Finance for Managers
Pre-Test Questions
Course Introduction
Finance for Managers provides a comprehensive introduction to the key financial tools and concepts essential for effective decision-making in a managerial context. The course covers topics such as financial statement analysis, budgeting, cost control, capital investment decisions, and risk assessment. Emphasizing practical applications, it equips managers with the skills needed to interpret financial information, allocate resources efficiently, and align financial strategies with organizational goals. By the end of the course, students will be able to make informed financial decisions that enhance business performance and drive sustainable growth.
Recommended Textbook
Corporate Finance Core Principles and Applications 5th Edition by Stephen Ross
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Page 2
Chapter 1: Introduction to Corporate Finance
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Sample Questions
Q1) Which one of these parties cannot be a stakeholder of a firm?
A)Newly hired company employee
B)Government
C)Firm's creditors
D)Business located next door to the firm
E)Firm's customers
Answer: C
Q2) Which form of business structure faces the greatest agency problems?
A)Sole proprietorship
B)General partnership
C)Limited partnership
D)Limited liability company
E)Corporation
Answer: E
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Chapter 2: Financial Statements AMCQ Cash Flow
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Q1) Teddy's Pillows had beginning net fixed assets of $648 and ending net fixed assets of $621.Assets valued at $285 were sold during the year.Depreciation was $76.What is the amount of net capital spending?
A)$334
B)$236
C)$115
D)$49
E)$66
Answer: D
Q2) Your ________ tax rate is the percentage of the next taxable dollar of income you earn that is payable as a tax.
A)deductible
B)residual
C)marginal
D)average
E)total
Answer: C
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Chapter 3: Financial Statements Analysis Amcq Financial
Models
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Sample Questions
Q1) Ratio analysis works best when evaluating the financial statements of two firms
A)in the same industry but located in different countries.
B)of differing sizes in the same industry.
C)with one being in a single line of business while the other is a conglomerate.
D)of the same size in differing industries.
E)when both are conglomerates with varying lines of business.
Answer: B
Q2) A firm has a total debt ratio of 0.47.This means the firm has $0.47 in debt for every
A)$)53 in equity.
B)$1.47 in total assets.
C)$1.53 in total assets.
D)$1 in total equity.
E)$1.47 in total equity.
Answer: A
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Chapter 4: Discounted Cash Flow Valuation
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Sample Questions
Q1) Today,you are retiring.You have a total of $387,419 in your retirement savings and have the funds invested at a guaranteed 3.68 percent,compounded monthly.You want to withdraw $1,500 at the beginning of every month,starting today.You also want the withdrawals to stop when your account balance declines to $100,000.For how many years can you make withdrawals?
A)36.52 years
B)34.43 years
C)34.22 years
D)35.24 years
E)36.22 years
Q2) Texas Foods has a loan that requires one lump sum payment at the end of 12 years in the amount of $139,000.The interest rate is 5.8 percent,compounded monthly.What amount did the firm borrow?
A)$75,209.79
B)$69,418.30
C)$82,706.63
D)$84,613.03
E)$72,461.16
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Chapter 5: Interest Rates AMCQ Bomcq Valuation
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Sample Questions
Q1) If the bond holder has any rights that can force repayment of the bond prior to maturity,the bond
A)is an income bond.
B)has a call provision.
C)is convertible.
D)is a structured note.
E)has a put provision.
Q2) Taylor Bros.bonds have a face value of $5,000,a current market price of $5,248.50,and a coupon rate of 5.3 percent,compounded semiannually.What is the current yield on these bonds?
A)5)38%
B)5)05%
C)5)17%
D)5)30%
E)5)41%
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Chapter 6: Stock Valuation
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Sample Questions
Q1) Feltwater Furniture has 134,000 shares of stock outstanding.The firm expects to earn net income of $286,000 next year with annual increases of 4 percent per year thereafter.The firm pays out 70 percent of its net income in dividends.The required return is 16 percent.What is the share price?
