Finance for Non-Financial Managers
Final Exam
Course Introduction
Finance for Non-Financial Managers is designed to equip professionals without a formal financial background with essential financial knowledge and skills. The course covers key concepts such as financial statements interpretation, budgeting, cost control, and financial analysis, enabling participants to make informed decisions that contribute to their organizations financial health. Through real-world examples and practical exercises, learners will gain confidence in understanding financial reports, the impact of business decisions on financial performance, and communication with financial experts in their organizations.
Recommended Textbook
Principles of Managerial Finance Brief 7th Edition by Lawrence J. Gitman
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15 Chapters
2748 Verified Questions
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Page 2
Chapter 1: The Role of Managerial Finance
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Sample Questions
Q1) The primary goal of a financial manager is ________.
A) minimizing risk
B) maximizing profit
C) maximizing wealth
D) minimizing return
Answer: C
Q2) Which of the following is a strength of a corporation?
A) low taxes
B) limited liability
C) low organization costs
D) less government regulation
Answer: B
Q3) A ________ is responsible for the firm's accounting activities,such as corporate accounting,tax management,financial accounting,and cost accounting.
A) treasurer
B) controller
C) foreign exchange manager
D) pension fund manager
Answer: B
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Page 3
Chapter 2: The Financial Market Environment
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Sample Questions
Q1) The marginal tax rate represents the rate at which the next dollar of income is taxed.
A)True
B)False
Answer: True
Q2) Which of the following acts regulates the secondary market?
A) The Securities Act of 1933
B) The Gramm-Leach-Bliley Act
C) The Securities Exchange Act of 1934
D) The Glass-Steagall Act
Answer: C
Q3) The sale of a new security directly to an investor or a group of investors is called
A) arbitraging
B) short selling
C) a capital market transaction
D) a private placement
Answer: D
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Chapter 3: Financial Statements and Ratio Analysis
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Sample Questions
Q1) The return on total assets for Dana Dairy Products for 2013 was ________.(See Table 3.2)
A) 0.9 percent
B) 5.5 percent
C) 25 percent
D) 2.5 percent
Answer: D
Q2) The common stock entry in balance sheet is the par value of common stock.
A)True
B)False Answer: True
Q3) Publicly owned corporations are those which are financed by the proceeds from the treasury securities.
A)True
B)False
Answer: False
Q4) GAAP is the accounting profession's rule-setting body.
A)True
B)False
Answer: False
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Chapter 4: Cash Flow and Financial Planning
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Sample Questions
Q1) A firm's final sales forecast is usually a function of ________.
A) its net income
B) the salesperson's estimates of demand
C) internal and external factors in combination
D) its accounts receivable
Q2) Depreciation deductions,like any other business expenses,reduce the income that a firm reports on its income statement.
A)True
B)False
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 ending cash balance for March is ________.(See Table 4.3)
A) $250
B) $6,750
C) $2,500
D) $500
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Chapter 5: Time Value of Money
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Sample Questions
Q1) Mr.Jackson has been awarded a bonus for his outstanding work.His employer offers him a choice of a lump-sum of $5,000 today,or an annuity of $1,250 a year for the next five years.Which option should Mr.Jackson choose if his opportunity cost is 9 percent?
Q2) Calculate the combined future value at the end of year 3 of $1,000 received at the end of year 1,$3,000 received at the end of year 2,and $5,000 received at the end of year 3,all sums deposited at 5 percent.
Q3) Ashley is planning to attend college when she graduates from high school 7 years from now.She anticipates that she will need $10,000 at the beginning of each of the four college years to pay for tuition and fees,and have some spending money.Ashley has made an arrangement with her father to do the household chores if her dad deposits $3,500 at the end of each year for the next 7 years in a bank account paying 8 percent interest.Will there be enough money in the account for Ashley to pay for her college expenses? Assume the rate of interest stays at 8 percent during the college years.
