Finance for Managers
Test Questions
Course Introduction
Finance for Managers provides a comprehensive introduction to essential financial concepts and practices relevant to managerial decision-making. The course covers fundamental areas including financial statement analysis, budgeting, capital investment evaluation, working capital management, and financial planning. Through case studies and practical examples, students will learn how to interpret financial data, assess organizational financial health, and apply analytical tools to support strategic business decisions. Emphasis is placed on equipping non-financial managers with the skills necessary to effectively communicate with finance professionals and contribute to the financial success of their organizations.
Recommended Textbook
CFIN 6th Edition by Scott Besley
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16 Chapters
1206 Verified Questions
1206 Flashcards
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Page 2
Chapter 1: An Overview of Managerial Finance
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Sample Questions
Q1) A limited partner in a limited liability partnership (LLP) is _____.
A)responsible for the general management of the business
B)liable for only the amount invested in the partnership
C)responsible for negligence, irresponsibility, or similar acts committed by any other partner
D)liable to pay tax on the general partner's share of partnership income
E)personally liable for the partnership debts
Answer: B
Q2) The treasurer of a company is a key subordinate of the _____.
A)controller
B)financial vice president
C)chief executive officer
D)credit manager
E)director of capital budgeting
Answer: B
Q3) A financial manager's task is to make decisions concerning the acquisition and use of funds for the greatest benefit of the firm.
A)True
B)False
Answer: True
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Chapter 2: Analysis of Financial Statements
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Sample Questions
Q1) Suppose a firm has a growth rate equal to 8 percent, return on assets (ROA) of 10 percent, a debt ratio of 20 percent, and a current stock price of $36. The firm's return on equity (ROE) is:
A)14.0%.
B)12.5%.
C)15.0%.
D)2.5%.
E)13.5%.
Answer: B
Q2) Which of the following ratios indicate how much investors are willing to pay for a firm's stock for each dollar of reported profits?
A)Earnings per share
B)Market-to-book ratio
C)Price/earnings ratio
D)Return on equity
E)Net profit margin
Answer: C
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Chapter 3: The Financial Environment: Markets, Institutions, and Investment Banking
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Sample Questions
Q1) Welsh Corporation wants to issue debt of $525,000 to invest in a new project. Welsh is required to pay its investment banker 5 percent of the issue's total value. There are no other floatation costs. Compute the amount of debt that the firm must issue to net $525,000 after flotation costs.
A)$525,347
B)$552,632
C)$498,752
D)$551,257
E)$575,886
Answer: B
Q2) Treasury bills are issued by the U.S. government. In which type of financial market do already issued treasury bills trade?
A)Capital market
B)Primary market
C)Stock market
D)Money market
E)Derivatives market
Answer: D
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Chapter 4: Time Value of Money
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Sample Questions
Q1) Which of the following is the correct expression for calculating the future value of an investment? (r represents the interest rate and n represents the length of time)
A)Future value = Present value × (1 + r)<sup>n</sup>
B)Future value = Present value + (1 + r)<sup>n</sup>
C)Future value = Present value - (1 + r)<sup>n</sup>
D)Future value = Present value / (1 + r)<sup>n</sup>
E)Future value = Present value / [(1 + r) × n]
Q2) The process of determining the present value of a cash flow or a series of cash flows to be received or paid in the future is known as _____.
A)compounding
B)discounting
C)consolidation
D)amortization
E)annualizing
Q3) The present value of an investment increases as the opportunity cost rate increases.
A)True
B)False
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Chapter 5: The Cost of Money Interest Rates
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Sample Questions
Q1) The higher the perceived risk associated with an investment, the higher its required rate of return.
A)True
B)False
Q2) Assume that the current yield curve is upward sloping or normal. This implies that:
A)short-term interest rates are more volatile than long-term rates.
B)inflation is expected to subside in the future.
C)the economy is at the trough of a business cycle.
D)long-term bonds are less attractive to investors than short-term bonds.
E)short-term interest rates are lower than the long-term interest rates.
Q3) Assume that the expectations theory holds and that liquidity and maturity risk premiums are zero. The annual rate of interest on a two-year Treasury bond is 10.5 percent and the rate on a one-year Treasury bond is 12 percent. What is the expected one-year interest rate during the second year?
