Financial Management
Chapter Exam Questions
Course Introduction
Financial Management is a comprehensive course that explores the principles and practices essential for effective management of a firm's financial resources. The course covers key topics such as financial statement analysis, valuation of securities, capital budgeting, risk and return, cost of capital, and working capital management. Through a combination of theoretical frameworks and practical case studies, students will develop the skills necessary to make informed financial decisions, maximize shareholder value, and understand the strategic role of finance in organizational growth and stability. This course is foundational for students pursuing careers in corporate finance, investment banking, financial consulting, and other related fields.
Recommended Textbook
Corporate Finance A Focused Approach 5th Edition by Michael C. Ehrhardt
Available Study Resources on Quizplus
17 Chapters
1391 Verified Questions
1391 Flashcards
Source URL: https://quizplus.com/study-set/446 Page 2
Chapter 1: An overview of financial management and the financial environment
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/7913
Sample Questions
Q1) Which of the following statements is CORRECT?
A) One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners.
B) There is no good reason to expect a firm's bondholders and stockholders to react differently to the types of new asset investments a firm makes.
C) Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns.
D) Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns.
E) Relative to sole proprietorships, corporations generally face fewer regulations, which makes raising capital easier for corporations.
Answer: D
To view all questions and flashcards with answers, click on the resource link above.
3
Chapter 2: Financial statements, cash flow, and taxes
Available Study Resources on Quizplus for this Chatper
77 Verified Questions
77 Flashcards
Source URL: https://quizplus.com/quiz/7914
Sample Questions
Q1) Which of the following statements is CORRECT?
A) In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash.
B) Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.
C) In the statement of cash flows, a decrease in accounts payable is reported as a use of cash.
D) In the statement of cash flows, depreciation charges are reported as a use of cash.
E) In the statement of cash flows, a decrease in inventories is reported as a use of cash.
Answer: C
Q2) If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense, this would probably encourage companies to use more debt financing than they presently do, other things held constant.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Analysis of financial statements
Available Study Resources on Quizplus for this Chatper
104 Verified Questions
104 Flashcards
Source URL: https://quizplus.com/quiz/7915
Sample Questions
Q1) Branch Corp.'s total assets at the end of last year were $315, 000 and its net income after taxes was $22, 750.What was its return on total assets?
A) 7.22%
B) 7.58%
C) 7.96%
D) 8.36%
E) 8.78%
Answer: A
Q2) The basic earning power ratio (BEP)reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects.
A)True
B)False
Answer: False
Q3) Market value ratios provide management with an indication of how investors view the firm's past performance and especially its future prospects.
A)True
B)False
Answer: True
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
168 Verified Questions
168 Flashcards
Source URL: https://quizplus.com/quiz/7916
Sample Questions
Q1) You expect to receive $5, 000 in 25 years.How much is it worth today if the discount rate is 5.5%?
A) $1, 067.95
B) $1, 124.16
C) $1, 183.33
D) $1, 245.61
E) $1, 311.17
Q2) Suppose you borrowed $12, 000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the next 4 years.How large would your payments be?
A) $3, 704.02
B) $3, 889.23
C) $4, 083.69
D) $4, 287.87
E) $4, 502.26
Q3) If we are given a periodic interest rate, say a monthly rate, we can find the nominal annual rate by multiplying the periodic rate by the number of periods per year.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Bonds, bond valuation, and interest rates
Available Study Resources on Quizplus for this Chatper
100 Verified Questions
100 Flashcards
Source URL: https://quizplus.com/quiz/7917
Sample Questions
Q1) You have funds that you want to invest in bonds, and you just noticed in the financial pages of the local newspaper that you can buy a $1, 000 par value bond for $800.The coupon rate is 10% (with annual payments), and there are 10 years before the bond will mature and pay off its $1, 000 par value.You should buy the bond if your required return on bonds with this risk is 12%.
A)True
B)False
Q2) An 8-year Treasury bond has a 10% coupon, and a 10-year Treasury bond has an 8% coupon.Both bonds have the same yield to maturity.If the yield to maturity of both bonds increases by the same amount, which of the following statements would be CORRECT?
A) Both bonds would decline in price, but the 10-year bond would have the greater percentage decline in price.
B) The prices of both bonds would increase by the same amount.
C) One bond's price would increase, while the other bond's price would decrease.
D) The prices of the two bonds would remain constant.
E) The prices of both bonds will decrease by the same amount.
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Risk and return
Available Study Resources on Quizplus for this Chatper
146 Verified Questions
146 Flashcards
Source URL: https://quizplus.com/quiz/7918
Sample Questions
Q1) Which of the following statements is CORRECT?
A) If you found a stock with a zero historical beta and held it as the only stock in your portfolio, you would by definition have a riskless portfolio.