Q4) Assume you have a choice between two deposit accounts.Account X has an annual percentage rate of 12.25 percent but with interest compounded monthly.Account Y has an annual percentage rate of 12.20 percent with interest compounded continuously.Which account provides the highest effective annual return?
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Chapter 6: Interest Rates and Bond Valuation
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Sample Questions
Q1) What is the approximate yield to maturity for a $1,000 par value bond selling for $1,120 that matures in 6 years and pays 12 percent interest annually?
A) 8.5 percent
B) 9.3 percent
C) 12.0 percent
D) 13.2 percent
Q2) The restrictive debt covenant that imposes fixed assets is to guarantee fixed-payment obligations by maintaining a specified level of fixed assets.
A)True
B)False
Q3) Subordination means that subsequent creditors agree to wait until all claims of the senior debt are satisfied.
A)True
B)False
Q4) Yield to maturity (YTM)is the rate investors earn if they buy the bond at a specific price and hold it until maturity.
A)True
B)False
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Chapter 7: Stock Valuation
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Sample Questions
Q1) A proxy battle is the attempt by ________.
A) the creditors of a bankrupt corporation to seize assets of the corporation
B) the management to dismiss the board of directors for their incapability to manage the operations
C) a nonmanagement group to unseat the existing management and gain control of the firm
D) the employees to form trade unions to influence decisions on behalf of members
Q2) Common stockholders are sometimes referred to as ________.
A) non preemptive right holders
B) managers
C) creditors
D) residual owners
Q3) A violation of preferred stock restrictive covenants usually permits preferred shareholders to ________.
A) force the company into bankruptcy
B) suit against the shareholders
C) force the retirement of the preferred stock at or above its par value
D) force the company to repurchase the shares at a stated amount below par
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9
Chapter 8: Risk and Return
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Sample Questions
Q1) Total security risk is the sum of a security's nondiversifiable and diversifiable risk.
A)True
B)False
Q2) Systematic risk is that portion of an asset's risk that is attributable to firm-specific,random causes.
A)True
B)False
Q3) Even if assets are not negatively correlated,lower the positive correlation between them,the lower the resulting risk.
A)True
B)False
Q4) Under no circumstances,adding assets to a portfolio would result in greater risk than that of the riskiest asset included in the portfolio.
A)True
B)False
Q5) Stocks are less riskier than either bonds or bills.
A)True
B)False
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Chapter 9: The Cost of Capital
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Sample Questions
Q1) The ________ is the firm's desired optimal mix of debt and equity financing.
A) book value
B) market value
C) cost of capital
D) target capital structure
Q2) Tangshan Mining is considering issuing long-term debt.The debt would have a 30 year maturity and a 12 percent coupon rate and make semiannual coupon payments.In order to sell the issue,the bonds must be underpriced at a discount of 2.5 percent of face value.In addition,the firm would have to pay flotation costs of 2.5 percent of face value.The firm's tax rate is 33 percent.Given this information,the after-tax cost of debt for Tangshan Mining would be ________.
A) 6.38%
B) 12.76%
C) 4.98%
D) 8.48%
Q3) The cost of preferred stock is the ratio of the preferred stock dividend to a firm's net proceeds from the sale of the preferred stock.
A)True
B)False
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Page 11
Chapter 10: Capital Budgeting Techniques
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Sample Questions
Q1) For conventional projects,both NPV and IRR techniques will always generate the same accept-reject decision.
A)True
B)False
Q2) Which of the following statements is true of payback period?
A) If the payback period is less than the maximum acceptable payback period, management should be indifferent.
B) If the payback period is greater than the maximum acceptable payback period, accept the project.
C) If the payback period is less than the maximum acceptable payback period, accept the project.
D) If the payback period is greater than the maximum acceptable payback period, management should be indifferent.
Q3) The discount rate is the minimum return that must be earned on a project to leave a firm's market value unchanged.
