Financial Decision Making
Exam Bank
Course Introduction
Financial Decision Making is a course designed to equip students with the analytical tools and frameworks necessary to make informed financial choices in both personal and organizational contexts. The course covers fundamental concepts such as time value of money, capital budgeting, risk and return analysis, financial statement interpretation, and the evaluation of investment opportunities. By combining theoretical foundations with practical applications, students learn to assess financial options, forecast outcomes, and develop strategies that contribute to sound financial management and value creation. Through case studies and real-world scenarios, the course develops critical thinking and problem-solving skills essential for succeeding in dynamic financial environments.
Recommended Textbook
CFIN5 5th edition by Scott Besley
Available Study Resources on Quizplus 16 Chapters
1175 Verified Questions
1175 Flashcards
Source URL: https://quizplus.com/study-set/1177
Page 2
Chapter 1: An Overview of Managerial Finance
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/23270
Sample Questions
Q1) The primary goal of a financial manager should be to _____.
A) minimize operating costs
B) minimize interest payments
C) minimize tax payments
D) maximize operating income each year
E) maximize the value of the firm's stock
Answer: E
Q2) Two key limitations of the proprietorship form of business involve potential difficulty in raising the necessary capital and the presence of unlimited personal liability for business debts.
A)True
B)False
Answer: True
Q3) If a firm's managers want to maximize stock price, it is in their best interests to operate efficient, low-cost plants, develop new and safe products that consumers want, and maintain good relationships with customers, suppliers, creditors, and the communities in which they operate.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Analysis of Financial Statements
Available Study Resources on Quizplus for this Chatper
111 Verified Questions
111 Flashcards
Source URL: https://quizplus.com/quiz/23271
Sample Questions
Q1) Which of the following is considered as a liability in the balance sheet of a firm?
A) Accounts receivable
B) Corporate bonds
C) Retained earnings
D) Common stock
E) Plant and equipment
Answer: B
Q2) A low inventory turnover ratio suggests that:
A) the firm is using the first-in first-out (FIFO) method of inventory valuation.
B) the cost of inventory of the firm is lower than that of the similar firms.
C) the firm is holding excess stocks of inventory.
D) the inventory of the firm is sold and restocked very often.
E) the firm purchases all its inventory on credit.
Answer: C
Q3) The book value of shares are often equal to their market value.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
4
Chapter 3: The Financial Environment: Markets, Institutions, and Investment Banking
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/23272
Sample Questions
Q1) As compared to U.S banks, foreign banks are less regulated and have fewer restrictions concerning the types of business activities they can pursue. Therefore, foreign banks often engage in numerous aspects of multilayer financial deals.
A)True
B)False
Answer: True
Q2) Zync Corporation offers a block of its securities for sale to the investment banker that submits the highest price of all interested investment bankers. This procedure is known as a _____.
A) financial intermediation
B) negotiated deal
C) competitive bid
D) shelf registration
E) dual listing
Answer: C
Q3) Dual listing of a stock leads to a decrease in the liquidity of the stock.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Time Value of Money
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/23273
Sample Questions
Q1) Identify the correct expression for the effective annual rate (EAR).
A) (1 + Periodic rate of interest)number of borrowing (interest) periods in one year - 1
B) (1 / Periodic rate of interest)number of borrowing (interest) periods in one year - 1
C) (1 - Periodic rate of interest)number of borrowing (interest) periods in one year - 1
D) (1 + Periodic rate of interest)number of borrowing (interest) periods in one year + 1
E) (1 - Periodic rate of interest)number of borrowing (interest) periods in one year + 1
Q2) Ross purchased a new commercial vehicle today for $25,000. The entire amount was financed using a five-year loan with a 4 percent interest rate (compounded monthly). How much will Ross owe on his vehicle loan after making payments for three years?
A) $10,089.56
B) $10,596.42
C) $10,857.28
D) $11,345.77
E) $11,568.25
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: The Cost of Money Interest Rates
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/23274
Sample Questions
Q1) Which of the following factors will lead to an increase in interest rates?
A) Deflation
B) Federal deficit
C) Contraction
D) Recession
E) Trade surplus
Q2) Interest rates on 1-year, 2-year, and 3-year Treasury bills are 5%, 6%, and 7% respectively. Assume that the pure expectations theory holds and that the market is in equilibrium. Which of the following statements is correct?
A) The maturity risk premium is positive.
B) Interest rates are expected to fall over the next two years.
C) The market expects one-year rates to be 7% one year from today.
D) The default risk premium is highest for Year 2.
E) The liquidity risk premium is highest for Year 1.
Q3) The yield curve is downward sloping, or inverted, if the inflation rates are expected to increase.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 6: Bonds Debtcharacteristics and Valuation
Available Study Resources on Quizplus for this Chatper
139 Verified Questions
139 Flashcards
Source URL: https://quizplus.com/quiz/23275
Sample Questions
Q1) Which of the following statements is true about federal funds?