B) The beta coefficient of a stock is normally found by regressing past returns on a stock against past market returns.One could also construct a scatter diagram of returns on the stock versus those on the market, estimate the slope of the line of best fit, and use it as beta.However, this historical beta may differ from the beta that exists in the future.
C) The beta of a portfolio of stocks is always larger than the betas of any of the individual stocks.
D) It is theoretically possible for a stock to have a beta of 1.0.If a stock did have a beta of 1.0, then, at least in theory, its required rate of return would be equal to the risk-free (default-free)rate of return, rRF.
E) The beta of a portfolio of stocks is always smaller than the betas of any of the individual stocks.
Q2) The slope of the SML is determined by the value of beta.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Valuation of stocks and corporations
Available Study Resources on Quizplus for this Chatper
80 Verified Questions
80 Flashcards
Source URL: https://quizplus.com/quiz/7919
Sample Questions
Q1) Classified stock differentiates various classes of common stock, and using it is one way companies can meet special needs such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control.
A)True
B)False
Q2) Burke Tires just paid a dividend of D? = $1.32.Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter.The required return on this low-risk stock is 9.00%.What is the best estimate of the stock's current market value?
A) $41.59
B) $42.65
C) $43.75
D) $44.87
E) $45.99
Q3) According to the basic DCF stock valuation model, the value an investor should assign to a share of stock is dependent on the length of time he or she plans to hold the stock.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 9
Chapter 8: Financial options and applications in corporate finance
Available Study Resources on Quizplus for this Chatper
28 Verified Questions
28 Flashcards
Source URL: https://quizplus.com/quiz/7920
Sample Questions
Q1) The exercise value is the positive difference between the current price of the stock and the strike price.The exercise value is zero if the stock's price is below the strike price.
A)True
B)False
Q2) An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options?
A) Put
B) Naked
C) Covered
D) Out-of-the-money
E) In-the-money
Q3) The strike price is the price that must be paid for a share of common stock when it is bought by exercising a warrant.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: The cost of capital
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/7921
Sample Questions
Q1) If a firm is privately owned, and its stock is not traded in public markets, then we cannot measure its beta for use in the CAPM model, we cannot observe its stock price for use in the DCF model, and we don't know what the risk premium is for use in the bond-yield-plus-risk-premium method.All this makes it especially difficult to estimate the cost of equity for a private company.
A)True
B)False
Q2) Since 70% of the preferred dividends received by a corporation are excluded from taxable income, the component cost of equity for a company that pays half of its earnings out as common dividends and half as preferred dividends should, theoretically, be
Cost of equity = rs(0.30)(0.50)+ rps(1 - T)(0.70)(0.50).
A)True
B)False
Q3) The component costs of capital are market-determined variables in the sense that they are based on investors' required returns.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: The basics of capital budgeting: evaluating cash flows
Available Study Resources on Quizplus for this Chatper
108 Verified Questions
108 Flashcards
Source URL: https://quizplus.com/quiz/7922
Sample Questions
Q1) A project's IRR is independent of the firm's cost of capital.In other words, a project's IRR doesn't change with a change in the firm's cost of capital.
A)True
B)False
Q2) Which of the following statements is CORRECT?
A) If Project A's IRR exceeds Project B's, then A must have the higher NPV.
B) A project's MIRR can never exceed its IRR.
C) If a project with normal cash flows has an IRR less than the WACC, the project must have a positive NPV.
D) If the NPV is negative, the IRR must also be negative.
E) If a project with normal cash flows has an IRR greater than the WACC, the project must also have a positive NPV.
Q3) Conflicts between two mutually exclusive projects occasionally occur, where the NPV method ranks one project higher but the IRR method ranks the other one first.In theory, such conflicts should be resolved in favor of the project with the higher positive NPV.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: Cash flow estimation and risk analysis
Available Study Resources on Quizplus for this Chatper
78 Verified Questions
78 Flashcards
Source URL: https://quizplus.com/quiz/7923
Sample Questions
Q1) Any cash flows that can be classified as incremental to a particular project¾i.e., results directly from the decision to undertake the project¾should be reflected in the capital budgeting analysis.
A)True
B)False
Q2) Which of the following factors should be included in the cash flows used to estimate a project's NPV?
A) Interest on funds borrowed to help finance the project.
B) The end-of-project recovery of any working capital required to operate the project.
C) Cannibalization effects, but only if those effects increase the project's projected cash flows.
D) Expenditures to date on research and development related to the project, provided those costs have already been expensed for tax purposes.
E) All costs associated with the project that have been incurred prior to the time the analysis is being conducted.
To view all questions and flashcards with answers, click on the resource link above.
