Finance for Non-Financial Managers
Solved Exam Questions
Course Introduction
This course is designed to equip managers without a formal background in finance with the foundational concepts and practical tools necessary to interpret and utilize financial information in decision-making. Participants will learn how to read financial statements, understand budgeting processes, analyze cost behavior, and evaluate investment opportunities. Emphasis is placed on real-world applications, enabling managers to contribute meaningfully to financial discussions, manage departmental budgets effectively, and align their decisions with the broader financial objectives of the organization.
Recommended Textbook
M Finance 3rd Edition by Marcia Millon Cornett
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14 Chapters
1604 Verified Questions
1604 Flashcards
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Page 2
Chapter 1: Introduction to Financial Management
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66 Verified Questions
66 Flashcards
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Sample Questions
Q1) Financial management involves decisions about which of the following?
A)Which projects to fund
B)How to minimize taxation
C)What type of capital should be raised
D)All of these
Answer: D
Q2) Restricted stock is:
A)a special type of stock that is not transferable from the current holder to others until specific conditions are satisfied.
B)a special type of stock that can be converted into corporate bonds after a specific amount of time has elapsed.
C)a special type of stock that is a result of offering an employee stock ownership plan.
D)None of these answers is correct.
Answer: A
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Chapter 2: Reviewing Financial Statements
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Reed's Birdie Shot, Inc.'s 2013 income statement lists the following income and expenses: EBIT = $555,000, interest expense = $178,000, and taxes = $148,000. Reed's has no preferred stock outstanding and 100,000 shares of common stock outstanding.
Calculate the 2013 earnings per share.
A)$3.49
B)$2.29
C)$3.14
D)$2.79
Answer: B
Q2) Which financial statement reports a firm's assets, liabilities, and equity at a particular point in time?
A)Balance sheet
B)Income statement
C)Statement of retained earnings
D)Statement of cash flows
Answer: A
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Chapter 3: Analyzing Financial Statements
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124 Verified Questions
124 Flashcards
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Sample Questions
Q1) A firm has a debt ratio of 45 percent, capital intensity ratio is 1.3 times, profit margin is 10 percent, and dividend payout ratio is 30 percent. Calculate the sustainable growth rate for the firm.
A)1.56 percent
B)2.96 percent
C)3.05 percent
D)4.79 percent
Answer: C
Q2) You have located the following information on Rock Company: debt ratio = 40 percent, capital intensity ratio = 2.25 times, profit margin = 8 percent, and dividend payout ratio = 25 percent. What is the sustainable growth rate for Rock?
A)3.56 percent
B)6.00 percent
C)4.65 percent
D)8.00 percent
Answer: C
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Chapter 4: Time Value of Money 1: Analyzing Single Cash Flows
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) You just won the lottery and after taxes you have $32,000. You want to have $1,000,000 by the time you are 65, which is 45 years from now. Assuming that you can earn 9 percent each on your money, how much (in dollars) of the $32,000 must you invest today?
A)$17,891.62
B)$18,524.91
C)$20,692.24
D)$22,943.28
Q2) You invested $1,000 in the stock market one year ago. Today, the investment is valued at $750. What return did you earn? What return would you need to get next year to break even overall?
A)-112.5 percent, +75 percent, respectively
B)-75 percent, +112.5 percent, respectively
C)-33.33 percent, +25 percent, respectively
D)-25 percent, +33.33 percent, respectively
Q3) How are present values affected by changes in interest rates?
A)The lower the interest rate, the larger the present value will be.
B)The higher the interest rate, the larger the present value will be.
C)Present values are not affected by changes in interest rates.
Page 6
D)One would need to know the future value in order to determine the impact.
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Chapter 5: Time Value of Money 2: Analyzing Annuity Cash
Flows
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147 Verified Questions
147 Flashcards
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Sample Questions
Q1) Jane has been saving $500 in her retirement account each month for the last 20 years and plans to continue contributing $500 each month for the next 20 years. Her account has been earning an 8 percent annual interest rate and she expects to earn the same rate for the next 20 years. Her twin brother, Hal, has not saved anything for the last 20 years. Due to sibling rivalry, he wants to have as much as Jane is expected to have at the end of 20 years. If Hal expects to earn the same annual interest rate as Jane, how much must Hal save each month to achieve his goal?
A)$1,043.71
B)$1,517.92
C)$2,007.53
D)$2,963.40
Q2) Many people who want to start investing for their future want to start today, which implies an annuity stream that is paid at the beginning of the period. Beginning-of-period cash flows are referred to as:
A)ordinary annuities.
B)annuities due.
C)perpetuities.
D)present values.
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Chapter 6: Understanding Financial Markets and Institutions
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) Which of the following is NOT a capital market instrument?
A)U.S. Treasury notes and bonds
B)U.S. Treasury bills
C)U.S. government agency bonds
D)Corporate stocks and bonds
Q2) The Wall Street Journal states that the yield curve for Treasuries is downward sloping and there is no liquidity premium or maturity risk premium. Given this information, which of the following statements is correct?
A)A 30-year corporate bond must have a higher yield than a five-year corporate bond.
B)A five-year corporate bond must have a higher yield than a 30-year Treasury bond.
C)A five-year Treasury bond must have a higher yield than a five-year corporate bond.
D)All of these statements are correct.
Q3) Which of these refer to the ease with which an asset can be converted into cash?
A)Direct transfer
B)Liquidity
C)Primary market
D)Secondary market
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Page 8
Chapter 7: Valuing Bonds
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) What's the current yield of a 5.75 percent coupon corporate bond quoted at a price of 103.05?
A)5.58 percent
B)5.75 percent
C)5.93 percent
D)17.54 percent
Q2) A 5.125 percent TIPS has an original reference CPI of 191.8. If the current CPI is 188.3, what is the par value of the TIPS?
