Financial Analysis
Exam Materials
Course Introduction
Financial Analysis is a comprehensive course that equips students with the tools and techniques necessary to assess the financial health and performance of organizations. The course covers fundamental concepts such as interpreting financial statements, ratio analysis, cash flow analysis, and trend analysis, as well as advanced topics like forecasting, valuation, and risk assessment. Through a mix of theoretical frameworks and real-world case studies, students learn how to critically analyze financial data to make informed business decisions, evaluate investment opportunities, and understand the implications of financial strategies on organizational objectives. This course is essential for anyone seeking careers in finance, accounting, management, or related fields.
Recommended Textbook
Business Finance 11th Edition by Graham Peirson
Available Study Resources on Quizplus 22 Chapters
1261 Verified Questions
1261 Flashcards
Source URL: https://quizplus.com/study-set/2684
Page 2
Chapter 1: Introduction
Available Study Resources on Quizplus for this Chatper
44 Verified Questions
44 Flashcards
Source URL: https://quizplus.com/quiz/53614
Sample Questions
Q1) The concept of market efficiency means that we should expect securities and other assets to be:
A)underpriced given their expected risks and returns.
B)overpriced given their expected risks and returns.
C)fairly priced given their expected risks and returns.
D)none of the given options is correct as prices cannot be predicted.
Answer: C
Q2) The key feature of an agency relationship is that:
A)the principal will always make decisions that are in the best interests of the agent.
B)a company will allow another firm to take on its name,and act as an agent in doing business.
C)the decisions by the agent will always improve the position of the owners of a firm.
D)one party passes the responsibility for making decisions to another party.
Answer: D
Q3) In Australia,most large businesses are partnerships:
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
3
Chapter 2: Consumption, Investment and the Capital Market
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/53613
Sample Questions
Q1) Fisher's separation theorem has no implications for the investment decision. A)True
B)False
Answer: False
Q2) In Fisher's analysis of investment and consumption,the market opportunity line defines the:
A)combination of investment opportunities for the firm to increase market share and growth opportunities.
B)potential new market opportunities for the firm and new product options established by appropriate research.
C)options for consumption by the firm relative to the investment of the shareholders who own the firm.
D)Combinations of consumption possibilities consistent with the initial wealth of the investors in the firm.
Answer: D
Q3) An _______________ is a curve that shows a set of combinations such that an individual derives equal utility from any combination in the set.
Answer: indifference curve
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: The Time Value of Money: An Introduction to Financial Mathematics
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/53612
Sample Questions
Q1) Joe has to pay $50 000 in 1.5 years' time.If the interest rate is 15% p.a. ,compounded continuously,how much does she owe in present value terms?
A)$46 387
B)$49 077
C)$39 926
D)$37 041
Answer: C
Q2) The nominal interest rate is difference between the inflation rate and the real rate of interest.
A)True
B)False
Answer: False
Q3) In an interest-only loan,the principle reduces by a small amount at first,and more rapidly towards the end of the loan.
A)True
B)False
Answer: False
Q4) A principle-and-interest loan is a common example of an __________ annuity.
Answer: ordinary
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Applying the Time Value of Money to Security
Valuation
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/53611
Sample Questions
Q1) Financial assets such as bonds and shares can be valued by discounting their future cash flows and summing these present values.
A)True
B)False
Q2) When interest rates increase,interest receipts can be rolled over into a new investment with a higher interest rate.This is known as the _____________ effect.
Q3) A company just paid a dividend of $1.20.If this is expected to increase by 3% p.a.indefinitely,and the required rate of return is 8%,then the theoretical share price is $15. A)True
B)False
Q4) One reason that the required rate of return on shares is generally more than on interest-yielding securities is because: A)borrowers may default on payments.
B)the returns on shares are higher than on interest-yielding securities.
C)debtholders rank ahead of shareholders in case of default.
D)shareholders rank ahead of debtholders in case of default.
Q5) Once a bond has been issued,its promised future cash flows are ___________.
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Project Evaluation: Principles and Methods
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/53610
Sample Questions
Q1) A weakness of the payback method of project evaluation is that it:
A)fails to take account of the magnitude and timing of the cash flows.
