Financial Analysis and Planning Test Bank
Course Introduction
Financial Analysis and Planning introduces students to the fundamental principles and tools used to evaluate a companys financial performance and develop effective financial strategies. The course covers topics such as ratio analysis, financial statement interpretation, cash flow analysis, and budgeting. Students will learn how to assess investment opportunities, forecast future financial outcomes, and make informed decisions that support organizational goals. Emphasis is placed on integrating quantitative data with strategic planning techniques to enhance short-term and long-term financial health.
Recommended Textbook
Corporate Finance Linking Theory to What Companies Do 3rd Edition by John Graham
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Page 2
Chapter 1: The Scope of Corporate Finance
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Sample Questions
Q1) Which of the following describes the "collective action problem"?
A) When a CEO fails to represent the interest of shareholders in daily decisions of the firm.
B) When the shareholders of a firm fail to act in their own best interests.
C) When the managers of a firm lack incentive to maximize shareholder wealth.
D) When an individual stockholder spends time and resources monitoring managers, bearing the cost, while the benefits go to all the shareholders in the firm.
Answer: D
Q2) Why do shareholders bear most of the risk of running a firm?
A) They only have a residual claim on the firm's cash flows.
B) They receive a salary from the company.
C) They are guaranteed a fixed payout each quarter.
D) Shares can be taken away at any time without notice.
Answer: A
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3
Chapter 2: Financial Statement and Cash Flow Analysis
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Q1) What is Bavarian Sausage,Inc.'s average collection period?
A) 14.39 days
B) 4.20 days
C) 122.56 days
D) 86.90 days
Answer: D
Q2) The asset to equity ratio for a firm is 1.5,and the firm has total assets of $3,000,000.Last year,net income for the firm was $250,000,and the earnings per share for the firm was reported as $0.50.What is the current book value per share for the firm?
A) $2
B) $4
C) $6
D) $8
Answer: B
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Chapter 3: The Time Value of Money
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Sample Questions
Q1) You want to buy your dream car,but you are $5,000 short.If you could invest your entire savings of $2,350 at an annual interest of 12%,how long would you have to wait until you have accumulated enough money to buy the car?
A) 9.40 years
B) 3.48 years
C) 7.24 years
D) 6.66 years
Answer: D
Q2) If you deposit $10,000 today in an account that pays 5% interest compounded annually for five years,how much interest will you earn?
A) $2,500.00
B) $2,762.82
C) $3,400.96
D) $12,762.82
Answer: B
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5
Chapter 4: Valuing Bonds
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Sample Questions
Q1) Observing the following term structure; a US treasury bond maturing in 5 years has a yield of 6% while US Treasury bond maturing in 3 years has a yield of 8%; what is the expected 2 year rate,3 years from now?
A) 3.07%
B) 8.07%
C) 2.36%
D) 4.35%
Q2) A $1,000 par value bond makes two coupon payments per year of $60 each.What is the bond's yield to maturity if the bond currently trades at $1,200 and will mature in two years?
A) 1.78%
B) 3.48%
C) 6.00%
D) 6.43%
Q3) Which type of bond has the highest daily trading volume in our economy?
A) Treasury bonds
B) Agency bonds
C) Corporate bonds
D) Municipal bonds
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Page 6
Chapter 5: Valuing Stocks
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Sample Questions
Q1) Easy Points One has just paid a dividend of $2.50,has a growth rate of 11% and a current stock price of $52.65.What is the required return for the security?
A) 15.75%
B) 16.27%
C) 15.750%
D) 27.27%
Q2) Miller Juice traditionally retains 65% of its earnings for future investments.Last year Miller's return on equity was 15%.What is Miller's growth rate?
A) 15.00%
B) 9.75%
C) 5.25%
D) 18.38%
Q3) Which of the following investors can force a firm into bankruptcy court if the firm does not pay the expected cash flow to the investor?
A) common equity investor
B) preferred equity investor
C) debt investor
D) none of the above
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Chapter 6: The Trade-Off Between Risk and Return
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Q1) The additional return offered by a more risky investment relative to a safer one is called
A) the risk-free rate.
B) the risky return.
C) the risk premium.
D) the insurance premium.