A)$981.75
B)$1,018.60
C)$992.75
D)$1,042.95
Q3) A bond issued by a corporation on June 15, 2007, is scheduled to mature on June 15, 2017. If today is December 16, 2008, what is this bond's time to maturity? (Assume annual interest payments.)
A)1 year, 6 months
B)8 years
C)8 years, 6 months
D)10 years
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Chapter 8: Valuing Stocks
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) A firm does not pay a dividend. It is expected to pay its first dividend of $0.10 per share in two years. This dividend will grow at 11 percent indefinitely. Using a 13 percent discount rate, compute the value of this stock.
A)$4.42
B)$4.59
C)$5.43
D)$7.21
Q2) A firm is expected to pay a dividend of $2.00 next year and $2.14 the following year. Financial analysts believe the stock will be at their target price of $75.00 in two years. Compute the value of this stock with a required return of 10 percent.
A)$65.40
B)$66.67
C)$65.57
D)$79.14
Q3) Studies of investor psychology have discovered that:
A)investors tend to trade too much.
B)investors tend to sell their winners too soon.
C)investors tend to become overconfident.
D)All of these.
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Page 10
Chapter 9: Characterizing Risk and Return
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105 Flashcards
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Sample Questions
Q1) From 1950 to 2007, the average return in the stock market, as measured by the S&P 500, was 13.2 percent and a standard deviation of 17 percent. Given this information, which of the following statements is correct?
A)With an average return this high, it are unlikely that an investor will lose money in the stock market in the next year or two.
B)With a standard deviation this high, it are likely that an investor will lose money in some years over a 25-year investment period.
C)This investment are not very good since the standard deviation are greater than the average return.
D)All of these statements are correct.
Q2) Which of these is the investor's combination of securities that achieves the highest expected return for a given risk level?
A)Efficient portfolio
B)Modern portfolio
C)Optimal portfolio
D)Total portfolio
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Chapter 10: Estimating Risk and Return
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101 Flashcards
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Sample Questions
Q1) Stock A has a required return of 12 percent. Stock B has a required return of 15 percent. Assume a risk-free rate of 4.75 percent. Which of the following is a correct statement about the two stocks?
A)Stock A is riskier.
B)Stock B is riskier.
C)The stocks have the same risk.
D)We would need to know if the markets are efficient to answer this question.
Q2) You own $5,000 of Software Corp's stock that has a beta of 3.75. You also own $10,000 of Home Improvement Corp. (beta = 1.5) and $15,000 of Publishing Corp. (beta = 0.35). Assume that the market return will be 13 percent and the risk-free rate is 4.5 percent. What is the risk premium of the portfolio?
A)11.05 percent
B)16.50 percent
C)17.00 percent
D)24.70 percent
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Chapter 11: Calculating the Cost of Capital
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118 Flashcards
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Sample Questions
Q1) Marme Inc. has preferred stock selling for 137 percent of par that pays an 11 percent annual dividend. What would be Marme's component cost of preferred stock?
A)11.00 percent
B)8.03 percent
C)8.17 percent
D)10.16 percent
Q2) PNB Industries has 20 million shares of common stock outstanding with a market price of $18.00 per share. The company also has outstanding preferred stock with a market value of $50 million, and 500,000 bonds outstanding, each with face value $1,000 and selling at 97 percent of par value. The cost of equity is 15 percent, the cost of preferred is 12 percent, and the cost of debt is 8.50 percent. If PNB's tax rate is 40 percent, what is the WACC?
A)7.05 percent
B)9.47 percent
C)11.31 percent
D)11.83 percent
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13
Chapter 12: Estimating Cash Flows on Capital Budgeting Projects
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Sample Questions
Q1) Your company is considering a project that will cost $100. The project will generate after-tax cash flows of $37.50 per year for five years. The WACC is 10 percent and the firm's D/A ratio is 0.35. The flotation cost for equity is 5 percent, the flotation cost for debt is 2 percent, and your firm does not plan on issuing any preferred stock within its capital structure. If your firm follows the practice of incorporating flotation costs into the project's initial investment, what is the weighted-average flotation cost for the firm?
A)2.95 percent
B)3.15 percent
C)3.95 percent
D)4.80 percent
Q2) Which of these is used as a measure of the total amount of available cash flow from a project?
A)Free cash flow
B)Operating cash flow
C)Investment in operating capital
D)Sunk cash flow
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Chapter 13: Weighing Net Present Value and Other Capital
Budgeting Criteria
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Sample Questions
Q1) Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project plus interest at market rates?
A)Payback
B)Discounted payback
C)Net present value
D)Profitability index
Q2) Compute the NPV for Project X and accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. \[\begin{array} { l l l l l l l
}
\text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \\
\text { Cash flow: } & - 75 & - 75 & 0 & 100 & 75 & 50 \end{array}\]
A)$12.93
B)$14.22
C)$62.07
D)$136.90
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15
Chapter 14: Working Capital Management and Policies
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127 Flashcards
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Sample Questions
Q1) The financing policy that will result in investing in marketable securities when asset requirements are low is referred to as:
A)compromise financing.
B)restrictive financing.
C)flexible financing.
D)none of these.
Q2) Which of the following will increase the operating cycle?
A)The cash cycle decreases by one day but the average payment period increases by two and a half days.
B)The days' sales in inventory decreases by one day but the average collection period increases by two days.
C)COGS stays the same but inventory increases.
D)All of these will increase the operating cycle.
Q3) Which of the following is a money-market security, issued by large banks and medium-to-large corporations, that matures in nine months or less?
A)Banker's paper
B)Commercial paper
C)Banker's acceptance
D)Commercial acceptance
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Page 16