13
Chapter 12: Corporate valuation and financial planning
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/7924
Sample Questions
Q1) A firm's AFN must come from external sources.Typical sources include short-term bank loans, long-term bonds, preferred stock, and common stock.
A)True
B)False
Q2) Which of the following statements is CORRECT?
A) The first, and perhaps the most critical, step in forecasting financial requirements is to forecast future sales.
B) Forecasted financial statements, as discussed in the text, are used primarily as a part of the managerial compensation program, where management's historical performance is evaluated.
C) The capital intensity ratio gives us an idea of the physical condition of the firm's fixed assets.
D) The AFN equation produces more accurate forecasts than the forecasted financial statement method, especially if fixed assets are lumpy, economies of scale exist, or if excess capacity exists.
E) Perhaps the most important step when developing forecasted financial statements is to determine the breakdown of common equity between common stock and retained earnings.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Agency conflicts and corporate governance
Available Study Resources on Quizplus for this Chatper
6 Verified Questions
6 Flashcards
Source URL: https://quizplus.com/quiz/7925
Sample Questions
Q1) ESOPs were originally designed to help improve worker productivity, but today they are also used to help prevent hostile takeovers.
A)True
B)False
Q2) The CEO of D'Amico Motors has been granted some stock options that have provisions similar to most other executive stock options.If D'Amico's stock underperforms the market, these options will necessarily be worthless.
A)True
B)False
Q3) Two important issues in corporate governance are (1)the rules that cover the board's ability to fire the CEO and (2)the rules that cover the CEO's ability to remove members of the board.
A)True
B)False
Q4) A poison pill is also known as a corporate restructuring.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Distributions to shareholders: dividends and repurchases
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/7926
Sample Questions
Q1) A reverse split reduces the number of shares outstanding.
A)True
B)False
Q2) Even if a stock split has no information content, and even if the dividend per share adjusted for the split is not increased, there can still be a real benefit (i.e., a higher value for shareholders)from such a split, but any such benefit is probably small.
A)True
B)False
Q3) The optimal distribution policy strikes that balance between current dividends and capital gains that maximizes the firm's stock price.
A)True
B)False
Q4) If the information content, or signaling, hypothesis is correct, then changes in dividend policy can have an important effect on the firm's value and capital costs.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: Capital structure decisions
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/7927
Sample Questions
Q1) Based on the information below for Benson Corporation, what is the optimal capital structure?
A) Debt = 50%; Equity = 50%; EPS = $3.05; Stock price = $28.90.
B) Debt = 60%; Equity = 40%; EPS = $3.18; Stock price = $31.20.
C) Debt = 80%; Equity = 20%; EPS = $3.42; Stock price = $30.40.
D) Debt = 70%; Equity = 30%; EPS = $3.31; Stock price = $30.00.
E) Debt = 40%; Equity = 60%; EPS = $2.95; Stock price = $26.50.
Q2) It is possible that two firms could have identical financial and operating leverage, yet have different degrees of risk as measured by the variability of EPS.
A)True
B)False
Q3) A firm's capital structure does not affect its calculated free cash flows, because FCF reflects only operating cash flows.
A)True
B)False
Q4) Whenever a firm borrows money, it is using financial leverage.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Supply chains and working capital management
Available Study Resources on Quizplus for this Chatper
138 Verified Questions
138 Flashcards
Source URL: https://quizplus.com/quiz/7928
Sample Questions
Q1) Other things held constant, if a firm "stretches" (i.e., delays paying)its accounts payable, this will lengthen its cash conversion cycle (CCC).
A)True
B)False
Q2) Firms hold cash balances in order to complete transactions (both routine and precautionary)that are necessary in business operations and as compensation to banks for providing loans and services.
A)True
B)False
Q3) The company you just started has been offered credit terms of 4/30, net 90 days.What will be the nominal annual percentage cost of its non-free trade credit if it pays 120 days after the purchase? (Assume a 365-day year.)
A) 16.05%
B) 16.90%
C) 17.74%
D) 18.63%
E) 19.56%
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 17: Multinational financial management
Available Study Resources on Quizplus for this Chatper
49 Verified Questions
49 Flashcards
Source URL: https://quizplus.com/quiz/7929
Sample Questions
Q1) In 1985, a given Japanese imported automobile sold for 1, 476, 000 yen, or $8, 200.If the car still sold for the same amount of yen today but the current exchange rate is 144 yen per dollar, what would the car be selling for today in U.S.dollars?
A) $5.964
B) $8, 200
C) $10, 250
D) $12, 628
E) $13, 525
Q2) If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market, then the forward currency is said to be selling at a discount to the spot rate.
A)True
B)False
Q3) LIBOR is an acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to smaller U.S.corporations.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
19