Financial Analysis Exam Practice
Tests
Course Introduction
Financial Analysis is a foundational course that equips students with the tools and techniques necessary to evaluate the financial health of businesses and organizations. The course covers the interpretation of financial statements, the application of key financial ratios, trend analysis, and benchmarking against industry standards. Students learn to assess profitability, liquidity, solvency, and operational efficiency, utilizing both quantitative and qualitative data. Through practical case studies and real-world examples, learners develop the analytical skills required to make informed financial decisions, support strategic planning, and communicate insights to stakeholders in various financial roles.
Recommended Textbook
Foundations of Finance 7th Edition by Arthur J. Keown
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17 Chapters
2496 Verified Questions
2496 Flashcards
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Page 2
Chapter 1: An Introduction to the Foundations of Financial Management
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) In a sole proprietorship,the owner is personally responsible without limitation for the liabilities incurred.
A)True
B)False
Answer: True
Q2) When making financial decisions,managers should always look at marginal,or incremental cash flows.
A)True
B)False
Answer: True
Q3) A corporate treasurer is typically responsible for each of the following duties except: A) cash management.
B) credit management.
C) capital expenditures.
D) cost accounting.
Answer: D
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Page 3
Chapter 2: The Financial Markets and Interest Rates
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) A wealthy private investor providing a direct transfer of funds is called
A) a venture capitalist.
B) an investment banker.
C) a financial intermediary.
D) an angel investor.
Answer: D
Q2) Financial intermediaries
A) offer indirect securities.
B) include the national and regional stock exchange.
C) usually are underwriting syndicates.
D) constitute the various secondary markets.
Answer: A
Q3) The real rate of return is the return earned above the A) default risk premium.
B) risk-adjusted return.
C) inflation risk premium.
D) variability of returns measured by standard deviation.
Answer: C
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Chapter 3: Understanding Financial Statements and Cash Flows
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) Which of the following accounts does not belong in the liability section of a balance sheet?
A) accruals
B) short-term debt
C) additional paid-in capital
D) long-term debt
Answer: C
Q2) The income statement describes the financial position of a firm on a given date.
A)True
B)False
Answer: False
Q3) Which of the following accounts does not belong on the asset side of a balance sheet?
A) accounts receivable
B) accumulated depreciation
C) cash
D) accruals
Answer: D
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Chapter 4: Evaluating a Firms Financial Performance
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Jones,Inc.has a current ratio equal to 1.40.Which of the following transactions will increase the company's current ratio?
A) The company collects $500,000 of its accounts receivable
B) The company sells $1 million of inventory on credit
C) The company pays back $50,000 of its long-term debt
D) The company writes a $30,000 check to pay off some existing accounts payable
Q2) Which of the following is true if a firm wishes to collect its accounts faster by imposing stricter credit terms on its customers?
A) the firm's average collection period is likely to fall
B) the firm's accounts receivable turnover might rise
C) the firm's sales might decrease
D) all of the above
Q3) Which of the following has the most significant influence on return on equity?
A) Common dividends
B) Principal payments
C) Accruals
D) Operating income
Q4) How could an analyst determine whether a company's ratio is good or bad?
Q5) Discuss five limitations to ratio analysis.
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Chapter 5: The Time Value of Money
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162 Verified Questions
162 Flashcards
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Sample Questions
Q1) The present value of an annuity increases as the discount rate increases.
A)True
B)False
Q2) You invest $1,000 at a variable rate of interest.Initially the rate is 4% compounded annually for the first year,and the rate increases one-half of one percent annually for five years (year two's rate is 4.5%,year three's rate is 5.0%,etc.).How much will you have in the account after five years?
A) $1,276
B) $1,359
C) $1,462
D) $1,338
Q3) You decide you want your child to be a millionaire.You have a son today and you deposit $15,000 in an investment account that earns 9% per year.The money in the account will be distributed to your son whenever the total reaches $1,000,000.How old will your son be when he gets the money (rounded to the nearest year)?
A) 82 years
B) 74 years
C) 60 years
D) 49 years
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Page 7
Chapter 6: The Meaning and Measurement of Risk and Return
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147 Flashcards
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Sample Questions
Q1) What is the name given to the equation that financial managers use to measure an investor's required rate of return?
A) The standard deviation
B) The capital asset pricing model
C) The coefficient of variation
D) The MIRR
Q2) Cash flows is the most relevant variable to measure the returns on debt instruments,while GAAP net income is the most relevant variable to measure the returns on common stock.
A)True
B)False
Q3) Assume that an investment is forecasted to produce the following returns: a 10% probability of a $1,400 return; a 50% probability of a $6,600 return; and a 40% probability of a $10,500 return.What is the expected amount of return this investment will produce?
