Finance for Non-Financial Managers Practice Exam
Course Introduction
Finance for Non-Financial Managers is designed to introduce foundational financial concepts and tools to individuals without specialized training in finance. The course emphasizes practical understanding of financial statements, budgeting, forecasting, cash flow management, and investment analysis, enabling managers to make informed decisions within their organizations. Participants will gain the confidence to interpret key financial data, communicate effectively with finance professionals, and apply financial thinking to everyday business scenarios, ultimately contributing to their organizations financial health and strategic goals.
Recommended Textbook
Principles of Finance 6th Edition by Scott Besley
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17 Chapters
1889 Verified Questions
1889 Flashcards
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Page 2
Chapter 1: An Overview of Finance
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Sample Questions
Q1) In the early 1900s, the investments arena was dominated by a small group of very wealthy investors and opulent corporations.
A)True
B)False
Answer: True
Q2) At the beginning of the twentieth century, for the most part, the only investments available to individual investors were corporate stocks and bonds; but, today, there are a significantly greater number of investment choices because investors' demands have changed.
A)True
B)False
Answer: False
Q3) Coordination of the finance function and the marketing function is critical to the success of newly formed companies which must generate enough cash to survive
A)True
B)False
Answer: False
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Page 3
Chapter 2: Financial Assets Instruments
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Sample Questions
Q1) Which of the following types of debt protect a bondholder against an increase in interest rates?
A) Floating rate debt.
B) Bonds that are redeemable ("putable") at par at the bondholders' option.
C) Bonds with call provisions.
D) All of the above.
E) Only answers a and b above.
Answer: E
Q2) The Eurodollar market is essentially a long-term market; most loans and deposits have maturities of longer than one year.
A)True
B)False
Answer: False
Q3) Pure options are instruments that are
A) Created by investors outside the firm.
B) Bought and sold primarily by investors and speculators.
C) Of greater importance to investors than to financial managers.
D) All of the above.
E) None of the above.
Answer: D
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Chapter 3: Financial Markets and the Investment Banking Process
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Sample Questions
Q1) Large, well-known public companies can reduce the time required to register and issue securities by using a(n)
A) Shelf registration.
B) Subchapter S registration.
C) Underwriting syndicate.
D) Secondary market registration.
E) "Red herring" registration.
Answer: A
Q2) ____ efficiency states that all information contained in past price movements only is fully reflected in the current market prices.
A) Weak-form
B) Semistrong-form
C) Strong-form
D) Economic
Answer: A
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Page 5
Chapter 4: Financial Intermediaries and the Banking System
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Sample Questions
Q1) The 1978 International Bank Act
A) prohibited foreign banks from establishing any new U.S.banking operations.
B) allowed U.S.banks to engage in a wider range of nonbanking activities overseas.
C) allowed U.S.banks to take equity positions in overseas business ventures.
D) reduced the competitive advantage of foreign banks over U.S.banks.
E) All of the above.
Q2) The liabilities of financial institutions primarily consist of loans.
A)True
B)False
Q3) U.S.bank regulators allow U.S.banks overseas to engage in all banking activities allowed by the host country.
A)True
B)False
Q4) All else equal, the nation's money supply increases when the Federal Reserve purchases U.S.Treasury securities.
A)True
B)False
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Chapter 5: The Cost of Money Interest Rates
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Sample Questions
Q1) Default risk premiums
A) are unrelated to the issuer of the security.
B) are higher for U.S.Treasury securities than for most corporate securities.
C) are higher for AAA bonds than for CCC bonds.
D) vary somewhat over time.
Q2) Assume that a 3-year Treasury note has no maturity premium, and that the real, risk-free rate of interest is 3 percent.If the T-note carries a yield to maturity of 13 percent, and if the expected average inflation rate over the next 2 years is 11 percent, what is the implied expected inflation rate during Year 3?
A) 7%
B) 8%
C) 9%
D) 17%
E) 18%
Q3) The difference between the nominal risk-free rate and the real risk-free rate is that the real risk-free includes inflation and the nominal risk-free rate does not include inflation.
A)True
B)False
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Page 7
Chapter 6: Business Organizations and the Tax Environment
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Sample Questions
Q1) Stock price maximization should be the most important goal for the managers of a corporation.
A)True
B)False
Q2) Which of the following does not need to be considered when assessing the impact of financial decisions?
A) Projected earnings.
B) Financial market conditions.
C) Timing of the earnings flow.