B)rejects all projects with a payback period greater than the maximum payback period.
C)rejects all projects with a payback period less than the maximum payback period.
D)fails to take account of the timing of cash flows,but does take into account the magnitude of cash flows.
Q2) Which of the following statements in regard to the internal rate of return method is false?
A)A project may have multiple internal rates of return.
B)It eliminates the need to calculate the required rate of return.
C)Two sign reversals in the cash flow stream are a necessary condition for two internal rates of return.
D)None of the given options.
Q3) The payback period method of project evaluation provides a simple way of controlling for the risk of a project.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: The Application of Project Evaluation Methods
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/53609
Sample Questions
Q1) Assume that an investment of $1000 is expected to generate cash flows of $500 at constant prices at the end of each of three years.Also,assume that prices are expected to increase at the rate of 10% p.a.and that the nominal rate of return is 15% p.a.What is the project's NPV?
A)$337
B)$373
C)$377
D)None of the given options.
Q2) Which of the following costs should not be included in the allocated costs of the project?
A)The wage costs related to producing the new product.
B)The cost of water and electricity connections in the new plant.
C)The portion of the cost of leasing the office space for the firm's human resources department.
D)The operating costs associated with the proposed new plant.
Q3) A major flaw of simulation analysis is that it fails to consider the possibility that risk may be removed through diversification.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: Risk and Return
Available Study Resources on Quizplus for this Chatper
76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/53608
Sample Questions
Q1) An 'efficient' portfolio is one that:
A)combines assets whose returns are not perfectly correlated.
B)offers the highest expected return for a given level of risk.
C)holds a proportion of all possible assets.
D)combines many diverse assets.
Q2) A simple performance benchmark is to compare the return of a well diversified portfolio of domestic shares to the S&P/ASX200 Index.
A)True
B)False
Q3) The efficient frontier:
A)includes those portfolios that offer the maximum expected return for a given level of risk.
B)combines those assets in a portfolio that offer the highest expected return for a given level of risk.
C)includes the portfolio of all possible assets.
D)combines portfolios that offer the maximum level of expected return for a given amount of wealth invested.
Q4) The _______________ is a curve that includes all portfolios with the highest return for a given level of risk.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: The Capital Market
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/53607
Sample Questions
Q1) The Australian dollar was floated in:
A)June 1983.
B)June 1984.
C)December 1982.
D)December 1983.
Q2) Superannuation funds and life insurance companies invest the majority of their assets in:
A)cash and deposits.
B)land and buildings.
C)equities and unit trusts.
D)loans and placements.
Q3) Which of the following transactions are taking place in a secondary market?
A)An superannuation fund buys 10 000 shares in the ASX.
B)A company issues $20 million of ordinary shares.
C)An investment bank provides advice to a company about raising capital.
D)All of the given answers.
Q4) The ASX is the only stock exchange now operating in Australia.
A)True
B)False
Q5) Superannuation funds are characterised as ___________ institutions.
Page 10
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Sources of Finance: Equity
Available Study Resources on Quizplus for this Chatper
51 Verified Questions
51 Flashcards
Source URL: https://quizplus.com/quiz/53606
Sample Questions
Q1) Which of the following do not affect shareholders' wealth?
A)Rights issues.
B)Private placements.
C)Announcements of rights issues.
D)All the given options.
Q2) The closer the subscription price on a rights issue is set to the market price of the share:
A)the greater is the market value of the right.
B)the smaller is the dilution in investors' wealth.
C)the more likely that the rights issue will be fully subscribed.
D)the greater is the need to have the issue underwritten.
Q3) Which of the following is not a major provision of an option agreement?
A)The exercise price.
B)The period during which the option may be exercised.
C)The rights of the option holder in the event of new issues by the company.
D)The volatility of the underlying share.
Q4) Business angels only invest in mature companies with a long history of success.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Sources of Finance: Debt
Available Study Resources on Quizplus for this Chatper
87 Verified Questions
87 Flashcards
Source URL: https://quizplus.com/quiz/53605
Sample Questions
Q1) The cost of a bank overdraft:
A)does not include the interest cost.
B)includes interest cost but not fees.