A) Federal funds offer loans at a coupon rate that is two times the market interest rate.
B) Federal funds have very long maturities, often 3 years or more.
C) Federal funds offer loans to the state government to meet the reserve requirements of the federal government.
D) Federal funds are used to repay the T-bills issued by the federal government.
E) Federal funds are used by banks to meet the reserve requirements of the Federal Reserve.
Q2) Tony's Pizzeria plans to issue bonds with a par value of $1,000 and 10 years to maturity. These bonds will pay $45 interest every 6 months. Current market conditions are such that the bonds will be sold at net $937.79. What is the yield to maturity (YTM) of the issue as a broker would quote it to an investor? (Round the answer to the nearest whole number.)
A) 11%
B) 10%
C) 9%
D) 8%
E) 7%
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: Stocks Equity Characteristics and Valuation
Available Study Resources on Quizplus for this Chatper
70 Verified Questions
70 Flashcards
Source URL: https://quizplus.com/quiz/23276
Sample Questions
Q1) Which of the following is included in the call provision of a preferred stock?
A) Preferred stockholders can elect the members of the board of directors and also vote on corporate issues.
B) Preferred stockholders have priority over common stockholders with regard to assets of the firm.
C) Preferred stockholders have the right to receive preferred dividends previously not paid, to be disbursed before any common stock dividends can be paid.
D) Preferred stock can be redeemed by incorporating a maturity option to a preferred stock issue.
E) Preferred stock can participate with the common stock in sharing the firm's earnings.
Q2) The EVA of a firm is $6.25 million and the firm has 2.78 million outstanding shares. What is the maximum amount of dividend that can be paid to shareholders?
A) $1.65
B) $2.25
C) $3.12
D) $3.89
E) $4.41
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Risk and Rates of Return
Available Study Resources on Quizplus for this Chatper
76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/23277
Sample Questions
Q1) A stock might be quite risky if held by itself, but if much of this total (stand-alone) risk can be eliminated through diversification, then its relevant risk-that is, its contribution to the portfolio's risk-is much smaller than its irrelevant risk.
A)True
B)False
Q2) The only condition under which the unsystematic portfolio risk can be reduced to zero is to combine securities that are perfectly negatively correlated (r = 1.0) with each other.
A)True
B)False
Q3) The probability distribution of the payoffs on an investment refers to a _____.
A) listing of all payoffs and then determining the chance that each payoff will occur
B) measure of the tightness, or variability, of a set of payoffs
C) standardized measure of the risk per payoff
D) listing of the degree of relationship between two payoffs
E) measure of the extent to which the payoffs move with the capital market
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Capital Budgeting Techniques
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/23278
Sample Questions
Q1) Union Atlantic Corporation, which has a required rate of return equal to 14 percent, is evaluating a capital budgeting project. The initial cash outflow is $170,000 and cash inflow at the year-end of each of the following four years is $60,750. According to this information, which of the following statements is correct?
A) The project's internal rate of return (IRR) must be less than 14 percent.
B) The project's discounted payback must be less that its economic life.
C) The project is acceptable as the net present value of the project is positive.
D) The project's discounted payback period should be compared with the traditional payback period to make the correct decision.
E) The project is not acceptable as the net present value is less than the difference in the total cash inflow and cash outflow.
Q2) When considering two mutually exclusive projects, the financial manager should always select the project whose internal rate of return is the highest, provided the projects have the same initial cost.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Project Cash Flows and Risk
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/23279
Sample Questions
Q1) The Monte Carlo simulation:
A) can be useful for estimating a project's market risk.
B) uses probability distributions for variables as input data to estimate the project's net present value (NPV).
C) produces both an expected NPV (or IRR) and a measure of the riskiness of the NPV or IRR for different scenarios.
D) gives the exact outcome that can be expected from a project.
E) calculates NPV for a change in one key variable.
Q2) _____ is the uncertainty associated with the price at which the currency from one country can be converted into the currency of another country.
A) Pure play risk
B) Political risk
C) Beta risk
D) Exchange rate risk
E) Market risk
To view all questions and flashcards with answers, click on the resource link above.
12
Chapter 11: The Cost of Capital
Available Study Resources on Quizplus for this Chatper
57 Verified Questions
57 Flashcards
Source URL: https://quizplus.com/quiz/23280
Sample Questions
Q1) Which of the following statements is true of flotation costs?
A) Flotation costs decrease the cost of preferred stock to the issuing firm.
B) Flotation costs are added to the issue price of preferred stock to compute the cost of preferred stock.
C) Floatation costs are added to the cost of debt to compute the weighted average cost of capital of a firm.
D) Floatation costs result in higher funds available from the issue of preferred stock to the firm.