A) $6,167
B) $7,640
C) $12,890
D) $18,500
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Chapter 7: The Valuation and Characteristics of Bonds
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) What is the value of a bond that matures in 5 years,has an annual coupon payment of $110,and a par value of $2,000? Assume a required rate of return of 7%.
A) $938.50
B) $1,876.99
C) $1,890.07
D) $1,750.00
Q2) A company with a bond rating of BBB is more likely to have which of the following qualities compared to a company with a bond rating of B?
A) greater reliance on equity financing
B) high variability in past earnings
C) little use of subordinated debt
D) small firm size
Q3) What is the yield to maturity of a bond that pays an 5% coupon rate with annual coupon payments,has a par value of $1,000,matures in 15 years,and is currently selling for $769?
A) 2.4%
B) 5.7%
C) 7.6%
D) 9.5%
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Page 9
Chapter 8: The Valuation and Characteristics of Stock
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) Bondholders and preferred stockholders can be viewed as creditors,whereas the common stockholders are the true owners of the firm.
A)True
B)False
Q2) Positive Tronics Industries preferred stock has a par value of $100 and pays a dividend of $6.00 per share.It presently sells for $87 per share.What do investors require as a rate of return on this stock? Round off to the nearest .10%.
A) 14.5%
B) 9.3%
C) 6.9%
D) 6.0%
Q3) Yanti Corp.preferred stock has a 5% stated dividend percentage,and a $100 par value.What is the value of the stock if your required rate of return is 6% per year?
A) $83.33
B) $94.05
C) $100.00
D) $30.00
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Chapter 9: The Cost of Capital
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Sample Questions
Q1) DEF Company's preferred stock is currently selling for $28.00,and pays a perpetual annual dividend of $2.00 per share.Underwriters of a new issue of preferred stock would charge $3 per share in flotation costs.The firm's tax rate is 40%.Compute the cost of new preferred stock for DEF.
A) 4.80%
B) 7.14%
C) 8.00%
D) 9.15%
Q2) Royal Mediterranean Cruise Line's common stock is selling for $22 per share.The last dividend was $1.20,and dividends are expected to grow at a 6% annual rate.Flotation costs on new stock sales are 5% of the selling price.What is the cost of Royal's new common stock?
A) 5.73%
B) 11.45%
C) 11.78%
D) 12.09%
Q3) Alarm Systems Corporation's preferred stock pays a dividend of $3.60 and sells for $28.00.Alarm Systems Corporation has a marginal tax rate of 35%.What is the cost of preferred financing?
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Page 11
Chapter 10: Capital-Budgeting Techniques and Practice
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155 Flashcards
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Sample Questions
Q1) A project with a payback period of four years is acceptable as long as the company's target payback period is greater than or equal to four years.
A)True
B)False
Q2) The payback period may be more appropriate to use for companies experiencing capital rationing.
A)True
B)False
Q3) The capital budgeting manager for XYZ Corporation,a very profitable high technology company,completed her analysis of Project A assuming 5-year depreciation.Her accountant reviews the analysis and changes the depreciation method to 3-year depreciation.This change will
A) increase the present value of the NCFs.
B) decrease the present value of the NCFs.
C) have no effect on the NCFs because depreciation is a non-cash expense.
D) only change the NCFs if the useful life of the depreciable asset is greater than 5 years.
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12
Chapter 11: Cash Flows and Other Topics in Capital Budgeting
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155 Verified Questions
155 Flashcards
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Sample Questions
Q1) A new machine can be purchased for $1,200,000.It will cost $35,000 to ship and $15,000 to modify the machine.A $12,000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm,which would have otherwise been sold for $180,000.The firm will borrow $750,000 to finance the acquisition.Total interest expense for 5-years is expected to approximate $350,000.What is the investment cost of the machine for capital budgeting purposes?
A) $2,180,000
B) $1,780,000
C) $1,442,000
D) $1,430,000
Q2) Advantages of using simulation include
A) adjustment for risk in the resulting distribution of net present values.
B) a range of possible outcomes presented.
C) is good only for single period investments since discounting is not possible. D) graphically displays all possible outcomes of the investment.
Q3) The less-risky investment is always the more desirable choice.
A)True B)False
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Chapter 12: Determining the Financing Mix
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151 Flashcards
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Sample Questions
Q1) Operating leverage means financing a portion of a firm's earnings per share with debt.
A)True
B)False
Q2) Two key components of a prudent capital structure are the debt maturity composition and the debt to equity composition.
