Finance for Non-Financial Managers
Exam Preparation Guide
Course Introduction
Finance for Non-Financial Managers is designed to equip professionals without a background in finance with essential financial skills and knowledge required for effective decision-making in a business environment. The course covers key concepts such as interpreting financial statements, budgeting, financial planning, and the fundamentals of investment and capital management. Participants will learn how to analyze financial data, understand the impact of financial decisions on organizational performance, and communicate more effectively with finance professionals. By bridging the gap between operational roles and financial acumen, this course empowers managers to contribute strategically to their organizations financial health and long-term success.
Recommended Textbook
Financial Management for Decision Makers 2nd Canadian Edition by Peter Atrill
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14 Chapters
590 Verified Questions
590 Flashcards
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Chapter 1: Introduction to Financial Management
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Sample Questions
Q1) A key activity in Capital Market operations involves
A) Assessing the profitability of a proposed investment
B) Balancing short-term and long-term financing
C) Determining how much funding can be generated internally
D) Providing cash flow information to operations managers
E) Determining market reaction to proposed investment plans
Answer: E
Q2) Today, Financial Management can be appropriately described as
A) The economics of time and risk
B) A direct offshoot of accounting
C) The quantitative side of strategic management
D) A practice based on informal procedures
E) The implementation of capital market theories
Answer: A
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3
Chapter 2: Accounting - the Language of Business
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Sample Questions
Q1) Marcus Lalonde received $1,835.00 in cash dividends from Canadian corporations whose shares are in his personal portfolio. Marcus faces a problem of double taxation because
A) The tax rate on passive income such as dividends is twice as high as on income from employment.
B) He is liable for income taxes on these dividends. However, the cash represents income from corporations which have already paid income tax on those earnings
C) He is liable for the income tax on these dividends and may be liable for capital gains tax upon sale of the shares that produced the dividends
D) The tax treatment on dividends is similar to withdrawals from RRSP's. A portion of the dividend is withheld by Revenue Canada upon the issue of the dividends and the portion that is taken into income is taxed
E) He will be taxed on the dividends taken into income this year and will be taxed for the total amount of dividends he has received while holding the shares upon the sale of shares
Answer: B
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Chapter 3: Financial Planning and Pro Forma Financial Statements
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44 Verified Questions
44 Flashcards
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Sample Questions
Q1) Which of the following steps can be omitted when planning and developing a set of pro forma financial statements?
A) Identify the factors that will affect the pro forma statements.
B) Forecast which competitors will cut prices.
C) Forecast the sales for the period.
D) Forecast the remaining elements of the financial statements.
E) Prepare the pro forma financial statements.
Answer: B
Q2) A financing gap refers to
A) The undisclosed project for which a portion of retained earnings is reserved
B) Estimates included in pro forma statements which have no basis in hard data
C) Financing requirements not identified in the pro forma statements
D) A value added to liabilities to balance the pro forma balance sheet
E) A reserve for bad debt
Answer: D
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Chapter 4: Analyzing and Interpreting Financial Statements
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Sample Questions
Q1) Zeechan Landscaping Company Limited had sales revenues of $1,400,000 last year and $1,200,000 the year before. Cost of Goods Sold was $980,000 last year and $780,000 the year before. Operating expenses were $300,000 for both last year and the year before. Comparing gross profit and operating profit margins, it could be concluded that
A) The operating profit margin remained unchanged over the previous two years as increases in cost of goods sold, CGOS, were offset by improvements in operating expenses
B) The operating margin remained unchanged over the previous two years as cost of goods sold increases were approximately proportional to gains in sales revenue
C) The operating margin declined last year over the year before due to increases in costs per unit sold.
D) The operating margin declined last year over the year before as operating expenses did not respond to economies of scale
E) The gross profit margin of the operating profit margin were unchanged resulting in no change in earnings before interest and taxes
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6
Chapter 5: The Time Value of Money
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Sample Questions
Q1) Debentures are
A) Unsecured bonds
B) A form of equity
C) Convertible bonds
D) Loans from governments
E) Government grants
Q2) The Export Development Corp. (EDC) offered a $500,000 startup loan to qualifying entrepreneurs. For year one of the loan, it was interest and payment free. Subsequently, there was a two-year period where interest only payments were made at the end of each year. In Year 4, both interest and principal payments were made. The loan had to be repaid at the end of Year 8. If the interest rate charged in years 2 through 8 remained at 8% compounded annually, what was the total interest paid on the entire EDC loan.
