Financial Decision Making Test
Preparation
Course Introduction
Financial Decision Making explores the fundamental principles and analytical tools used to make informed financial choices in both personal and organizational contexts. The course covers topics such as budgeting, forecasting, risk assessment, cost-benefit analysis, and capital investment evaluation. Students will learn how to interpret financial statements, assess the implications of different financing options, and apply quantitative methods to solve real-world business problems. Emphasis is placed on ethical considerations, strategic planning, and the impact of financial decisions on long-term organizational health and value creation. Through case studies and practical exercises, students will develop the skills needed to analyze complex financial scenarios and make sound, evidence-based decisions.
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
Source URL: https://quizplus.com/quiz/64761
Sample Questions
Q1) Short-term United States Treasury Bills are widely used as proxies for risk-free assets,yet the returns on these T-bills are consistently greater than zero.Is this consistent with the concept of a risk-return tradeoff?
Answer: Yes.Investors also require a return for delaying consumption as well as a return for taking on risk.
Q2) Determining how a firm should raise money to fund its long-term investments is referred to as capital structure decisions.
A)True
B)False
Answer: True
Q3) Shareholder selection committees select potential board of director nominees ensuring that board members will monitor management sufficiently to protect shareholder interests.
A)True
B)False
Answer: False
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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) When a company repurchases its own common stock,it is likely that
A) the stock price will increase because the company views the stock as undervalued.
B) the stock price will decrease because the company is creating artificial demand for its stock.
C) the stock price will remain the same as this is simply an internal transaction.
D) the board of directors will be fired for incompetence.
Answer: A
Q2) A corporation sells securities to an investment banking firm on January 1<sup>st</sup>.The next day an international oil crisis causes stock prices to drop dramatically.The corporation is immune from the drop in price of its stock due to which function of the investment banking firm?
A) hedging
B) distributing
C) reinsurance
D) underwriting
Answer: D
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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) The profit and loss (income)statement is compiled on a cash basis.
A)True
B)False Answer: False
Q2) Company A and Company B both report the same level of sales and net income.Therefore,
A) both A and B will report the same Earnings Per Share.
B) both A and B will report the same Gross Profit Margin.
C) both A and B will report the same Net Profit Margin.
D) both A and C are true.
Answer: C
Q3) According to accrual accounting,revenues are recognized when earned and expenses are recognized when incurred.
A)True
B)False
Answer: True
Q4) A company with negative net income will also have negative operating cash flow. A)True
B)False Answer: False
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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) Based on the information contained in Tables 4-5,what was Yen's operating profit margin for 2010?
A) 26.50%
B) 21.34%
C) 14.29%
D) 11.67%
Q2) If company A has a lower average collection period than company B,then company A will have a higher accounts receivable turnover.
A)True
B)False
Q3) Common-sized balance sheets
A) show data for companies in the same industry.
B) show data for companies with approximately the same amount of assets.
C) show each balance sheet account as a percentage of total sales.
D) show each balance sheet account as a percentage of total assets.
Q4) Common stockholders may use financial ratios to monitor manager actions to help lessen agency problems.
A)True
B)False
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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) If the interest rate is positive,then the future value of an annuity due will be greater than the future value of an ordinary annuity.
A)True
B)False
Q2) How much money must be put into a bank account yielding 3.5% (compounded annually)in order to have $1,250 at the end of 10 years (round to nearest $1)?
A) $921
B) $886
C) $843
D) $798
Q3) If you wish to accumulate $200,000 in the child's college fund after 18 years,and can invest at a 7.5% annual rate,how much must you invest at the end of each year if the first deposit is made at the end of the first year?
Q4) A timeline identifies the timing and amount of a stream of cash flows,along with the interest rate it earns.
A)True B)False
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Chapter 6: The Meaning and Measurement of Risk and Return
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147 Verified Questions
147 Flashcards
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Sample Questions
Q1) An investor currently holds the following portfolio: Amount Invested
8,000 shares of Stock A $16,000 Beta = 1.3
15,000 shares of Stock B $48,000 Beta = 1.8
25,000 shares of Stock C $96,000 Beta = 2.2
The investor is worried that the beta of his portfolio is too high,so he wants to sell some stock C and add stock D,which has a beta of 1.0,to his portfolio.If the investor wants his portfolio to have a beta of 1.72,how much stock C must he replace with stock D?
