Financial Decision Making Exam
Preparation Guide
Financial Decision Making is a comprehensive course that explores the processes and tools used by organizations and individuals to make informed financial choices. Covering topics such as budgeting, investment analysis, capital budgeting, risk assessment, and financial planning, the course emphasizes the application of quantitative and qualitative methods to real-world financial scenarios. Students will learn how to interpret financial statements, evaluate funding options, and assess the impact of financial decisions on business performance and value creation. Through case studies and practical exercises, participants will develop critical thinking skills and gain the confidence to make effective financial decisions that align with organizational goals and personal objectives.
Recommended Textbook
Essentials of Corporate Finance 9th Edition by Stephen Ross
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18 Chapters
1640 Verified Questions
1640 Flashcards
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Page 2
Chapter 1: Introduction to Financial Management
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58 Verified Questions
58 Flashcards
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Sample Questions
Q1) The daily financial operations of a firm are primarily controlled by managing the:
A)total debt level.
B)working capital.
C)capital structure.
D)capital budget.
E)long-term liabilities.
Answer: B
Q2) The primary goal of financial management is to maximize:
A)current profits.
B)market share.
C)current dividends.
D)the market value of existing stock.
E)revenue growth.
Answer: D
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Page 3
Chapter 2: Financial Statements,Taxes,and Cash Flow
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Andersen's Nursery has sales of $318,400,costs of $199,400,depreciation expense of $28,600,interest expense of $1,100,and a tax rate of 35 percent.The firm paid out $23,400 in dividends.What is the addition to retained earnings?
A)$36,909
B)$34,645
C)$44,141
D)$37,208
E)$40,615
Answer: B
Q2) An increase in which one of the following will increase operating cash flow for a profitable,tax-paying firm?
A)Fixed expenses
B)Marginal tax rate
C)Net capital spending
D)Inventory
E)Depreciation
Answer: E
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Chapter 3: Working With Financial Statements
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) High Road Transport has a current stock price of $5.60.For the past year,the company had net income of $287,400,total equity of $992,300,sales of $1,511,000,and 750,000 shares outstanding.What is the market-to-book ratio?
A)3.54
B)3.81
C)3.99
D)4.47
E)4.23
Answer: E
Q2) Which one of the following will increase the profit margin of a firm,all else held constant?
A)Increase in interest paid
B)Increase in fixed costs
C)Increase in depreciation expense
D)Decrease in the tax rate
E)Decrease in sales
Answer: D
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Chapter 4: Introduction to Valuation: The Time Value of Money
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63 Verified Questions
63 Flashcards
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Sample Questions
Q1) Starlite Industries will need $2.2 million 4.5 years from now to replace some equipment.Currently,the firm has some extra cash and would like to establish a savings account for this purpose.The account pays 3.6 percent interest,compounded annually.How much money must the company deposit today to fully fund the equipment purchase?
A)$1,679,947.20
B)$1,798,407.21
C)$1,350,868.47
D)$1,876,306.49
E)$1,412,308.18
Q2) Which one of the following is a correct statement,all else held constant?
A)The present value is inversely related to the future value.
B)The future value is inversely related to the period of time.
C)The period of time is directly related to the interest rate.
D)The present value is directly related to the interest rate.
E)The future value is directly related to the interest rate.
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Chapter 5: Discounted Cash Flow Valuation
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) Assume you can save $8,500 at the end of Year 2,$9,300 at the end of Year 3,and $7,100 at the end of Year 6.If today is Year 0,what is the future value of your savings 10 years from now if the rate of return is 7.8 percent annually?
A)$35,211.57
B)$37,235.16
C)$40,822.55
D)$42,321.68
E)$44,564.54
Q2) Round House Furniture offers credit to its customers at a rate of 1.15 percent per month.What is the effective annual rate of this credit offer?
A)14.13 percent
B)13.80 percent
C)14.41 percent
D)15.04 percent
E)14.71 percent
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Chapter 6: Interest Rates and Bond Valuation
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Travis recently purchased a callable bond.However,that bond cannot be currently redeemed by the issuer.Thus,the bond must currently be:
A)subject to a sinking fund provision.
B)a debenture.
C)a "fallen angel."
D)call protected.
E)unrated.
Q2) A $1,000 face value bond currently has a yield to maturity of 8.22 percent.The bond matures in five years and pays interest semiannually.The coupon rate is7.5 percent.What is the current price of this bond?