E) Floatation costs increase the rate the issuing firm must earn to pay the preferred dividend.
Q2) As per the Bond-Yield-Plus-Risk-Premium Approach, analysts estimate the cost of common equity by adding a risk premium of 3 to 5 percentage points to:
A) the cost of preferred stock of the firm.
B) the risk free rate of the common equity of the firm.
C) the interest rate on the long term debt of the firm.
D) the return on the firm's investment in municipal bonds.
E) the growth rate of the firm.
To view all questions and flashcards with answers, click on the resource link above.
Page 13
Chapter 12: Capital Structure
Available Study Resources on Quizplus for this Chatper
83 Verified Questions
83 Flashcards
Source URL: https://quizplus.com/quiz/23281
Sample Questions
Q1) According to Modigliani and Miller (MM)'s basic theory of capital structure, which of the following is considered when determining the value of a firm?
A) Tax deductible interests
B) Personal income taxes
C) Brokerage costs
D) Bankruptcy costs
E) Retained earnings
Q2) _____ is the single most important determinant of the capital structure of a firm.
A) Financial leverage
B) Financial risk
C) Operating income
D) Business risk
E) Sales revenue
Q3) A times-interest-earned (TIE) ratio of less than 1 indicates _____.
A) a less debt in the capital structure of the firm
B) a low probability that the firm will default
C) the firm's inability to meet its annual interest obligations
D) that the firm is financed only by equity
E) that the debt/assets ratio of the firm is very low
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Distribution of Retained Earnings: Dividends and Stock Repurchases
Available Study Resources on Quizplus for this Chatper
32 Verified Questions
32 Flashcards
Source URL: https://quizplus.com/quiz/23282
Sample Questions
Q1) Which of the following is true about the dividend relevance theory?
A) If investors prefer capital gain on their investment, then the tax effect of dividend receipts does not have any effect on the price of stocks.
B) If investors prefer current income on their investment, then the tax effect of dividend receipts does not have any effect on the price of stocks.
C) If investors prefer current income on their investment, the required return on equity should decrease as the dividend payout is increased.
D) If investors prefer capital gain on their investment, free cash flows to equity should decrease.
E) If investors prefer both capital gain and current income, the net income of the firm should decrease.
Q2) The information content hypothesis proposes that a firm's dividend policy can provide information about management's behavior with respect to wealth maximization.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Managing Short-Term Financing Liabilities
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/23283
Sample Questions
Q1) Which of the following is the correct expression for the payables deferral period?
A) Payables turnover / 360
B) Payables turnover × 360
C) Daily credit purchases / Accounts payable
D) Accounts payable / Daily credit purchases
E) Cost of goods sold / Payables
Q2) Mars Inc. recently borrowed $220,000 from its bank at a simple interest rate of 11 percent. The loan is for nine months and, according to the loan agreement, the interest should be added to the amount borrowed and the total amount to be repaid in monthly installments. The loan's annual percentage rate (APR) is:
A) 32.51%.
B) 28.50%.
C) 22.00%.
D) 33.05%.
E) 25.00%.
Q3) European firms follow much more conservative working capital policies than U.S. firms.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Managing Short-Term Assets
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/23284
Sample Questions
Q1) Total cash receipts for Zinc Corporation in a month is $15,000 and total cash disbursements in a month is $10,000. Which of the following is true about Zinc's cash position if it aims to maintain minimum cash balance of $8,000?
A) Zinc has surplus cash of $8,000.
B) Zinc has a cash shortfall of $3,000.
C) Zinc has surplus cash of $6,000.
D) Zinc has a cash shortfall of $23,000.
E) Zinc has surplus cash of $20,000.
Q2) A just-in-time system of inventory control requires that manufacturers coordinate production with suppliers so that the raw materials or components arrive just as they are needed in the production process.
A)True
B)False
Q3) Companies provide cash discounts to customers for early payments to speed up the collection period.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Financial Planning and Control
Available Study Resources on Quizplus for this Chatper
70 Verified Questions
70 Flashcards
Source URL: https://quizplus.com/quiz/23285
Sample Questions
Q1) Marcus Corporation currently sells 150,000 units a year at a price of $4.00 a unit. Its variable costs are approximately 30% of sales, and its fixed operating costs amount to 50% of revenues at its current output level. Although fixed costs are based on revenues at the current output level, the cost level is fixed. Which of the following is Marcus's degree of operating leverage (DOL) at sales equal to 150,000 units?
A) 1.0×
B) 2.2×
C) 3.5×
D) 4.0×
E) 5.0×
Q2) Excess capacity means more external financing is required to support increases in operations than would be needed if a firm previously operated at full capacity. A)True B)False
Q3) A firm should scale back the projected level of operations if the funds required to meet the sales forecast are easily available. A)True B)False
To view all questions and flashcards with answers, click on the resource link above.
18