A)True
B)False
Q3) Kocher Steel typically achieves one of three production levels in any given year: 8 million pounds of steel,10 million pounds of steel,or 16 million pounds of steel.In tracking some of its costs,Kocher Steel's controller discovered one cost that was $10 per pound no matter what the production level for the year.This is an example of a
A) variable cost.
B) fixed cost.
C) semivariable cost.
D) semifixed cost.
Q4) Depreciation is considered a fixed cost.
A)True
B)False
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Chapter 13: Dividend Policy and Internal Financing
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164 Flashcards
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Sample Questions
Q1) Other things equal,in imperfect markets a firm that maintains a stable dividend will have a lower required rate of return on its equity.
A)True
B)False
Q2) All of the following are potential benefits of stock repurchases except:
A) a means for providing an internal investment opportunity.
B) an approach for maintaining the existing capital structure while still making a distribution to shareholders.
C) a favorable impact on earnings per share.
D) the elimination of a minority ownership group of stockholders.
Q3) The CEO of Marletti Pasta Company wants a dividend policy that minimizes the likelihood of decreasing the company's dividend per share.Which of the following policies should the CEO select?
A) constant dividend payout ratio
B) stable dollar dividend per share
C) regular dividend plus a year-end extra
D) All policies have the same likelihood of a dividend decrease because dividend changes are dependent on changes in earnings.
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Chapter 14: Short-Term Financial Planning
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141 Flashcards
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Sample Questions
Q1) If a firm currently has excess capacity,then using the percent of sales method to forecast its fixed asset balance will likely result in an overestimate of the fixed asset balance and an inflated amount of discretionary financing needed.
A)True
B)False
Q2) Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's inventory.Make the following assumptions: current year's sales are $27,800,000; current year's cost of goods sold is $17,528,000; sales are expected to rise by 30%.The firm's investment in inventory in the current year is $5,890,200.What is the projection for next year's inventory?
A) $7,657,260
B) $6,981,250
C) $5,845,500
D) $4,526,600
Q3) The forecasted retained earnings balance is equal to (current retained earnings/current sales)times projected sales for next year.
A)True
B)False
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Chapter 15: Working-Capital Management
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165 Flashcards
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Sample Questions
Q1) A floating lien,chattel mortgage,or terminal warehouse receipt have which of the following in common?
A) They all pledge accounts receivables as security.
B) They have nothing in common.
C) They are all unsecured forms of financing.
D) They all use inventory to secure a loan.
Q2) Your company needs to pay $10,000 for the overhaul of five trucks.A bank offers you a loan at 18 percent per annum with a compensating balance requirement of 15 percent of the loan amount.You plan to borrow the money for 9 months and currently do not have any account with this bank.What is the effective cost of the loan?
Q3) Two advantages of financing with current liabilities are flexibility and lower interest cost.
A)True B)False
Q4) Short-term debt has a greater risk of illiquidity than long-term debt because it must be rolled over more frequently and its use creates more uncertainty concerning future interest rates.
A)True B)False
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Chapter 16: Current Asset Management
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Sample Questions
Q1) Terms of sale are frequently changed by the financial manager in order to increase sales.
A)True
B)False
Q2) You have a choice between investing in a corporate bond or a municipal bond.The corporate bond has an annual yield of 10 percent,while the municipal bond has an annual yield of 7 percent.At what tax rate would you be indifferent between buying the corporate bond or the municipal bond?
Q3) The Yardscape Corp processes an estimated 200,000 checks per year from its customers.Total revenue collected by check is $40,000,000.The average float time until the funds are credited to Yardscape's checking account is 6 days.For an extra cost of $ .06/check,Yardscape's bank will install a lock-box system that will reduce float time from 6 days to 2.5 days.If Yardscape earns 3.5% on its checking account,how much per check will Yardscape make if it uses the lock-box system?
A) $.005
B) $.006
C) $.007
D) $.008
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Chapter 17: International Business Finance
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Sample Questions
Q1) A U.S.Company has a 40,000 euro loan in Germany that must be paid in 30 days.Assume the 30-day money market rates in the U.S.and Germany are both 2% for lending and 3.5% for borrowing.The current exchange rate is 1.55 dollars per euro.If the company wants to complete a money-market hedge,how many dollars will be needed to purchase euros in the spot market?
A) $36,213.60
B) $40,000.00
C) $59,903.38
D) $60,784.32
Q2) Firms generally do not hedge against which type of exposure
A) transaction.
B) translation.
C) economic.
D) financial.
Q3) The U.S.dollar is the most frequently traded currency in foreign currency markets,accounting for over 40% of total trading.
A)True
B)False
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