A) $18,000
B) $24,000
C) $31,000
D) $36,000
Q2) The market rewards the patient investor,for between 1926 and 2008,there has never been a time when an investor lost money if she held an all-stock portfolio for ten years.
A)True
B)False
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Page 8
Chapter 7: The Valuation and Characteristics of Bonds
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) If you are willing to pay $1,077 for a 15-year $1,000 par value bond that pays 9 percent interest semi-annually,what is your expected rate of return?
Q2) What is the value of a bond that matures in 17 years,makes an annual coupon payment of $50,and has a par value of $1,000? Assume a required rate of return of 6%.
A) $822.90
B) $856.29
C) $895.23
D) $904.87
Q3) A bond is a long-term promissory note issued by the firm.
A)True
B)False
Q4) The sum of the present values of an investment's expected future cash flows is known as the investment's intrinsic value.
A)True
B)False
Q5) Bonds generally have a maturity date while preferred stocks do not.
A)True
B)False
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Chapter 8: The Valuation and Characteristics of Stock
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) In theory,shareholders select the board of directors,but in reality,management effectively selects the directors.
A)True
B)False
Q2) J&S Corporation has preferred stock which paid an annual dividend in 2009 of $5 per share.J&S also has common stock which paid a dividend in 2009 of $5.Which of the following statements is most correct concerning J&S stock?
A) The price of the preferred stock should equal the price of the common stock since the dividends are the same.
B) The price of the common stock could be higher than the price of the preferred stock if the common stock dividends are expected to grow in the future.
C) The price of the preferred stock is expected to be higher than the price of the common stock because the required return on preferred stock is higher than the required return on common stock.
D) If the required return on the preferred stock is the same as the required return on the common stock, then the price of preferred stock should equal the price of the common stock if markets are efficient.
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Page 10
Chapter 9: The Cost of Capital
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135 Verified Questions
135 Flashcards
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Sample Questions
Q1) The market value weights are preferred when calculating a firm's weighted average cost of capital.
A)True
B)False
Q2) Investors require higher rates of return to compensate for purchasing power losses resulting from inflation.
A)True
B)False
Q3) The cost of a particular source of capital (debt,preferred stock,common stock)is equal to the investor's required rate of return after adjusting for the effects of both flotation costs and corporate taxes.
A)True
B)False
Q4) Preferred dividends are paid with before-tax dollars because the dividend rate is known,whereas common stock dividends are paid with after-tax dollars.
A)True
B)False
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11
Chapter 10: Capital-Budgeting Techniques and Practice
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155 Verified Questions
155 Flashcards
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Sample Questions
Q1) Project XYZ requires an initial outlay of $400,000 and has a profitability index of 1.5.The project is expected to generate equal annual cash flows over the next twelve years.The required return for this project is 20%.What is project XYZ's net present value?
A) $600,000
B) $150,000
C) $120,000
D) $80,000
Q2) For the net present value (NPV)criteria,a project is acceptable if NPV is ________,while for the profitability index a project is acceptable if PI is ________.
A) greater than zero; greater than the required return
B) greater than or equal to zero; greater than zero
C) greater than one; greater than or equal to one
D) greater than or equal to zero; greater than or equal to one
Q3) The size disparity problem occurs when mutually exclusive projects of unequal size are being examined.
A)True
B)False
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Page 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 project's annual free cash flow is the change in operating cash flow less any change in net working capital and less any change in capital spending.
A)True
B)False
Q2) One example of a terminal cash flow is the recapture of the net working capital associated with the project.
A)True
B)False
Q3) Free cash flow calculations can be broken down into three parts: cash flows from operations,cash flows associated with working-capital requirements,and financing cash flows relating to interest and dividend payments.
A)True
B)False
Q4) The initial outlay for a new project is an example of an opportunity cost. A)True
B)False
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Page 13
Chapter 12: Determining the Financing Mix
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151 Flashcards
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Sample Questions
Q1) As the volume of production increases the variable cost-per unit of the product decreases.
A)True
B)False
Q2) Higher bankruptcy costs will result in optimal capital structures using more long-term debt financing.
A)True
B)False
Q3) When deciding upon how much debt financing to employ,most practitioners would cite which of the following as the most important influence on the level of the debt ratio?