A)$14.16
B)$12.45
C)$13.08
D)$12.95
E)$14.63
Q2) A securities market primarily consisting of dealers who buy and sell for their own inventories is generally referred to as a(n)________ market.
A)over-the-counter
B)auction
C)broker
D)regional
E)trading floor
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8
Chapter 7: Net Present Value AMCQ Other Investment Rules
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Sample Questions
Q1) Baxter's Market is considering opening a new location with an initial cost of $139,200.This location is expected to generate cash flows of $22,400,$61,500,$37,800,and $21,000 in Years 1 to 4,respectively.What is the payback period?
A)3)92 years
B)3)83 years
C)2)46 years
D)2)57 years
E)3)01 years
Q2) An investment is acceptable if the profitability index (PI)of the investment is
A)greater than one.
B)less than one.
C)greater than the internal rate of return (IRR).
D)less than the net present value (NPV).
E)greater than a prespecified rate of return.
Q3) The discounted payback method
A)discounts a project's initial cost.
B)is simpler and more reliable than the payback period.
C)is as reliable as NPV because both methods use discounted cash flo.
D)uses an arbitrary cutoff period.
E)ignores a project's initial costs.
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Chapter 8: Making Capital Investment Decisions
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Sample Questions
Q1) Walks Softly sells customized shoes.Currently,it sells 14,800 pairs of shoes annually at an average price of $79 a pair.The company is considering adding a lower-priced line of shoes that will sell for $59 a pair.The company estimates it can sell 4,800 pairs of the lower-priced shoes but will sell 1,900 less pairs of the higher-priced shoes by doing so.What is the amount of the sales that should be used when evaluating the addition of the lower-priced shoes?
A)$133,100
B)$1,245,000
C)$416,300
D)$1,302,300
E)$283,200
Q2) Project analysis is focused on ________ costs.
A)total
B)sunk
C)variable
D)incremental
E)fixed
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Chapter 9: Risk Analysis, Real Options, AMCQ Capital Budgeting
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Q1) Roy is analyzing a 5-year project with an initial cost of $210,000,a required return of 16 percent,and a probability of success of 62 percent.If the project fails,it will generate an annual after-tax cash flow of -$48,500.If the project succeeds,the annual after-tax cash flow will be $79,000.He has further determined that if the project fails,he will shut it down after the first year and lose all of his original investment.If,however,the project is a success,he can expand it with no additional investment and increase the after-tax cash flow to $154,000 a year for Years 2-5.At the end of Year 5,the project would be terminated and have no salvage value.What is the net present value of this project at Time 0?
A)$46,655.42
B)$32,560.35
C)$47,297.19
D)$62,543.35
E)$59,297.19
Q2) Conducting scenario analysis helps managers see the
A)impact an individual variable has on the outcome of a project.
B)possible range of market prices for a firm's stock over the life of a project.
C)potential changes in long-term debt over the course of a proposed project.
D)potential range of outcomes from a proposed project.
E)distribution of funds to various independent capital projects.
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Chapter 10: Risk Amcq Return: Lessons From Market History
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Sample Questions
Q1) What percentage of the time should you expect to earn an annual rate of return that is within two standard deviations of the mean?
A)100%
B)95%
C)68%
D)99%
E)75%
Q2) What are the arithmetic and geometric average returns for a stock with annual returns of 14.9 percent,14.6 percent, 2.8 percent,and 9.7 percent?
A)9)100%;8.673%
B)8)882%;8.854%
C)9)100%;8.771%
D)8)897%;8.854%
E)9)100%;8.854%
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Chapter 11: Return Amcq Risk: the Capital Asset Pricing
Model Capm
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Sample Questions
Q1) A portfolio is expected to return 18 percent in a booming economy,13 percent in a normal economy,and lose 11 percent if the economy falls into a recession.The probability of a boom is 3 percent while the probability of a recession is 25 percent.What is the overall portfolio expected return?