A)True
B)False
Q4) Which projects should the firm implement? (See Table 10.5)
Q5) Use the NPV approach to select the best group of projects.(See Table 10.5)
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Chapter 11: Capital Budgeting Cash Flows and Risk
Refinements
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Sample Questions
Q1) The advantage of using simulation in the capital budgeting process is the
A) ease of calculation over scenario analysis
B) continuum of risk-return trade-offs for decision making
C) single point estimate that helps the decision maker to choose the most accurate alternative
D) use of several possible outcomes to asses risk
Q2) In capital budgeting,risk refers to ________.
A) the chance that a project will prove acceptable
B) the conflicting IRR and NPV in a project
C) the degree of variability of initial outlay
D) the uncertainty of cash inflows
Q3) Calculate the initial investment required for the new asset.(See Table 11.4)
Q4) The output of simulation provides an excellent basis for decision making since it allows the decision maker to view a continuum of risk-return trade-offs rather than a single-point estimate.
A)True
B)False
Page 13
Q5) Calculate the tax effect from the sale of the existing asset.(See Table 11.1)
Q6) Calculate the initial investment of the new asset.(See Table 11.1)
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Page 14
Chapter 12: Leverage and Capital Structure
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Sample Questions
Q1) ________ is the potential use of fixed costs to magnify the effect of changes in sales on the firm's earnings per share.
A) Investing leverage
B) Total leverage
C) Operating leverage
D) Financial leverage
Q2) The total leverage measures the combined effect of operating and financial leverage on a firm's risk.
A)True
B)False
Q3) The steeper the slope of the EBIT-EPS capital structure line,the lower is the financial risk.
A)True
B)False
Q4) 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
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Page 15
Chapter 13: Payout Policy
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Sample Questions
Q1) The market rewards firms that adopt a constant dividend payout policy rather than a fixed or increasing level of dividends through higher share prices.
A)True
B)False
Q2) With regard to dividend payments,which of the following is included in the contractual constraints imposed by loan agreements?
A) limiting the payment to suppliers
B) limiting the percentage of earnings that can be paid out in dividends
C) sustaining a constant dividend payout ratio
D) making fixed payment to equityholders
Q3) Firms are usually prohibited by state law from distributing ________.
A) retained earnings as dividends
B) paid-in capital in excess of par as dividends
C) dividends in a year the firm has a net loss
D) preferred dividends
Q4) Dividends provide information about a firm's current performance.
A)True
B)False
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Page 16
Chapter 14: Working Capital and Current Assets Management
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Sample Questions
Q1) A firm has an operating cycle of 170 days,an average payment period of 50 days,and an average age of inventory of 145 days.The firm's average collection period is ________ days.
A) 25
B) 75
C) 95
D) 120
Q2) The key dimension of credit selection which analyzes the amount of assets an applicant has available for use in securing the credit is ________.
A) capital
B) collateral
C) capacity
D) conditions
Q3) If a firm's sales are constant,its investment in operating assets should also be constant,and the firm will have only a permanent funding requirement.
A)True
B)False
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Page 17
Chapter 15: Current Liabilities Management
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Sample Questions
Q1) A terminal warehouse is ________.
A) a warehouse located beyond city limits for storing the merchandise
B) a warehouse on the borrower's premises to store the merchandise
C) a central warehouse storing the merchandise of various customers
D) a warehouse located near the lender's home for storing the merchandise
Q2) Lines of credit are non-guaranteed loans that specify the maximum amount that a firm can owe the bank at any point in time.
A)True
B)False
Q3) The interest rate charged on secured short-term loans is always equal to the rate on unsecured short-term loans.
A)True
B)False
Q4) Compared to a line of credit,a revolving credit agreement will be ________ for a firm.
A) a lower cost, higher risk method of short-term borrowing
B) a lower cost, lower risk method of short-term borrowing
C) a higher cost, higher risk method of short-term borrowing
D) a higher cost, lower risk method of short-term borrowing
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