A)$948.01
B)$989.60
C)$1,005.26
D)$970.96
E)$1,010.13
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Chapter 7: Equity Markets and Stock Valuation
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91 Verified Questions
91 Flashcards
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Sample Questions
Q1) Newly issued securities are sold to investors in which one of the following markets?
A) Proxy
B) Stated value
C) Inside
D) Secondary
E) Primary
Q2) Jensen Shipping has four open seats on its board of directors. How many shares will a shareholder need to control to ensure that his or her candidate is elected to the board given the fact that the firm uses straight voting? Assume each share receives one vote.
A) Twenty percent of the shares plus one share
B) Twenty-five percent of the shares plus one share
C) One-third of the shares plus one share
D) Fifty percent of the shares plus one share
E) Fifty-one percent of the shares plus one share
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9
Chapter 8: Net Present Value and Other Investment Criteria
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) The average net income of a project divided by the project's average book value is referred to as the project's:
A)required return.
B)market rate of return.
C)internal rate of return.
D)average accounting return.
E)discounted rate of return.
Q2) The possibility that more than one discount rate can cause the net present value of an investment to equal zero is referred to as:
A)duplication.
B)the net present value profile.
C)multiple rates of return.
D)the AAR problem.
E)the dual dilemma.
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10
Chapter 9: Making Capital Investment Decisions
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105 Flashcards
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Sample Questions
Q1) A cost-cutting project will decrease costs by $37,400 a year.The annual depreciation on the project's fixed assets will be $4,700 and the tax rate is 34 percent.What is the amount of the change in the firm's operating cash flow resulting from this project?
A)$21,582
B)$26,791
C)$25,805
D)$23,610
E)$26,282
Q2) Which one of the following will increase the operating cash flow as computed using the tax shield approach?
A)Decrease in depreciation
B)Decrease in sales
C)Increase in variable costs
D)Decrease in fixed costs
E)Increase in the tax rate
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11
Chapter 10: Some Lessons From Capital Market History
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86 Flashcards
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Sample Questions
Q1) Five years ago,you purchased 800 shares of stock.The annual returns have been 6.4 percent,-28.7 percent,2.1 percent,14.4 percent,and 32.6 percent,respectively.What is the variance of these returns?
A)049888
B)030021
C)030068
D)050133
E)050284
Q2) Over the period of 1926-2014:
A)the risk premium on large-company stocks was greater than the risk premium on small- company stocks.
B)U.S.Treasury bills had a risk premium that was just slightly over 2 percent.
C) the risk premium on long-term government bonds was zero percent.
D)the risk premium on stocks exceeded the risk premium on bonds.
E)U.S.Treasury bills had a negative risk premium.
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12
Chapter 11: Risk and Return
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39 Verified Questions
39 Flashcards
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Sample Questions
Q1) Portfolio diversification eliminates:
A)all investment risk.
B)the portfolio risk premium.
C)market risk.
D)unsystematic risk.
E)the reward for bearing risk.
Q2) The addition of a risky security to a fully diversified portfolio:
A)must decrease the portfolio's expected return.
B)must increase the portfolio beta.
C)may or may not affect the portfolio beta.
D)will increase the unsystematic risk of the portfolio.
E)will have no effect on the portfolio beta or its expected return.
Q3) Which one of these represents systematic risk?
A)Major layoff by a regional manufacturer of power boats
B)Increase in consumption created by a reduction in personal tax rates
C)Surprise firing of a firm's chief financial officer
D)Closure of a major retail chain of stores
E)Product recall by one manufacturer
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13
Chapter 12: Cost of Capital
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) Rockingham Motors issued a 30-year,8 percent semiannual bond 3 years ago.The bond currently sells for 103.1 percent of its face value.The company's tax rate is 34 percent.What is the aftertax cost of debt?
A)2.72 percent
B)5.10 percent
C)5.69 percent
D)5.72 percent
E)5.99 percent
Q2) The Color Box uses a combination of common stock,preferred stock,and debt financing.The company wants preferred stock to represent 7 percent of the total financing.It also wants to structure the firm in a manner that will produce a weighted average cost of capital of 9.5 percent.The aftertax cost of debt is 4.8 percent,the cost of preferred is 8.9 percent,and the cost of common stock is 14.7 percent.What percentage of the firm's capital funding should be debt financing?