A)8)40%
B)6)83%
C)7)15%
D)6)05%
E)2)81%
Q2) The standard deviation of a risk-free asset is
A)0)
B) 1.
C)+1.
D)between 0 and 1.
E)between 0 and +1.
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Chapter 12: Risk, cost of Capital, AMCQ Valuation
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Sample Questions
Q1) Which one of these statements related to beta is correct?
A)The beta of a risk-free security is set at 1.
B)The higher the beta,the lower the risk of a security.
C)Beta measures the risk of a single security if held in a large,diversified portfolio.
D)Beta measures the total risk of a single security whether held independently or as part of a portfolio.
E)A stock with a high standard deviation will also have a high beta.
Q2) The beta of a security provides an estimate of the
A)characteristic line for the security.
B)slope of the capital market line.
C)slope of the security market line.
D)the market risk premium.
E)total risk of the individual security.
Q3) The asset beta is defined as the beta of
A)a fully diversified portfolio.
B)an undiversified portfolio.
C)the common stock of a levered firm.
D)a risk-free security.
E)the common stock of an unlevered firm.
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Page 14
Chapter 13: Efficient Capital Markets Amcq Behavioral Challenges
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Q1) Individuals that continually monitor the financial markets seeking mispriced securities
A)tend to make substantial profits on a daily basis.
B)tend to make the markets more efficient.
C)are never able to find a security that is temporarily mispriced.
D)are always quite successful using only well-known public information as their basis of evaluation.
E)are always quite successful using only historical price information as their basis of evaluation.
Q2) Which one of these terms is used to describe a principle where investors draw conclusions from insufficient data?
A)Representativeness
B)Synergy
C)Conservatism
D)Arbitrage
E)Independent deviations from rationality
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Chapter 14: Capital Structure: Basic Concepts
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Sample Questions
Q1) Wilt's has a debt-equity ratio of 0.48,a pretax cost of debt of 7.3 percent,and an unlevered cost of capital of 14.1 percent.What is its levered cost of equity if there are no taxes or other imperfections?
A)19.65%
B)15.55%
C)18.20%
D)17.36%
E)16.45%
Q2) Marley's is an unlevered firm with a total market value of $220,000 and 5,000 shares of stock outstanding.The firm has expected EBIT of $10,000 if the economy is normal and $12,000 if the economy booms.The firm is considering a bond issue of $88,000 with an attached interest rate of 5.9 percent.The bond proceeds will be used to repurchase shares.Ignore taxes.What will be the earnings per share after the repurchase if the economy booms?
A)$1.55
B)$1.61
C)$2.27
D)$2.48
E)$2.36
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Page 16
Chapter 15: Capital Structure: Limits to the Use of Debt
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Sample Questions
Q1) Which one of the following statements is correct concerning a Chapter 7 bankruptcy?
A)A firm reorganizes its operations in an effort to return to being a viable concern.
B)A trustee will assume control of the firm's assets until those assets can be liquidated.
C)Chapter 7 bankruptcies are always involuntary on the part of the firm.
D)The claims of creditors are paid prior to the bankruptcy administrative costs.
E)The firm generally issues new shares of stock prior to coming out of bankruptcy.
Q2) The optimal debt-equity ratio tends to
A)remain constant when agency costs of equity are considered.
B)support the all-debt capital structure.
C)increase when agency costs of equity exist.
D)be directly related to the costs of financial distress.
E)decrease as the tax rate increases.
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Chapter 16: Dividemcqs AMCQ Other Payouts
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Sample Questions
Q1) On May 18<sup>th</sup>,you purchased 900 shares of LKM stock.On June 1<sup>st</sup>,you sold 100 shares of this stock for $32 a share.You sold an additional 200 shares on July 6<sup>th</sup> at a price of $34.50 a share.The company declared a per share dividend of $.33 on June 20<sup>th</sup> to holders of record as of Friday,July 8<sup>th</sup>.This dividend is payable on July 29<sup>th</sup>.How much dividend income will you receive on July 29<sup>th</sup> as a result of your ownership of LKM stock?