Q2) Which of the following asset classes would give you the greatest probability of achieving a return that is closest to its expected return?
A) Treasury Bills
B) Treasury Bonds
C) Corporate Bonds
D) Stocks
Q3) If the return on your common stock investment is on average 18% and the return on Treasury bills was 5% over the same period of time,what is the risk premium that you earned.
A) 23%
B) 13%
C) 18%
D) 5%
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Page 8
Chapter 7: Risk, return, and the Capital Asset Pricing Model
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Sample Questions
Q1) The intercept of the security market line is:
A) E(R<sub>m</sub>) - R<sub>f</sub>
B) 1/(E(R<sub>m</sub>) - R<sub>f</sub>)
C) R<sub>f </sub>- E(R<sub>m</sub>)
D) R<sub>f </sub>
Q2) Given Exhibit 7-1,what is the expected return?
A) 13.00%
B) 15.96%
C) 16.00%
D) 17.75%
Q3) A mutual fund that adopts a passive management style is called:
A) an index fund.
B) a research fund.
C) an active fund.
D) a technology fund.
Q4) Which type of firm would most likely have the greatest systematic risk?
A) A grocery store chain
B) A electric company
C) A telephone company
D) A vibrating chair manufacturer
Page 9
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Chapter 8: Capital Budgeting Process and Decision Criteria
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Sample Questions
Q1) You must know the discount rate of an investment project to compute its
A) NPV, IRR, PI, and discount payback period
B) NPV, PI, discount payback period
C) NPV, PI, IRR
D) NPV, accounting rate of return, PI, discount payback period
Q2) The NPV method is most likely to be used in:
A) large firms.
B) publicly traded firms.
C) firms run by CFOs with MBAs.
D) all of the above.
Q3) The accounting rate of return is calculated as:
A) sales/stock price
B) net income/stock price
C) sales/book value of assets
D) net income/book value of assets
Q4) Refer to NPV Profile.What's the IRR for project 1?
A) 12%
B) 14%
C) 18%
D) Cannot tell from the given information
Page 10
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Chapter 9: Cash Flow and Capital Budgeting
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Sample Questions
Q1) The system in the U.S.which defines the allowable annual depreciation deductions for various classes of assets is known as:
A) MACRS
B) CAMRS
C) RCMAS
D) SCRMA
Q2) A machine costs $3 million and has zero salvage value.The machine qualifies under the 3-year MARCS category.Assume a discount rate of 10% and a 40% tax rate.What is the present value of depreciation tax savings associated with this machine? (MARCS tax depreciation schedule of a 3-year class asset: 33.33% in year 1,44.45% in year 2,14.81% in year 3,and 7.41% in year 4)
A) $1,090,900
B) $1,200,000
C) $994,741
D) $998,684
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11
Chapter 10: Risk and Capital Budgeting
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Sample Questions
Q1) You are a gold producer and have noticed that the value of your business may increase even though the price of gold falls.Your explanation for this phenomenon is A) that the relationship between the value of future cash flows and interest rates is positive.
B) that increased risk may increase the real option value of the firm.
C) that cheaper gold prices are good for the economy and that must be good for the firm.
D) none of the above
Q2) Which answer describes an analysis of what happens to NPV estimates when we change the values of one variable at a time?
A) Forecasting simulation
B) Monte Carlo simulation
C) Sensitivity analysis
D) Scenario analysis
Q3) Operating leverage describes the relationship between...
A) EBIT and sales
B) taxes and sales
C) debt and equity
D) fixed costs and variable costs
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Page 12
Chapter 11: Raising Long-Term Financing
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Sample Questions
Q1) Emma International recently conducted an IPO,Emma received $52 per share and the offer price was $54 per share and the stock price rose to $59 per share.What was the total percentage cost of the IPO?
A) 9.62%
B) 12.96%
C) 9.26%
D) 13.46%
Q2) If ABC's stock price closes at $39.00 the day before the offering,calculate the total cost of the seasoned equity offering to ABC's existing stockholders as a percentage of the offering proceeds.
A) 16.23%
B) 18.51%
C) 20.10%
D) 20.40%
Q3) An institution that raises capital by issuing liabilities against itself is a A) financial intermediary. B) financial broker.
C) financial agent.