A)9.0%
B)9.5%
C)10.0%
D)10.5%
E)11.0%
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Page 7
Chapter 6: Bonds Debt Characteristics and Valuation
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Sample Questions
Q1) A $1,000 par value bond pays interest of $35 each quarter and will mature in 10 years.
If an investor's simple annual required rate of return is 12 percent, how much should the investor be willing to pay for this bond?
A)$941.36
B)$1,051.25
C)$1,115.57
D)$1,391.00
E)$1,113.00
Q2) A bond's principal value is also referred to as the maturity value because:
A)it is always repaid at a discount prior to the bond's maturity.
B)it is written on the face of the debt contract.
C)it is repaid at the maturity date.
D)it is added to interest payments that are repaid at the maturity date.
E)it is issued at a value below par value to generate a positive capital gain.
Q3) A bond sinking fund provision requires a firm to:
A)issue bonds every year to finance interest payment on bonds.
B)retire a portion of the bond issue each year.
C)increase the coupon rate by one percent every year.
D)use annual interest payments for the repayment of bonds.
E)gradually reduce the face value of debt to the level of market value of debt.
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Chapter 7: Stocks Equity Characteristics and Valuation
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Sample Questions
Q1) A share of a preferred stock pays a dividend of $0.50 each quarter. If you are willing to pay $20.00 for this preferred stock, what is the simple (not effective) annual rate of return?
A)8%
B)6%
C)12%
D)14%
E)10%
Q2) How can a firm effectively incorporate a maturity provision within a preferred stock issue?
A)By including a call provision
B)By including a cumulative dividends provision
C)By including a preemptive right
D)By including a participating provision
E)By including a voting provision
Q3) Changes in stock prices occur because investors change the rates of return they require to invest in stocks and/or the expectations about the cash flows associated with stocks change.
A)True
B)False
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Chapter 8: Risk and Rates of Return
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Sample Questions
Q1) Which of the following statements about the risk-return relationship observed in investing is correct?
A)An increase in the expected inflation rate would lead to an increase in the required return on all the risky assets by the same amount, assuming all other things were held constant.
B)A graph of the SML shows required rates of return on the vertical axis and standard deviations of returns on the horizontal axis.
C)If investors' risk attitudes change, the required rates of return on low-beta stocks will be impacted more than the required rates of return on high-beta stocks.
D)If investors became more averse to risk, then the slope of the SML would become less steep.
E)The market risk premium is lower for high-beta stocks than it is for low-beta stocks.
Q2) Economic risk is an unsystematic risk that can be diversified by the investors.
A)True
B)False
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Chapter 9: Capital Budgeting Techniques
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Sample Questions
Q1) Seattle Corporation identifies an investment opportunity that will yield end of year cash flows of $30,000 in both Year 1 and Year 2, $35,000 in both Year 3 and Year 4, and $40,000 in Year 5. The investment will cost the firm $100,000 today, and the firm's required rate of return is 10 percent. What is the net present value (NPV) for this investment?
A)$23,653.26
B)$27,104.46
C)$44,226.00
D)$70,000.00
E)$35,768.45
Q2) The two main purposes of post-audit are to improve forecasts and to improve operations.
A)True
B)False
Q3) The net present value (NPV) method implicitly assumes that the rate at which cash flows can be reinvested is the required rate of return, whereas the internal rate of return (IRR) method implies that the firm has the opportunity to reinvest at the project's IRR.
A)True
B)False
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Page 11
Chapter 10: Project Cash Flows and Risk
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Sample Questions
Q1) A firm is evaluating a new machine to replace one of its existing, older machines. If the old machine is replaced, the change in the annual depreciation expense will be $3,000. The firm's marginal tax rate is 30 percent. Which of the following statements is correct?
A)The depreciation expense does not affect the calculation of the supplemental operating cash flows, so it should not be considered in the analysis of the machine.
B)The depreciation expense can be added to the machine's after-tax net operating income to determine its supplemental operating cash flows.
C)The depreciation expense should be added to the machine's initial investment outlay.
D)The depreciation expense is included in the computation of the machine's terminal cash flows.
E)The depreciation expense should be included in the analysis only if it exceeds the tax expense associated with the machine.
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12
Chapter 11: The Cost of Capital
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Sample Questions
Q1) A graph of the capital budgeting projects a firm is evaluating ranked in the order of their internal rates of return is called a(n) _____.