C)includes interest cost and fees.
D)does not include interest cost but includes bank fees.
Q2) Which form of finance allows a company to raise funds by selling its accounts receivable?
A)Trade credit finance.
B)Invoice finance.
C)Recourse finance.
D)Debtor finance.
Q3) The size of a commercial paper program will depend on which of the following factors?
A)The borrower's need for funds
B)The borrower's credit rating.
C)The cost of commercial paper compared with other forms of debt.
D)All of the given options.
Q4) A _____________ loan is where a number of banks join together to provide what is,in effect,a term loan,with each lender having identical rights.
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Payout Policy
Available Study Resources on Quizplus for this Chatper
53 Verified Questions
53 Flashcards
Source URL: https://quizplus.com/quiz/53604
Sample Questions
Q1) Under the Modigliani and Miller dividend irrelevance argument:
A)a firm's investment decision is a function of the dividend policy.
B)share prices are dependent upon a firm's dividend policy.
C)shareholders prefer capital gain income to dividend income.
D)shareholders are indifferent between the payment of dividends and the retention of profits because cash paid out as dividends can be replaced without cost by issuing additional shares.
Q2) A key limitation of Miller and Modigliani's theory of dividend irrelevance is that they assume there is a perfect capital market with no ___________.
Q3) A dividend ___________ is a class of investors who have a particular preference towards a certain dividend policy.
Q4) Which of the following is an unlikely reason as to why a company would not pay a high franked dividend payout ratio?
A)Shareholders may be tax-exempt.
B)It is running short of cash to finance new investments.
C)Shareholders may not be residents.
D)Shareholders are on the same marginal tax rate as the company.
To view all questions and flashcards with answers, click on the resource link above.
Page 13
Chapter 12: Principles of Capital Structure
Available Study Resources on Quizplus for this Chatper
57 Verified Questions
57 Flashcards
Source URL: https://quizplus.com/quiz/53603
Sample Questions
Q1) Financial leverage exposes shareholders to financial risk because:
A)competition forces companies to adopt an optimal capital structure.
B)a company uses debt to increase the expected rate of return to shareholders.
C)interest on debt needs to be paid even when operating performance declines.
D)none of the given options.
Q2) A limitation of the MM analysis in the absence of taxes is that:
A)risky debt is not considered.
B)the possibility of default on debt is not considered.
C)there is no cost associated with default on debt.
D)only risk-free debt is considered.
Q3) The effect of debt on the rate of return earned by shareholders of the company is known as _____________________.
Q4) All companies are subject to:
A)financial risk.
B)technology risk.
C)business risk.
D)all of the given options.
Q5) The ___________ theory establishes a hierarchy of financing sources which are preferred by the managers of a company.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Capital Structure Decisions
Available Study Resources on Quizplus for this Chatper
51 Verified Questions
51 Flashcards
Source URL: https://quizplus.com/quiz/53602
Sample Questions
Q1) Which of the following statements is true?
A)A company's financial leverage can't affect investment decisions and its operating efficiency.
B)Banks and finance companies have much higher debt/equity ratios than those of retailers and manufacturers.
C)Banks and finance companies have much lower debt/equity ratios than those of retailers and manufacturers.
D)None of the given options.
Q2) In a survey on managers' perceptions of capital structure,it was found that their reluctance to issue new ordinary shares appeared to vary over time,depending on the recent price behaviour of the company's shares.This evidence is consistent with:
A)the tax deductibility of interest.
B)the pecking order theory.
C)the financial distress theory.
D)any theory of capital structure.
Q3) Evidence from surveys of CFOs provides support to the _____________ theory.
Q4) Leverage is found to be _________ related to investment opportunities,as measured by the ratio of market to book value.
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: The Cost of Capital and Taxation Issues in Project Evaluation
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/53601
Sample Questions
Q1) The shares of ABC Ltd have a market price of $4 and an annual dividend of 17.5 cents per share fully franked at the tax rate of 30 per cent.Calculate the dividend yield after company tax but before personal tax.
A)16%
B)2.56%
C)6.25%
D)Cannot be calculated as not enough information is provided.
