Finance for Managers
Final Exam Questions
Course Introduction
Finance for Managers provides a comprehensive introduction to the financial concepts and tools essential for effective decision-making in managerial roles. The course covers key topics such as financial statement analysis, budgeting, time value of money, capital budgeting, risk analysis, and the interpretation of financial data to support strategic planning. Emphasizing practical application, it equips managers to assess the financial health of an organization, make informed investment decisions, and align financial strategies with business goals. Through real-world case studies and interactive exercises, students gain the skills needed to communicate with finance professionals and contribute to the financial success of their organizations.
Recommended Textbook
Principles of Managerial Finance Brief 8th Edition by Chad J. Zutter
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2
Chapter 1: The Role of Managerial Finance
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Sample Questions
Q1) Risk,the magnitude and timing of cash flows are the key determinants of share price,which represent the wealth of the owners in the firm.
A)True
B)False
Answer: True
Q2) ________ are the standards of conduct or moral judgment that apply to persons engaged in commerce.
A)Government regulations
B)The Uniform Commercial Codes
C)The rules of fair play
D)Business ethics
Answer: D
Q3) The primary principle that finance borrows from economics is ________.
A)generally accepted accounting principles
B)cash is king
C)marginal cost-benefit analysis
D)shareholder value maximization
Answer: C
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Chapter 2: The Financial Market Environment
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Sample Questions
Q1) Small business investment companies (SBICs)are corporations chartered by the federal government that can borrow at attractive rates from the U.S.Treasury and use the funds to make venture capital investments in private companies.
A)True
B)False
Answer: True
Q2) A market that establishes correct prices for the securities that firms sell and allocates funds to their most productive uses is called a(n)________.
A)future market
B)forex market
C)efficient market
D)weak-form market
Answer: C
Q3) Most businesses raise money by selling their securities in a ________.
A)public offering
B)forex market
C)futures market
D)commodities market
Answer: A
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Page 4
Chapter 3: Financial Statements and Ratio Analysis
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Sample Questions
Q1) In early 2018,Facebook's market/book ratio was close to 7.0.A market/book ratio that much greater than 1.0 for Facebook means that ________.
A)Facebook has a huge number of common shares outstanding
B)the book value of Facebook's equity is far less than the total market value of the company's stock
C)Facebook's stock is overvalued
D)Facebook's book value is inflated because so many of its assets are intangible
Answer: B
Q2) The inventory turnover for Dana Dairy Products in 2019 was ________.(See Table 3.2)
A)43
B)5
C)20
D)25
Answer: C
Q3) GAAP is the accounting profession's rule-setting body.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Long- and Short-Term Financial Planning
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Sample Questions
Q1) Cash disbursements include ________.
A)amortization expense
B)rent payments
C)depreciation expense
D)depletion
Q2) ________ generally reflect(s)the anticipated financial impact of planned long-term actions.
A)A cash budget
B)Strategic financial plans
C)Operating financial plans
D)A pro forma income statement
Q3) The depreciable value of an asset,under MACRS,is the ________.
A)current cost
B)current cost minus salvage value
C)the original cost plus installation
D)the original cost plus installation costs,minus salvage value
Q4) The excess cash balance is the amount available for investment by a firm if the desired minimum cash balance is less than the period's ending cash.
A)True
B)False
Page 6
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Chapter 5: Time Value of Money
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Sample Questions
Q1) Zheng Sen wishes to accumulate $1 million by the end of 20 years by making equal annual end-of-year deposits over the next 20 years.If Zheng Sen can earn 10 percent on his investments,how much must he deposit at the end of each year?
A)$14,900
B)$50,000
C)$117,453
D)$17,460
Q2) A beach house in Southern California now costs $350,000.Inflation is expected to cause this price to increase at 5 percent per year over the next 20 years before Eric and Karinna retire from successful careers in commercial art.How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the beach house upon retirement?
A)$11,472
B)$4,323
C)$79,977
D)$17,350
Q3) John borrowed $12,000 to buy a new car and expects to pay $564.87 per month for the next 2 years to pay off the loan.What is the loan's rate of interest?
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Chapter 6: Interest Rates and Bond Valuation
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Sample Questions
Q1) In a bond indenture,subordination is the stipulation that subsequent creditors agree to wait until all claims of the senior debt are satisfied.
A)True
B)False
Q2) Suppose the expectations hypothesis is true.The current rate of return on a one-year bond is 3%,and the current rate of return on a 2-year bond is 2.5%.What is the expected rate of return next year on a one-year bond?
A)2%
B)0.5%
C)1.5%
D)1%
Q3) A ________ give bondholders the right to purchase a certain number of shares of the issuer's common stock at a specified price over a certain period of time.
A)stock purchase warrant
B)call feature
C)swap
D)conversion feature
Q4) Calculate the current value of Bond M.(See Table 6.2)
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8
Chapter 7: Stock Valuation
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Sample Questions
Q1) The book value per share of common stock is the amount per share of common stock that would be received if all of a firm's assets were sold for their accounting value and the proceeds remaining were divided among common stockholders.
A)True
B)False
Q2) A firm has the balance sheet accounts,Common Stock and Paid-in Capital in Excess of Par,with values of $40,000 and $500,000,respectively.The firm has 40,000 common shares outstanding.If the firm had a par value of $1,the stock originally sold for
A)$11.50/share
B)$12.50/share
C)$13.50/share
D)$15.50/share
Q3) 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
Q4) Calculate the estimated dividend for 2020.(See Table 7.1)
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Page 9
Chapter 8: Risk and Return
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Sample Questions
Q1) The security market line (SML)reflects the required return in the marketplace for each level of nondiversifiable risk (beta).