A)48.42 percent
B)52.03 percent
C)54.15 percent
D)44.78 percent
E)39.21 percent
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Page 14
Chapter 13: Leverage and Capital Structure
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89 Flashcards
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Sample Questions
Q1) Which one of the following statements concerning financial leverage is correct?
A)The benefits of leverage are unaffected by the amount of a firm's earnings.
B)The use of leverage will always increase a firm's earnings per share.
C)The shareholders of a firm are exposed to less risk anytime a firm uses financial leverage.
D)Changes in the capital structure of a firm will generally change the firm's earnings per share.
E)Financial leverage is beneficial to a firm only when the firm has negative earnings
Q2) The Park Place has a return on assets of 12.9 percent,a cost of equity of 16.2 percent,and a pretax cost of debt of 7.7 percent.What is the debt-equity ratio? Ignore taxes.
A).44
B).47
C).67
D).91
E).63
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15
Chapter 14: Dividends and Dividend Policy
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87 Flashcards
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Sample Questions
Q1) Cookies and Cream has 5,000 shares of stock outstanding at a market price of $8.29 per share.What will be the price per share after a stock dividend of 8 percent? Ignore taxes and market imperfections.
A)$7.24
B)$7.68
C)$7.45
D)$7.96
E)$8.03
Q2) Lexington Stables just declared a 15 percent stock dividend.Which one of the following increased by 15 percent as a result of this dividend?
A)Book value of firm's equity
B)Shareholders' wealth
C)Number of shares outstanding
D)Firm's cash balance
E)Stock price
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16
Chapter 15: Raising Capital
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69 Flashcards
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Sample Questions
Q1) Which one of the following specifies the length of time that must pass after an initial public offering (IPO)before insiders are permitted to sell their shares?
A)Lockup period
B)Quiet period
C)Comment period
D)Green Shoe period
E)Rights offer period
Q2) Global Traders is offering 130,000 shares of stock to the public in a general cash offer.The offer price is $38 a share and the underwriter's spread is 8 percent.The administrative costs are estimated at $865,000.How much will Global Traders receive from this stock offering as net proceeds assuming the issue is completely sold?
A)$3,370,800
B)$3,679,800
C)$4,490,000
D)$4,075,000
E)$3,828,400
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Chapter 16: Short-Term Financial Planning
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) The Brown Squirrel has estimated sales for January through May of $14,700,$16,900,$23,500,$36,700,and $42,300,respectively.Assume there are 30 days in each month and the accounts receivable period is 45 days.How much should the firm expect to collect in May?
A)$36,700
B)$20,200
C)$30,100
D)$28,450
E)$39,500
Q2) All else held constant,which of these statements is correct concerning the accounts payable period?
A)The accounts payable period is equal to 360/(Sales/Average accounts payable).
B)A decrease in the accounts payable period will increase the operating cycle.
C)An increase in the accounts payable period will decrease the cash cycle.
D)A decrease in the accounts payable period will decrease the operating cycle.
E)An increase in the accounts payable turnover rate decreases the cash cycle.
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18
Chapter 17: Working Capital Management
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105 Flashcards
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Sample Questions
Q1) During a normal month,Flo's Flowers receives a total of nine checks with a total value of $168,000.On average,it takes 1 day from the date of deposit for the funds from these checks to be available to the firm.Assume each month has 30 days.What is the average daily float?
A)$5,600
B)$73,000
C)$50,400
D)$100,800
E)$28,600
Q2) Float is defined as the difference between the:
A)beginning and ending cash balances as shown on a cash budget.
B)ledger balance and the available balance.
C)book balance and the ledger balance.
D)collections and disbursements for any given period of time.
E)available balance and the collected balance.
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19
Chapter 18: International Aspects of Financial Management
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85 Flashcards
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Sample Questions
Q1) You are given the exchange rate between the U.S.dollar and the Canadian dollar.You are also given the exchange rate between the U.S.dollar and the Mexican peso.What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided?
A)Swap rate
B)Depositary rate
C)Forward rate
D)London Interbank rate
E)Cross-rate
Q2) Which one of the following is an example of the political risks associated with foreign operations?
A)Technological changes
B)Exchange rate fluctuations
C)Translation exposure to exchange rate risk
D)Changes in foreign tax laws
E)Changes in relative wage rates between the home country and the foreign country
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