A) $33,026
B) $32,000
C) $246,894
D) $120,494
E) $206,143
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Chapter 6: Making Capital Investment Decisions
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Sample Questions
Q1) In addition to most capital investment decisions, what additional investment is usually needed?
A) Tax deferral
B) Current asset investment
C) Sales and marketing expense
D) Interest rate projections
E) Infrastructure commitments
Q2) If, when calculated IRR through interpolation, over a 10-year investment horizon, the NPV, using an interest rate of 12%, is ($3,752.76) and the NPV, using an interest rate of 3%, is $6,360.04, IRR for the project is
A) 9.2%
B) 5.3%
C) 4.5%
D) 5.8%
E) 8.7%
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8
Chapter 7: Making Capital Investment Decisions: Further Issues
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Sample Questions
Q1) The City of Edmonton is trying to decide whether to build a base facility or an Olympic swimming pool at a new park. For budget reasons, the city cannot afford to build both. Each project is expected to result in a public facility that can be used for twenty years. which of the following best describes the two projects.
A) They are unequal duration, divisible, not mutually exclusive investment projects.
B) They are equal duration, divisible, not mutually exclusive investment projects.
C) They are unequal duration, non-divisible, not mutually exclusive investment projects.
D) They are unequal duration, divisible, mutually exclusive investment projects.
E) They are equal duration, non-divisible, mutually exclusive investment projects.
Q2) Which of the following may bias the NPV calculation upward?
A) Failure to adjust cash flows but not the discount rate for inflation.
B) Adjusting lease rates where there are long term agreements.
C) Increasing the income tax rate by the inflation rate.
D) Failure to expand working capital.
E) Adjusting wage expense if a union contract with a lower rate is in effect.
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Page 9
Chapter 8: Financing a Business 1: Sources of Funds
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Sample Questions
Q1) Rocket Potassium Ltd. has $15 million in credit sales per year and on average they are outstanding for 75 days. Each rocket dosage sells for $1,000 and results in a 10% contribution margin. Receivables are financed at a 12% interest rate. Bad debts total $350,000 annually. The accounting department has a new plan by which it estimates it can eliminate half of the bad debts and reduce the collection period by 30 days if it is permitted to hire two collections specialists at a cost of $85,000 per year each. The new plan would result in 2% lost sales. How much better off would the new plan leave Rocket Potassium?
A) $122,384
B) $127,384
C) $157,384
D) $297,384
E) $302,384
Q2) What is an advantage of a loan covenant to the borrower?
A) Greater security against risk exposure.
B) Greater clarity with respect to repayment terms.
C) A more appealing debt issue to the lender.
D) Increased opportunity for subordinate loans.
E) The option for early loan repayment.
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Page 10
Chapter 9: Financing a Business 2: Raising Long-Term Funds
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Sample Questions
Q1) What is the main role of a stock exchange?
A) To act as a primary and secondary capital market for businesses.
B) To act as a primary capital market for businesses.
C) To act as a secondary capital market for businesses.
D) To act as a primary capital market for businesses and government.
E) To act as a secondary capital market for businesses and government.
Q2) Labrador Gold Inc. (LG) made a tender offer of shares to the investing public and found the following information. At $1.00 per share, LG could sell 1 million shares. At $2.00, LG could sell eight hundred thousand shares. At $3.00, LG could sell half a million shares. At $4.00, LG could sell four hundred thousand shares. At $5.00, LG could sell three hundred thousand shares. What striking price should LG set?
A) $1.00 or $2.00.
B) $2.00 or $3.00.
C) $3.00 or $4.00. D) $4.00 or $5.00. E) $2.00 or $4.00.
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Chapter 10: The Cost of Capital and the Capital Structure
Decision
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Sample Questions
Q1) Light Limited (LL) has assumed its shareholders need a 10% required rate of return. The market return is 15% for next year. Meanwhile, long term government bonds can be purchased with a yield to maturity of 5%. what is the implied beta for LL?