A) providing a borrowing reserve
B) maintaining desired bond rating
C) ability to adequately meet financing charges
D) exploiting advantages of financial leverage
Q4) The control hypothesis suggests that shareholders prefer an increase in the firm's debt in order to reduce the agency costs associated with excessive free cash flow.
A)True
B)False
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Chapter 13: Dividend Policy and Internal Financing
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164 Verified Questions
164 Flashcards
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Sample Questions
Q1) Corporation A's dividend policy is to maintain a constant payout ratio.This year Corporation A paid out a total of $2 million in dividends.Next year,Corporation A's sales and earnings per share are expected to increase.Dividend payments are expected to A) remain at $2 million.
B) increase above $2 million.
C) decrease below $2 million.
D) increase above $2 million only if the company issues additional shares of common stock.
Q2) Stock repurchases do not alter a company's capital structure since all of the purchased shares are retired and no longer outstanding.
A)True
B)False
Q3) Stock repurchases may be used for all of the following except:
A) a means for providing an internal investment opportunity.
B) to improve earnings per share.
C) to decrease the corporation's debt ratio.
D) to eliminate a minority ownership group of stockholders.
Q4) Describe the three divergent views of dividend policy's effect on share price.
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Page 15
Chapter 14: Short-Term Financial Planning
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) In what way does a cash budget provide management with better information about financing requirements than a pro forma balance sheet?
A) A pro forma cash budget gives greater details about the depreciation of fixed assets.
B) A pro forma cash budget not only delineates the financing that is needed but it also pinpoints in greater detail when the financing is needed.
C) A pro forma cash budget utilizes superior methods in determining a firm's income tax liability for the planned period.
D) A pro forma cash budget does not offer better information to management regarding financing than a pro forma balance sheet.
Q2) If the sales growth rate is greater than zero,then the discretionary financing needed will also be greater than zero.
A)True
B)False
Q3) The key ingredient in a firm's financial planning is an accurate sales forecast.
A)True
B)False
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16
Chapter 15: Working-Capital Management
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165 Verified Questions
165 Flashcards
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Sample Questions
Q1) The Stoney River Pennant Company uses commercial paper to satisfy part of its short-term financing requirements.Next week,it intends to sell $18 million in 90-day maturity paper on which it expects to have to pay discounted interest at an annual rate of 7 percent per annum.In addition,Stoney River expects to incur a cost of approximately $25,000 in dealer placement fees and other expenses of issuing the paper.What is the effective annual cost of credit to Stoney River?
A) 7.7%
B) 7.5%
C) 7.3%
D) 7.1%
Q2) According to the hedging principle,which of the following assets should be financed with permanent sources of financing?
A) seasonal expansions of inventory
B) seasonal increases in accounts receivable
C) levels of inventory and accounts receivable the firm maintains throughout the year
D) none of the above
Q3) Discuss the risk-return tradeoff experienced in working-capital management.
Q4) Define translation exposure,transaction exposure,and economic exposure.
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Page 17
Chapter 16: Current Asset Management
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181 Verified Questions
181 Flashcards
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Sample Questions
Q1) One advantage of zero balance accounts is an increase in disbursing float.
A)True
B)False
Q2) If current interest rates are low,and therefore expected to increase in the future,a firm wanting to reduce its interest rate risk would hold debt with longer maturities.
A)True
B)False
Q3) Current assets in order of liquidity are cash,marketable securities,inventory,and accounts receivable.
A)True
B)False
Q4) The selection of a proper marketable-securities mix involves evaluation of certain criteria.What are these criteria and why are they important?
Q5) U.S.Treasury Bills,bankers' acceptances and commercial paper are all sold on a discount basis.
A)True
B)False
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Page 18
Chapter 17: International Business Finance
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) The value of the Euro floats against other major international currencies,but has a fixed value when compared to the currencies of the countries in the European Union,such as the French Franc and the German Mark.
A)True
B)False
Q2) The efficiency of foreign currency markets is assured,in large measure,by the process of arbitrageurs.
A)True
B)False
Q3) What is arbitrage?
Assume that the dollar is quoted $1 = £0.625 in New York and the pound sterling is quoted as £1 = $1.63 in London.Is there an arbitrage opportunity? If so,what would an astute trader do? What will happen to the quotes as trades are made at current prices?
Q4) The forward-spot differential is the difference between the forward rate and the expected future spot rate.
A)True
B)False
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