A)True
B)False
Q2) An efficient portfolio is one that ________.
A)guarantees a predetermined rate of return
B)maximizes return for a given level of risk
C)consists of a single asset,which gives maximum return
D)maximizes return at all risk levels
Q3) Adam wants to determine the required return on a stock portfolio with a beta coefficient of 0.5.Assuming the risk-free rate of 6 percent and the market return of 12 percent,compute the required rate of return.
Q4) The coefficient of variation is a measure of relative dispersion used in comparing the risks of assets with differing expected return.
A)True
B)False
Q5) Total risk is the sum of a security's nondiversifiable and diversifiable risk.
A)True
B)False
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Chapter 9: The Cost of Capital
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Sample Questions
Q1) The Gordon model assumes that the value of a share of stock equals the future value of the current price of share that it is expected to remain constant over an infinite time horizon.
A)True
B)False
Q2) The firm's cost of preferred stock is ________.(See Table 9.1)
A)7.2 percent
B)8.3 percent
C)13.3 percent
D)13.9 percent
Q3) The weighted average cost of capital (WACC)reflects the expected average cost of the different forms of capital that a firm uses.
A)True
B)False
Q4) The firm's before-tax cost of debt is ________.(See Table 9.2)
A)7.7 percent
B)10.6 percent
C)11.2 percent
D)12.7 percent
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Chapter 10: Capital Budgeting Techniques
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Sample Questions
Q1) For a project that has an initial cash outflow followed by cash inflows,the profitability index (PI)is equal to the present value of cash inflows divided by the cost of capital.
A)True
B)False
Q2) The ________ is the discount rate that equates the present value of the cash inflows with the initial investment.
A)payback period
B)net present value
C)cost of capital
D)internal rate of return
Q3) By measuring how quickly a firm recovers its initial investment,the payback period gives implicit consideration to the time value of money and ignores the timing of cash flows.
A)True
B)False
Q4) Net present value profiles are most useful when selecting among independent projects.
A)True B)False
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Chapter 11: Capital Budgeting Cash Flows and Risk
Refinements
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Sample Questions
Q1) Accounting figures and cash flows are not necessarily the same due to the presence of certain non-cash expenditures on a firm's income statement.
A)True
B)False
Q2) The incremental depreciation expense for year 1 is ________.(See Table 11.3)
A)$2,250
B)$7,600
C)$7,000
D)$7,950
Q3) In applying risk-adjusted discount rates to project selection,projects falling above the SML would have a positive NPV and those falling below the SML would have a negative NPV.
A)True
B)False
Q4) The security market line can be used as a graphical presentation of the appropriate discount rate associated with each level of project risk.
A)True
B)False
Q5) Calculate the book value of the existing press being replaced.(See Table 11.1)
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Chapter 12: Leverage and Capital Structure
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Sample Questions
Q1) The cost of equity increases with increasing financial leverage in order to compensate the stockholders for the higher degree of financial risk.
A)True
B)False
Q2) The optimal capital structure is the one that balances ________.
A)return and risk factors in order to maximize profits
B)return and risk factors in order to maximize earnings per share
C)return and risk factors in order to maximize market value
D)return and risk factors in order to maximize dividends
Q3) Financial leverage is concerned with the relationship between a firm's earnings after interest and taxes and its common stock earnings per share.
A)True
B)False
Q4) The dollar breakeven sales level can be solved for by dividing fixed costs by the dollar contribution margin.
A)True
B)False
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Chapter 13: Payout Policy
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Sample Questions
Q1) Dividend payment policy is a form of ________.
A)capital budgeting policy
B)financing policy
C)working capital policy
D)dividend reinvestment policy
Q2) While an earnings requirement limiting the amount of dividends paid is sometimes imposed,a firm is not prohibited from paying more in dividends than its current earnings.
A)True
B)False
Q3) The stock repurchase can be viewed as a cash dividend.
A)True
B)False
Q4) The ex dividend period begins four business days prior to the payment date. A)True
B)False
Q5) The payment of a stock dividend is a shifting of funds between stockholders' equity accounts rather than an outflow of funds.
A)True
B)False
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Chapter 14: Working Capital and Current Assets Management
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Sample Questions
Q1) To be truly marketable,a security must ________.
A)be highly rated by a credit rating agency
B)have the characteristics of a callable bond
C)be readily convertible into cash
D)have a maturity of 10 years or more
Q2) When a firm initiates or increases a cash discount,sales are expected to ________,the investment in accounts receivable is expected to ________,the bad debt expense is expected to ________,and the profit per unit is expected to ________.
A)decrease; increase; increase; increase
B)decrease; decrease; increase; increase
C)increase; increase; decrease; decrease
D)increase; decrease; decrease; decrease
Q3) A firm has an average age of inventory of 101 days,an average collection period of 49 days,and an average payment period of 60 days.The firm's cash conversion cycle is ________ days. A)150
Page 16
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Chapter 15: Current Liabilities Management
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Sample Questions
Q1) Commercial finance companies are lending institutions that make only unsecured loans-both short-term and long-term-to businesses.
A)True
B)False
Q2) The cost of giving up a cash discount is the implied rate of interest paid in order to delay payment of an account payable for an additional number of days.
A)True
B)False
Q3) A field warehouse is ________.
A)a warehouse outside the metropolitan area
B)a warehouse on the borrower's premises
C)a central warehouse storing the merchandise of several businesses
D)a warehouse located near the lender
Q4) The major type of loan made by banks to businesses is the ________.
A)fixed-asset-based loan
B)short-term secured loan
C)short-term,self-liquidating loan
D)capital improvement loan
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