A) 0.33
B) 0.50
C) 1.00
D) 1.50
E) 3.00
Q2) A business has a times-interest-earned ratio of 12, a leverage ratio of 22%, an EPS of $2.23 on a share price of $19.75. Inflation is just below 3.5%, the economy is stable and the rate for government bonds is 5%. The business is in a highly dynamic market and is looking for capital financing which will impact 15% of its capital structure. How should the company finance its new investment opportunity?
A) Debt.
B) Common shares.
C) Retained earnings.
D) Preferred shares.
E) 50% debt and 50% equity.
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Chapter 11: Developing a Dividend Policy
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Sample Questions
Q1) Which is the minimum assumption that must exist to support the Modernist view that dividend policy should have no effect on shareholder wealth?
A) No assumption about market efficiency needs to exist.
B) Weak form of capital market efficiency.
C) Semi-strong form of capital market efficiency.
D) Strong form of capital market efficiency.
E) Perfect capital market efficiency.
Q2) Sunshine Day Care Inc.'s balance sheet indicates that it has current assets of $40,000, Capital Assets net of depreciation of $150,000, current liabilities of $23,000, long-term liabilities of $54,000, paid-in capital of $60,000 worth of common shares and $53,000 in retained earnings. Assuming the book value is a reliable indication of market value of the assets, how much is the maximum dividend that the shareholders can legally vote for themselves?
A) $113,000.
B) $53,000.
C) $190,000.
D) $136,000.
E) $153,000.
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Chapter 12: Managing Working Capital
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Sample Questions
Q1) What is the risk in using a bank overdraft as a source of financing?
A) The company's indebtedness will grow beyond its ability to handle it.
B) Its cost exceeds that of the company's weighted average cost of capital.
C) It will negatively impact the credit rating of the company.
D) Interest costs cannot be deducted from income taxes.
E) It may have to be paid in full with little prior notice.
Q2) Which of the following will expand working capital?
A) Purchase of inventory for a new store through a bank loan.
B) Purchase of plant and equipment by means of a bond issue.
C) Collection of accounts receivable.
D) Payment of accounts payable with cash.
E) Advance payment of three months' rent with cash.
Q3) The average inventory turnover period for Catalina Shoe Stores Ltd. is 26 days against an industry average of 38. Which of the following potential higher costs applies to Catalina?
A) Obsolescence.
B) Warehousing and storage.
C) Product returns.
D) Supply scarcity.
E) Out of stock.
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Chapter 13: Measuring and Managing for Shareholder
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Sample Questions
Q1) Which of the following companies is most committed to the shareholder value approach?
A) Company A, when it decides to expand from a microchip manufacturer to an on-line internet company.
B) Company B, a bank that acts on opportunities to buy other distressed banks cheaply in order to grow its deposit base.
C) Company C, an auto company that focuses on cost cutbacks and pension rollback to improve the bottom line.
D) Company D, a software company that introduces to its mission statement shareholder values initiatives such as salary freezes.
E) Company E, a shipping company that makes short term investments of free cash flows in oil and gas companies.
Q2) Why may EVA be considered a better measure for rewarding managers than SVA?
A) EVA can be fine-tuned to measure an individual's performance.
B) EVA is not as easily manipulated by managers as SVA.
C) EVA values are more comparable from period-to-period than SVA.
D) EVA does not include estimates of future performance.
E) EVA focuses managers on current profits rather than long-term gains.
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Chapter 14: Mergers, Acquisitions, and the Valuation of Shares
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Sample Questions
Q1) Bryceland Market Garden has current assets of $900,000, capital assets of $6 million, accumulated depreciation of $1.5 million, intangible assets of $250,000, current liabilities of $500,000, a mortgage for $1 million and a bank loan of $150,000. Common shares, at an issue price of $20 a share, provided $4 million of cash. Using the balance sheet (or net book value) method, what is the value of the business per share?
A) $14.25
B) $20.00
C) $18.78
D) $22.50
E) $16.75
Q2) What does the term "merger" indicate?
A) A larger business has absorbed a smaller business into its operations.
B) A larger business has taken control of a smaller one against the wishes of the smaller company's management.
C) Shareholders of a one business no longer have a financial stake in the combined enterprise.
D) There is mutual agreement between two businesses to combine.
E) The businesses being combined are run independently as separate business units.
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