D) none of the above.
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Page 13
Chapter 12: Capital Structure
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Sample Questions
Q1) A situation where shareholders refuse financing a "good" investment,because they think that only the bondholders will benefit will lead to ...
A) asset substitution
B) underinvestment
C) overinvestment
D) none of the above
Q2) Refer to Kennesaw Steel Corporation.How many shares will be left outstanding after the re-capitalization? (assume that the stock can be repurchased at $50 per share)
A) 60,000
B) 50,000
C) 45,000
D) 40,000
Q3) What is the value of Bavarian Brew after the restructuring,if the PV of bankruptcy cost is $750,000? Assume a corporate tax rate of 34%.
A) $5,000,000
B) $5,340,000
C) $4,590,000
D) $4,250,000
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14
Chapter 13: Long-Term Debt and Leasing
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Sample Questions
Q1) Emma Internationa is considering retiring a $150 million bond issue sold to the public 10 years ago.The original maturity was 30 years.If the bonds were initially sold at 97,then what is the dollar amount of the unamortized discount that would be accelerated at retirement?
A) $3,000,000
B) $ 150,000
C) $4,500,000
D) $4,650,000
Q2) Quiz Company has a 12 year lease,with payments of $250,000 made at the beginning of each year.If no purchase option exists,and the company is in the 40% tax bracket,what is the annual after-tax cash outflow on the lease?
A) $416,667
B) $250,000
C) $150,000
D) $100,000
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15
Chapter 14: Payout Policy
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Sample Questions
Q1) Roxy International has earnings per share of $4.05; just paid dividend $2.03 and expects a ROI next year (and the foreseeable future)of 15% What is the expected growth rate?
A) 1.12%
B) 7.52%
C) 25.00%
D) 7.48%
Q2) Emma International has earnings per share of $3.29; just paid dividend $1.25 and expects a ROI next year (and the foreseeable future)of 14% What is the retention ratio?
A) 37.99%
B) 14.00%
C) 62.01%
D) 23.99%
Q3) In order to receive a dividend payment,an investor must own the stock
A) on the announcement date
B) on the date of record
C) on the ex-dividend date
D) on the payment date
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16
Chapter 15: Financial Planning
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Sample Questions
Q1) A firm currently has $2,000,000 in assets and $1,000,000 in accounts payable.If the firm expects sales to increase by 10% from last year to next year,then what is the estimated external funds required if the firm pays all of its net income to shareholders?
A) $100,000
B) $1,000,000
C) $2,000,000
D) none of the above
Q2) Cash receipts include
A) cash sales.
B) accounts receivable collections.
C) both a and b
D) none of the above.
Q3) If a company prefers to finance its required assets with a small portion of short-term borrowings,then that firm is utilizing a(n)
A) conservative financing strategy.
B) aggressive financing strategy.
C) matching strategy.
D) none of the above.
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17
Chapter 16: Cash Conversion, inventory, and Receivables Management
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Sample Questions
Q1) An inventory system that is premised on materials arriving exactly when they are needed for production is called
A) materials resource planning.
B) material resource planning II.
C) a just-in-time inventory system.
D) none of the above.
Q2) Bavarian Brew has an average payment period of 35 days,an average collection period of 27 days and a cash conversion cycle of 16 days.What is the company's average age of inventory?
A) 51 days
B) 43 days
C) 24 days
D) 16 days
Q3) Bavarian Brew has an average age of inventory of 35 days,an average collection period of 27 days and a cash conversion cycle of 16 days.What is the company's average payment period?
A) 46 days
B) 62 days
C) 16 days
D) 19 days
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Chapter 17: Cash, payables, and Liquidity Management
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Q1) Which of the following statements is a detailed invoice listing all checks cleared,account charges,lockbox charges,electronic transactions,etc.?
A) bank statement
B) bank account analysis statement
C) reconciliation statement
D) financial statement
E) none of the above
Q2) A preauthorized electronic withdrawal for the payer's account is known as
A) a depository transfer check.
B) an automated clearinghouse debit transfer.
C) a wire transfer.
D) none of the above.
Q3) Extending payment beyond the due date in order to reduce the cash conversion cycle
A) is an accepted "stretching" of credit terms.