Q2) Assume that Expansion Ltd is a diversified company that is considering an expansion project in a mining division.The company has a target debt-equity ratio of 1:2 and this ratio will not be affected by the new project.The company's manager has identified Dig-it-out Ltd as a company with the same business risk as the new project (equity beta of 1.5).Dig-it-out has a debt-equity ratio of 1:3.What is the beta estimate of Expansion Ltd?
A)1.69
B)1.12
C)1.5
D)1.75
Q3) A _________ is a company that operates almost entirely in only one industry or line of business.
Page 16
To view all questions and flashcards with answers, click on the resource link above.
Chapter 15: Leasing and Other Equipment Finance
Available Study Resources on Quizplus for this Chatper
49 Verified Questions
49 Flashcards
Source URL: https://quizplus.com/quiz/53600
Sample Questions
Q1) Which lease is essentially a rental agreement?
A)Finance lease.
B)Cross-border lease.
C)Operating lease.
D)Leveraged lease.
Q2) XYZ Ltd intends to lease to another company for a duration of five years equipment which costs $500 000 and can be depreciated straight-line over three years for tax purposes.Assume the cost of capital is 10% p.a. ,the residual value is 20 per cent of cost,the tax rate is 30 per cent and that annual lease payments are payable in advance.Calculate the minimum before-tax lease payments that XYZ Ltd should quote if it desires a rate of return of 10 per cent after tax.
A)$153 907
B)$140 451
C)$110 680
D)$132 360
Q3) In a perfect capital market,investors are _____________ between leasing and buying an asset.
Q4) A leveraged lease differs from an ordinary finance lease in that it involves at least ________ parties.
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Capital Market Efficiency
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/53599
Sample Questions
Q1) The size effect refers to the observation that:
A)returns on shares traded exclusively on small markets are below average.
B)returns on shares traded exclusively on large markets are above average.
C)returns on shares of smaller companies are smaller than those of larger companies.
D)returns on shares of smaller companies are larger than those of larger companies.
Q2) Fama and French (1992)found that companies with a low book-to-market ratio tended to earn _________ returns,while companies with a high book-to-market ratio tended to earn _______ returns.
Q3) If the stock market is efficient then:
A)investors should consider factors,such as risk preferences,when selecting a portfolio of securities.
B)investors should select their investments randomly since all securities are correctly priced anyway.
C)a portfolio of randomly selected securities will necessarily eliminate all unsystematic risk.
D)portfolio selection becomes easy since all information is impounded in share prices.
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Futures Contracts
Available Study Resources on Quizplus for this Chatper
66 Verified Questions
66 Flashcards
Source URL: https://quizplus.com/quiz/53598
Sample Questions
Q1) Many companies prefer forward rate agreements (FRAs)to futures contracts as:
A)an FRA allows the company to close out the agreement before settlement.
B)an FRA allows flexibility to reverse the contract.
C)an FRA can be more closely tailored to the companies specific needs.
D)None of the given answers.
Q2) _____________________ refers to the fact that the commodity that is the subject of the futures contract is not precisely the same as the commodity that is of interest to the hedger.
Q3) Which of the following statements is true for a 10-year bond future contract?
A)Trading ceases on the 15th day of the settlement month.
B)Trading ceases on the last business day of the contract month.
C)Settlement day is the third business day after the day when trading ceases.
D)Settlement day is the second business day after the day when trading ceases.
Q4) Which concept is similar to a spread but refers to positions in futures contracts on different commodities rather than on the same commodity for different months?
A)Short spread.
B)Long spread.
C)Straddling.
D)Scalping.
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Options and Contingent Claims
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/53597
Sample Questions
Q1) Using the Black-Scholes formula,calculate the price of a put option from the following information: exercise price $3.00;current share price $3.30;term to expiry three months;standard deviation 0.30 p.a. ;and risk-free interest rate 10% p.a.continuously compounded.
A)$0.1586
B)$1.029
C)$1.9875
D)$0.0559
Q2) What is the payoff of a call option (bought)with an exercise price of $15.00,if the underlying share price is $16.50,at the expiry date of the option?