A)$0
B)$198
C)$240
D)$264
E)$297
Q2) The date before which a new purchaser of stock is entitled to receive a declared dividend,but on or after which she does not receive the dividend,is called the ________ date.
A)ex-dividend
B)ex-rights
C)record
D)payment
E)declaration
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Page 18
Chapter 17: Options Amcq Corporate Finance
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Q1) Which variable within the Black-Scholes option pricing formula is the delta?
A)S
B)e<sup> Rt</sup>
C)N(d<sub>2</sub>)
D)N(d<sub>1</sub>)
E)E
Q2) Bruno's stock is currently selling for $31.74 a share but is expected to increase to either $32 or $37 a share over the next year.The risk-free rate is 3 percent.What is the current value of a 1-year call option with an exercise price of $35?
A)$)27
B)$)33
C)$)64
D)$)89
E)$)52
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Chapter 18: Short-Term Finance Amcq Planning
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Q1) A type of short-term loan where the borrower sells its accounts receivables to the lender at a discount to face value is called
A)a compensating balance.
B)an assignment.
C)a letter of credit.
D)factoring.
E)a bond.
Q2) Dewey's expects sales of $780,$830,$870,and $790 for the months of April through July,respectively.The firm collects 31 percent of sales in the month of sale,63 percent in the month following the month of sale,and 5 percent in the second month following the month of sale.The remaining 1 percent of sales is never collected.How much money does the firm expect to collect in the month of June?
A)$831.60
B)$801.40
C)$808.20
D)$788.20
E)$852.40
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Chapter 19: Raising Capital
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Sample Questions
Q1) Butterfield's is an all-equity firm with 132,000 shares of stock outstanding.The book value per share is $14,and the market value per share is $31.The current net income is $301,000.The firm is considering a new project that will cost $1.4 million and increase net income by $87,000.The current earnings per share is ________ and it will be ________ if the project is accepted.
A)$2.24;$2.12
B)$2.24;$2.08
C)$2.24;$2.21
D)$2.28;$2.19
E)$2.28;$2.11
Q2) Which one of the following projects is most apt to be financed with venture capital?
A)Seasonal merchandise for a major retailer
B)New product for an international manufacturing company
C)Domestic outlet for a large global importer
D)Additional warehouse space for a profitable trucking firm
E)Prototype for a newly patented tool by an individual inventor
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21
Chapter 20: International Corporate Finance
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Sample Questions
Q1) International bonds issued in a single country and denominated in that country's currency are called
A)Treasury bonds.
B)Eurobonds.
C)foreign bonds.
D)Brady bonds.
E)gilts.
Q2) You are expecting a payment of Can$150,000 four years from now.The risk-free rate of return is 3.9 percent in the United States and 4.6 percent in Canada.The inflation rate is 3 percent in the United States and 4.2 percent in Canada.Assume the current exchange rate is Can$1 = $.87.How much will the payment four years from now be worth in U.S.dollars?
A)$138,887
B)$126,909
C)$99,300
D)$166,184
E)$177,285
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Chapter 21: Mergers Amcq Acquisitions Web Only
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Q1) Wilson's has 6,000 shares of stock outstanding at a market price per share of $19.Neilsen's has 22,000 shares outstanding that sell for $33 a share.By merging,$11,000 of synergy can be created.Neilsen's is acquiring Wilson's for $115,005 worth of Neilsen stock.What is the postmerger value per share?
A)$33.39
B)$33.00
C)$29.97
D)$29.42
E)$28.15
Q2) ABC created a new company,XYZ,from its subsidiary unit and maintained ownership of all of the shares in XYZ.When ABC felt market conditions were favorable,it did an IPO and sold 25 percent of its shares in XYZ.ABC has effectively completed
A)a reversal.
B)a divestiture.
C)an equity carve-out.
D)a spin-off.
E)a split-up.
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Page 23