B) is an unethical cash management practice.
C) is an unethical cash management practice, but can be viewed as acceptable.
D) is backwards; this actually increases the cash conversion cycle.
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19
Chapter 18: International Financial Management
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Q1) Which of the following accounts for the largest portion of trading volume in the foreign exchange markets?
A) exporters
B) importers
C) investors
D) governments
Q2) If you are looking for the exchange rate to convert U.S.Dollars to Euros today,then you would need to be looking at
A) the spot exchange rate.
B) the forward exchange rate.
C) the future exchange rate.
D) the dot exchange rate.
Q3) If the Canadian Dollar is worth $1.50,and the Swiss Franc is worth $1.30,then how many Swiss Francs does it take to purchase a Canadian Dollar?
A) 1.1538
B) 0.8667
C) 1.300
D) none of the above
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Chapter 19: Options
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Q1) Which of the following conditions must be met in order for put - call parity to hold.
A) The call and put options must be on the same underlying stock
B) The call and put options must have the same expiration date
C) Both options should be European options
D) All of the above
Q2) Bill Henricksen,purchased a put option on Cycle Inc.for $4.The put option has a strike price of $40 and currently Cycle Inc.shares trade for $44.The expiration date of the option is 6 months from today.What is Henricksen's maximum gain on his put option?
A) $4
B) $36
C) $40
D) $44
Q3) Which of the following factors will affect the price of an option?
A) The strike price of the option
B) The amount of time until expiration
C) The price of the underlying stock
D) All of the above
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Chapter 20: Entrepreneurial Finance and Venture Capital
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Q1) Al Bert seeks $15 million from a VC fund.Al and the VC agree that the company should be ready to go public in 6 years.At that time the company should have a market capitalization of $161.1 million.If the VC requires a 45% return on their investment,what is the VC's stake at the time of the IPO?
A) $139.41 million
B) $21.75 million
C) $112.67 million
D) $156.23 million
Q2) Agreements fiving the venture capitalists the right to demand that a portfolio company's managers arrange a public offering of shares in the company
A) Repurchase rights
B) Stock option plans
C) Demand registration rights
D) Participation rights
Q3) The roots of the American venture capital industry can be traced to
A) the American Research and Development Company.
B) the American Reinvestment and Development Company.
C) the Alternative Direct and Reinvestment Company.
D) none of the above.
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Page 22
Chapter 21: Mergers, acquisitions, and Corporate Control
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Sample Questions
Q1) In the periods 2000-2010 the abnormal returns for the bidding firm was
A) -8.23%
B) -1.65%
C) 21.92%
D) 2.68%
Q2) The greater the number of unrelated divisions that a conglomerate firm operates in creates
A) a smaller Herfindahl Index number.
B) a larger Herfindahl Index number.
C) a Herfindahl Index number that does not necessarily change.
D) there is not enough information to determine.
Q3) A mixed offering is a merger that is financed with A) debt and equity.
B) cash and securities.
C) debt and trade credit.
D) none of the above.
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Chapter 22: Bankruptcy and Financial Distress
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Q1) A company that does not pay its debts when they come due is called
A) insolvent
B) debtor in possession
C) broke
D) financially distressed
Q2) For multinational situation,applies to U.S.assets of firms that file primary bankruptcy in another country
A) Chapter 9
B) Chapter 12
C) Chapter 13
D) Chapter 15
Q3) What is the term that describes an agreement of the creditors by which they pass the power to liquidate the firm's assets to an adjustment bureau,a trade association,or a third party?
A) trustee
B) assignment
C) absolute priority
D) extension
E) composition
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Page 24
Chapter 23: Risk Management
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Q1) Refer to Exhibit 23-1.What was the lowest value of the December contract on the day quoted?
A) $265,500
B) $262,750
C) $264,837
D) $271,450
Q2) Refer to Exhibit 23-1.How many June contracts were outstanding at the end of the trading day?
A) 3,338
B) 8,621
C) 183,158
D) 125,845
Q3) For most firms the principle reason for hedging is
A) to reduced the likelihood of financial distress.
B) to comply with SEC regulations concerning firm risk tolerances.
C) to satisfy the owners of the firm's shares.
D) to satisfy the owners of the firm's debt.
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