A)marginal cost of capital graph
B)investment opportunity schedule (IOS)
C)modified internal rate of return (MIRR) graph
D)internal project classification schedule
E)optimal capital budget (OCB) schedule
Q2) Even if a firm obtains all of its common equity financing from retained earnings, its marginal cost of capital (MCC) schedule could still increase if very large amounts of new capital are raised.
A)True
B)False
Q3) The before-tax cost of debt, rd, is the same as the:
A)yield to maturity (YTM) associated with the firm's bonds.
B)dividend yield associated with the firm's common stock.
C)average coupon rate on the firm's bonds.
D)return on equity if the firm has no preferred stock.
E)the firm's marginal tax rate.
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Chapter 12: Capital Structure
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Sample Questions
Q1) According to the signaling theory that has been proposed to explain differences in firms' capital structures, which of the following actions by the management is taken as a signal that a firm's future prospects are not bright (i.e., not good)? (Assume that the firm has multiple financing alternatives.)
A)A small company raises new capital by issuing of new shares of common stock.
B)A mature company raises new capital by issuing of new shares of common stock.
C)A small company maintains a reserve borrowing capacity that can be used if good investments are discovered in the future.
D)A mature company maintains a reserve borrowing capacity that can be used if good investments are discovered in the future.
E)A mature company raises new capital by issuing debt beyond the amount that is indicated by its normal target capital structure.
Q2) In countries where capital gains are not taxed, investors should prefer to own stocks rather than debt compared to investors in countries where capital gains are taxed.
A)True
B)False
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Chapter 13: Distribution of Retained Earnings: Dividends and Stock Repurchases
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Sample Questions
Q1) Last year Universal Transportation retained $225,000 of the $750,000 net income it generated. This year Universal generated net income equal to $550,000. If Universal follows the constant payout ratio dividend policy, how much should it pay in total dividends this year?
A)$550,000
B)$385,000
C)$165,000
D)$715,000
E)$525,000
Q2) Which of the following is an important factor that affects dividend policies of companies around the world?
A)Language differences
B)Tax structures
C)Marketing campaigns
D)Takeover threats
E)Manufacturing process
Q3) One reason a firm repurchases its stock is to distribute excess funds.
A)True
B)False
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Chapter 14: Managing Short-Term Financing Liabilities
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Sample Questions
Q1) Most firms purchase from their suppliers on credit, recording these debts in their financial statements/accounts as ______.
A)accounts payable
B)notes payable
C)promissory notes
D)inventory
E)accounts receivable
Q2) The maturities of commercial paper generally range from:
A)one month to nine months.
B)10 months to 12 months.
C)one year to three years.
D)one year to 10 years.
E)five years to 10 years.
Q3) Accruals are generally considered free debt in the sense that no explicit interest is paid on funds "raised" through them.
A)True
B)False
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Chapter 15: Managing Short-Term Assets
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Sample Questions
Q1) Rainbow Inc.'s sales equal $200,000 each month. Rainbow generally permits credit purchases with terms of 3/10 net 30. Ten (10) percent of total sales are for cash, and the remaining 90 percent pay on credit. Of the credit sales, 20 percent are paid on Day 10 of the billing cycle, and the rest pay on Day 30 (in the following month). What is the amount of the discounts that Rainbow's customers normally take?
A)$850
B)$720
C)$560
D)$485
E)$900
Q2) The primary purpose of a lockbox arrangement is to:
A)provide for the safe-keeping of the firm's marketable securities.
B)identify inventory safety stocks.
C)slow down (delay) cash disbursements to the firm's customers.
D)speed up a firm's collections on checks received from customers.
E)speed up a firm's disbursement of checks to its suppliers.
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Chapter 16: Financial Planning and Control
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Sample Questions
Q1) On-The-Go Merchandiser sells luxury carry-on travel bags for $1,200 each. The firm's fixed operating costs are $600,000 when 5,000 or fewer bags are produced, and its variable cost ratio is 80 percent (i.e., variable cost per unit is 80 percent of the selling price). What is On-The-Go's operating breakeven point?
A)500 bags
B)6,000 bags
C)750 bags
D)2,500 bags
E)4,000 bags
Q2) Managements does not need to consider economies of scale in operations when constructing pro forma financial statements because economies of scale do not directly affect financial statements.
A)True
B)False
Q3) If the projected operating results are disappointing, management can reformulate its plans and develop targets that are more reasonable for the coming year.
A)True
B)False
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