D) Riskiness of the firm.
E) All of the above must be considered.
Q3) Taking poison pills and offering greenmail are
A) Ways stockholders protect themselves and their interest from management's conflicting interests.
B) Tactics used by creditors to make their position more favorable when resolving agency problems between stockholders and creditors.
C) Two actions managers might take to ward off hostile takeovers.
D) Both commonly practiced methods used by firms' managers to increase stockholders' wealth.
Page 8
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Chapter 7: Analysis of Financial Statements
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Sample Questions
Q1) A firm has notes payable of $1,546,000, long-term debt of $13,000,000, and total interest expense of $1,300,000.If the firm pays 8 percent interest on its long-term debt, what rate of interest does it pay on its notes payable?
A) 8.2%
B) 13.1%
C) 16.8% D) 18.0%
E) 15.3%
Q2) The ____ shows the investments made by the firm in the form of assets and the means by which the assets were financed.
A) income statement
B) balance sheet
C) statement of cash flows
D) statement of retained earnings
Q3) As long as sales revenues exceed all costs over part of an accounting period, a firm will avoid any cash shortage.
A)True
B)False
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9
Chapter 8: Financial Planning and Control
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Sample Questions
Q1) Which of the following statements is correct?
A) Depreciation is included in the estimate of cash flows (Cash flow = Net income + Depreciation), so depreciation is set forth on a separate line in the cash budget.
B) If cash inflows and cash outflows occur on a regular basis, such as the situation where inflows from collections occur in equal amounts each day and most payments are made regularly on the 10<sup>th</sup> of each month, then it is not necessary to use a daily cash budget.A cash budget prepared at the end of the month will suffice.
C) Cash budgets are more important for fast food retailers, such as McDonald's, which deal primarily with cash than for manufacturers, such as General Motors, that generally sell on credit.
D) When constructing a cash budget, it probably is easier to forecast cash inflows than cash outflows.
E) All of the above statements are false.
Q2) If a small change in sales results in a large change in EPS, then it must be caused by the financial leverage associated with the firm.
A)True
B)False
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Page 10
Chapter 9: Time Value of Money
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Sample Questions
Q1) Disregarding risk, if money has time value, the future value of some amount of money always will be more than the amount originally invested, and the present value of some amount to be received in the future is always less than that future amount to be received.
A)True
B)False
Q2) You have just taken out a 30-year, $120,000 mortgage on your new home.This mortgage is to be repaid in 360 equal end-of-month installments.If each of the monthly installments is $1,500, what is the effective annual interest rate on this mortgage?
A) 15.87%
B) 14.75%
C) 13.38%
D) 16.25%
E) 16.49%
Q3) The post-audit two main purposes are to improve forecasts and to improve operations.
A)True
B)False
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11
Chapter 10: Valuation Concepts
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Sample Questions
Q1) If interest rates fall from 8 percent to 7 percent, which of the following bonds will have the largest percentage increase in its value?
A) A 10-year zero-coupon bond.
B) A 10-year bond with a 10 percent semiannual coupon.
C) A 10-year bond with a 10 percent annual coupon.
D) A 5-year zero-coupon bond.
E) A 5-year bond with a 12 percent annual coupon.
Q2) The yield to call is always higher than the yield to maturity for coupon bonds. A)True B)False
Q3) All else equal, a higher required rate of return on a firm's stock will result in a higher market price for that firm's stock. A)True B)False
Q4) All else equal, higher expected cash flows associated with a financial asset results in a higher required rate of return on that financial asset.
A)True
B)False
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Page 12
Chapter 11: Risk and Rates of Return
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Sample Questions
Q1) Which of the following statements is correct?
A) If the returns from two stocks are perfectly positively correlated and the two stocks have equal variance, an equally weighted portfolio of the two stocks will have a variance which is less than that of the individual stocks.
B) If a stock has a negative beta, its expected return must be negative.
C) According to the CAPM, stocks with higher standard deviations of returns will have higher expected returns.
D) A portfolio with a large number of randomly selected stocks will have less market risk than a single stock which has a beta equal to 0.5.
E) None of the above statements is correct.
Q2) The ____ the probability distribution, the ____ variability there is and the ____ likely it is that the actual outcome will approach the expected value.
A) looser; less; more
B) tighter; more; less C) tighter; less; more
D) looser; more; less E) both c and d are correct.
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Page 13
Chapter 12: The Cost of Capital
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Sample Questions
Q1) Which of the following statements is correct?
