively correlated assets having the same expected return results in a portfolio with ________ level of expected return and ________ level of risk. A) a higher; a lower
B) the same; a higher
C) the same; a lower
D) a lower; a higher
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Page 10
Chapter 9: The Cost of Capital
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Q1) Which of the following is true of long-term funds?
A) They provide an easy way to reduce financing costs because they are relatively cheaper than short-term funds.
B) They are a type of investment fund which invests in money market investments of high quality and low risk.
C) They are the sources that supply the financing necessary to support a firm's capital budgeting activities.
D) They are the funds available to a business on the basis of inventory held and require detailed inventory tracking.
Q2) The cost of capital acts as a major link between a firm's long-term investment decisions and the wealth of the firm's owners as determined by the market value of their shares.
A)True
B)False
Q3) The amount of preferred stock dividends that must be paid each year may be stated in dollars or as a percentage of the firm's earnings.
A)True
B)False
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Chapter 10: Capital Budgeting Techniques
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Q1) The IRR method assumes the cash flows are reinvested at the internal rate of return rather than the required rate of return.
A)True
B)False
Q2) The NPV of a project with an initial investment of $2,500 that provides after-tax operating cash flows of $500 per year for four years where the firm's cost of capital is 15 percent is $427.49.
A)True
B)False
Q3) What is the IRR for the following project if its initial after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash flows of ($1,800,000)in year 1,$2,900,000 in year 2,$2,700,000 in year 3,and $2,300,000 in year 4?
A) 5.83%
B) 9.67%
C) 11.44%
D) 6.85%
Q4) If a project's IRR is greater than 0 percent,the project should be accepted.
A)True
B)False
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Chapter 11: Capital Budgeting Cash Flows and Risk
Refinements
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Q1) Firms do not usually get rewarded by diversifying investments in different lines of business because ________.
A) the capital markets are efficient and they quickly respond to change in economic conditions
B) cash flows from such projects tend to respond less to changing economic conditions
C) investors themselves can diversify by holding securities in a variety of firms; they do not need the firm to do it for them
D) it is not possible for a firm to diversify its risk as the inflation premium is different for different projects
Q2) The option to develop follow-on projects,expand markets,expand or retool plants,and so on that would not be possible without implementation of the project that is being evaluated is called ________.
A) growth option
B) timing option
C) flexibility option
D) abandonment option
Q3) Given the information in Table 11.4,compute the incremental annual cash flows.
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Page 13
Chapter 12: Leverage and Capital Structure
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Q1) ________ leverage measures the effect of fixed ________ costs on the relationship between EBIT and EPS.
A) Operating; operating
B) Financial; financial
C) Operating; financial
D) Financial; operating
Q2) The total leverage measures the combined effect of operating and financial leverage on a firm's risk.
A)True
B)False
Q3) While operating leverage results only in a magnification of returns,financial leverage results only in a magnification of risk.
A)True
B)False
Q4) Operating leverage is defined as the use of fixed operating costs to magnify the effects of changes in sales on a firm's earnings before interest and taxes.
A)True
B)False
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Chapter 13: Payout Policy
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Q1) Holders of record are stockholders whose names are recorded on the date of record receive the declared dividend.
A)True
B)False
Q2) A firm's dividend payout ratio is calculated by ________.
A) dividing cash dividend per share by its earnings per share
B) dividing earnings per share by its cash dividend per share
C) dividing cash dividend per share by its net income
D) dividing net income by its cash dividend per share
Q3) Tangshan Mining has 100,000 shares outstanding and just declared a 20% stock dividend.Before the announcement,the firm's shares were trading at $50.00 per share.After the stock dividend,the firm's shares should trade at ________ per share.
A) $42.00
B) $41.67
C) $46.33
D) $50.00
Q4) The repurchase of shares reduces the number of outstanding shares.
A)True
B)False
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Chapter 14: Working Capital and Current Assets Management
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Sample Questions
Q1) If a firm uses an aggressive financing strategy,________.
A) it increases return and increases risk
B) it increases return and decreases risk
C) it decreases return and increases risk
D) it decreases return and decreases risk
Q2) The General Chemical Company uses 150,000 gallons of hydrochloric acid per month.The cost of carrying the chemical in inventory is 50 cents per gallon per year,and the cost of ordering the chemical is $150 per order.The firm uses the chemical at a constant rate throughout the year.The chemical's economic order quantity is
A) 32,863 gallons
B) 11,619 gallons
C) 9,487 gallons
D) 1,900 gallons
Q3) Since Treasury bills are issued in bearer form,they are considered to be virtually risk-free.
A)True
B)False
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Chapter 15: Current Liabilities Management
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Q1) Revolving credit agreements are non-guaranteed loans that specify the minimum amount that a firm can owe the bank at any point in time.
A)True
B)False
Q2) Factoring accounts receivable is not a form of secured short-term borrowing.It entails the sale of accounts receivable at a discount to obtain the required short-term funds.
A)True
B)False
Q3) If a firm anticipates stretching accounts payable,its cost of giving up a cash discount is reduced.
A)True
B)False
Q4) Commitment fee is the fee that is normally charged on a revolving credit agreement.
A)True
B)False
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