A)$15.00
B)Zero
C)$1.00
D)$1.50
Q3) A call option gives a buyer:
A)an asset whose value depends on the value of another asset.
B)the obligation to buy an asset at a predetermined price.
C)the right to buy an asset at a predetermined price.
D)the right to sell an asset at a predetermined price.
To view all questions and flashcards with answers, click on the resource link above.
Page 20
Chapter 19: Analysis of Takeovers
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/53596
Sample Questions
Q1) Bishop,Dodd and Officer (1987)reported a close relationship between changes in share prices and the number of:
A)takeovers.
B)horizontal takeovers.
C)vertical takeovers.
D)conglomerate takeovers.
Q2) Shares of Bongo Ltd have an EPS of $2.00,and shares of Congo Ltd have an EPS of $1.00.If both companies have 100 shares and Bongo acquires Congo,what will be the EPS for the new combined entity if Bongo issues one share for every Congo share?
A)3.00
B)1.00
C)2.00
D)1.50
Q3) Cost saving is less likely to be a reason for takeover activity in:
A)horizontal takeovers.
B)vertical takeovers.
C)conglomerate takeovers.
D)both horizontal and vertical takeovers.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 20: International Financial Management
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/53595
Sample Questions
Q1) Which theory states that the exchange rate between two currencies adjusts to reflect the relative inflation rates in the two currencies?
A)Interest rate parity.
B)Unbiased forward rates.
C)International fisher effect.
D)Purchasing power parity.
Q2) The current spot exchange rate between Australian dollars and UK pounds is A$1 = 0.400 pounds.Interest rates for one year are 5 per cent for pounds and 15 per cent for dollars.What is the expected spot exchange rate in one year's time?
A)0.3652
B)0.4600
C)0.4200
D)0.4380
Q3) ________________ risk is the variability of an entity's value that is due to possible appreciation or depreciation of the currency.
Q4) A _____________ loan is debt that is raised in a country other than the currency of the country in which the loan was raised.
Q5) Foreign currency ___________ are a suitable way to undertake contingent hedging.
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Management of Short-Term Assets: Inventory
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/53594
Sample Questions
Q1) The level of acquisition costs incurred per year is equal to:
A)total acquisition costs multiplied by number of orders per year.
B)total acquisition costs multiplied by total inventory.
C)acquisition costs per order multiplied by number of orders per year.
D)acquisition costs per order multiplied by average inventory per order.
Q2) Carrying costs:
A)increase as the order quantity increases.
B)decrease as the order quantity increases.
C)increase irrespective of whether the order quantity changes.
D)are not related to changes in the order quantity.
Q3) The economic order quantity refers to the:
A)quantity of inventory on hand that minimises the total cost of inventory.
B)inventory order quantity that minimises the total cost of inventory.
C)optimum time period between the placement of orders.
D)quantity of inventory on hand that minimises stockout costs.
Q4) The matching principle involves matching the maturity structure of assets and liabilities to minimise the risk that a company will not have sufficient cash to meet liabilities as they fall due.
A)True
B)False
Page 23
To view all questions and flashcards with answers, click on the resource link above.
Chapter 22: Management of Short-Term Assets: Liquid
Assets and Accounts Receivable
Available Study Resources on Quizplus for this Chatper
28 Verified Questions
28 Flashcards
Source URL: https://quizplus.com/quiz/53593
Sample Questions
Q1) Which of the following statements is not a 'step' in the preparation of a sales forecast?
A)A thorough analysis of past sales performance for each product.
B)Estimate cash receipts from sales.
C)Evaluate the impact of significant external factors.
D)None of the given options.
Q2) The conventional classification of motives often attributed to Keynes divides the motives into:
A)three groups.
B)two groups.
C)four groups.
D)five groups.
Q3) According to the precautionary motive,businesses hold liquid assets because:
A)cash inflows and outflows are not perfectly matched in both timing and amount.
B)there is always the possibility that extra cash will be needed to meet unexpected costs.
C)the opportunity to make profitable investments is anticipated.
D)there is a possibility of bankruptcy.
Q4) The __________ forecast is the most important factor affecting the accuracy of the cash receipts budget.
To view all questions and flashcards with answers, click on the resource link above. Page 24