A) Beta measures market risk, but if a firm's stockholders are not well diversified, beta may not accurately measure the firm's total risk.
B) If the calculated beta underestimates the firm's true investment risk, then the CAPM method will overestimate r<sub>s</sub>.
C) The discounted cash flow method of estimating the cost of equity can't be used unless the growth component, g, is constant during the analysis period.
D) An advantage shared by both the DCF and CAPM methods of estimating the cost of equity capital, is that they yield precise estimates and require little or no judgment.
E) None of the above is a correct statement.
Q2) There is a jump, or break, in a firm's MCC schedule each time the firm runs out of a particular source of capital at a particular cost.For example, a firm may use up its 10 percent debt and can then issue more debt only if it offers a higher rate to investors.
A)True
B)False
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Chapter 13: Capital Budgeting
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Sample Questions
Q1) The IRR of a project whose cash flows accrue relatively rapidly is more sensitive to changes in the discount rate than is the IRR of a project whose cash flows come in more slowly.
A)True
B)False
Q2) One problem with Monte Carlo simulation analysis is that, while the simulation may provide some insights into the riskiness of a project, the analysis does not lead to a clear-cut accept versus reject decision.
A)True
B)False
Q3) The cost of capital may be different for a foreign project than for an equivalent domestic project because foreign projects may be more or less risky.
A)True
B)False
Q4) If an asset being considered for acquisition has beta of zero, its purchase will have no effect on the firm's market risk.
A)True
B)False
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Page 15
Chapter 14: Capital Structure and Dividend Policy Decisions
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Sample Questions
Q1) If Miller and Modigliani had considered the cost of bankruptcy, it is unlikely that they would have concluded that 100 percent debt financing is optimal for the firm.
A)True
B)False
Q2) As a general rule, the capital structure that
A) Maximizes expected EPS also maximizes the price per share of common stock.
B) Minimizes the interest rate on debt also maximizes the expected EPS.
C) Minimizes the required rate on equity also maximizes the stock price.
D) Maximizes the price per share of common stock also minimizes the weighted average cost of capital.
E) None of the above.
Q3) The benefit to the firm of the tax deductibility of interest can be lowered if the firm's marginal tax rate is reduced by accumulated depreciation or tax-loss carry-forwards.
A)True
B)False
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16
Chapter 15: Working Capital Management
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Sample Questions
Q1) The ____ is the average length of time between the purchase of raw materials and labor and the payment of cash for them.
A) inventory conversion period
B) receivables collection period
C) payables deferral period
D) cash conversion cycle
Q2) Many start-up firms never make it past the first few months of business, primarily because they lack formal working capital policies.
A)True
B)False
Q3) Two of the primary motives for a firm to hold cash are the transaction motive and the precautionary motive.
A)True
B)False
Q4) Synchronization of cash flows is an important cash management technique and effective synchronization can actually increase a firm's profitability.
A)True
B)False
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Chapter 16: Investment Concepts
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Sample Questions
Q1) Asset allocation recommendations shift from investments like ____ to ____ as the individual investor gets closer to retirement.
A) stocks; equity
B) stocks; cash
C) cash; stocks
D) bonds; stocks
Q2) The total return earned from the time an investment is purchased until it is liquidated is called a(n) ____.
A) Ask yield
B) Current yield
C) Holding period return
D) Coupon rate
E) Dividend yield rate
Q3) To be broker or to trade securities you must
A) abide by ethical standards established by the SEC.
B) abide by any licensing or registration requirements of state in which you trade.
C) be licensed by the exchanges on which the traded securities are listed.
D) All of the above.
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Chapter 17: Security Valuation and Selection
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Sample Questions
Q1) Which of the following statements is correct?
A) A stock is said to be in equilibrium when investors at the margin think its expected rate of return is equal to its required rate of return.
B) According to the Efficient Markets Hypothesis, stock prices are best predicted by use of sophisticated statistical techniques such as regression analysis.
C) The more efficient markets are, in an EMH sense, the easier it is for sophisticated investors to profit by analyzing data that companies have released to the public.
D) The more efficient markets are, in an EMH sense, the more dangerous it would be for an investor to pick stocks at random as opposed to picking them on the basis of a careful analysis.
E) The EMH would predict that one can "beat the market" by analyzing publicly available data, if the analyst is efficient.
Q2) The fiscal policy of the United States is formulated and carried out by the Federal Reserve.
A)True
B)False
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