Financial Management Exam
Bank
Course Introduction
Financial Management is a foundational course that introduces students to the principles, tools, and techniques used in the effective management of an organizations financial resources. The course covers key topics such as financial planning, budgeting, risk analysis, sources of finance, capital structure, cost of capital, investment decision-making, and dividend policy. Emphasis is placed on understanding how financial decisions impact organizational value, profitability, and long-term stability. Through case studies and practical applications, students learn to analyze financial statements, evaluate investment opportunities, and develop strategies to optimize financial performance in both corporate and personal contexts.
Recommended Textbook
Contemporary Financial Management 13th Edition by R. Charles Moyer
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Chapter 1: The Role and Objective of Financial Management
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Q1) Sole proprietorships, partnerships and corporations are the three main forms of business organization.There are other types which are referred to as hybrids.Examples of hybrid business forms are:
A)10K & 14B Corporations
B)Section 8 and Subchapter S Corporations
C)Subchapter S and LLCs
D)10K Corporations and LLCs
Answer: C
Q2) Maximization of shareholder wealth is not an accounting concept.A corporation's value should be based on
A)liquidation value
B)book value
C)market value
D)stock value
Answer: C
Q3) What is the advantage of an LLC over an LLP business form?
Answer: An LLC (or limited liability company) has three advantages:
1.Has better access to capital to finance growth.
2.It enables broad employee ownership of the firm.
Page 3
3.It enables the firm to engage in strategic acquisitions.
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Chapter 2: The Domestic and International Financial Marketplace
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Q1) If the exchange rate from U.S.dollars to Swiss francs is $0.20/franc, then the exchange rate from francs to dollars is
A)0.20 francs/dollar
B)0.80 francs/dollar
C)5.0 francs/dollar
D)2.0 francs/dollar
Answer: C
Q2) In the market, the firm receives the proceeds from the sale of its securities.
A)over-the-counter
B)secondary
C)fully integrated
D)primary
Answer: D
Q3) An exchange rate quoted as $1.47 per British pound is known as a quote.
A)hedge
B)direct
C)futures
D)indirect
Answer: B
Page 4
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Chapter 3: Evaluation of Financial Performance
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Q1) A common-size income statement shows the firm's income and expense items as a percentage of .
A)stockholders' equity
B)net sales
C)industry averages
D)total assets
Answer: B
Q2) Greg is interested in investing in a small company, and he thinks Good Buy Co.might be a good investment.He has been given the following information and would like to know the return on stockholder's equity.Assume Good Buy's marginal tax rate is 40%.
Earning before taxes $3 million
Net profit margin 3.6%
Total liabilities $15.0 million
Total stockholder's equity $10.0 million
A)12%
B)20%
C)15%
D)18%
Answer: D
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Chapter 4: Financial Planning and Forecasting
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Q1) Pro forma financial statements display the financial situation of a firm based on:
A)an actual event.
B)an assumed event.
C)a catastrophic event that recently happened to the firm.
D)the firm's worst sales year.
Q2) An operational plan is necessary to determine what the firm wants to be at some future point in time.What does an operational plan consist of?
Q3) In considering financial planning, the type of planning that focuses more on the overall direction of the business and the industry is:
A)Deterministic
B)Strategic
C)Operational
D)Probabilistic
Q4) Explain the cash flow generation process:
Q5) Why would a firm experience cash flow difficulties immediately after a good sales period?
Q6) What information does a long-term financial plan offer?
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Chapter 5: The Time Value of Money
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Q1) is the return earned by someone who has forgone current consumption.
A)the present value
B)principle
C)an annuity
D)interest
Q2) Finding the discounted current value of $1,000 to be received at the end of each of the next 5 years requires calculating the
A)future value of an annuity
B)future value of an annuity due
C)present value of an annuity
D)present value of an annuity due
Q3) Finding the compound sum of $1,000 to be received at the beginning of each of the next 5 years requires calculating the
A)future value of an annuity
B)present value of an annuity
C)future value of an annuity due
D)present value of an annuity due
Q4) What is/are the difference(s) between simple interest and compound interest?
Q5) Compare the difference between compound interest and simple interest.
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Chapter 5: A: The Time Value of Money
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Q1) Moneybag Bank & Trust is offering loans at 5% compounded continuously.Before you decide to borrow using that interest rate, what amount would need to be paid back if the loan is for 10 years?
A)$329,744.25
B)$275,187.36
C)$301,150.15
D)$227,198.05
Q2) Paula invested $25 into a savings account when she was 6 years old.She is now 35.Her money grew at 2% compounded continuously.How much money does she have?
A)$106.58
B)$85.19
C)$270.82
D)$44.65
Q3) Determine the value of $10,000 at the end of 3 years invested at 8 percent assuming continuous compounding.
A)$12,712
B)$12,400
C)$32,460
D)$12,600
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Chapter 6: Fixed-Income Securities: Characteristics and Valuation
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Q1) In reading price quotes on U.S.Treasury bills, you would expect to find the "asked" price higher than the "bid".
A)always
B)never
C)sometimes
D)seldom
Q2) The of a debt issue is equal to the difference between the and the .
A)call price;market price;par value
B)call price;market price;call premium
C)call premium;call price;par value
D)call premium;market price;par value
Q3) A General Electric 7½25 bond closed at 98.What is the current yield?
A)7.65%
B)7.81%
C)7.50%
D)7.34%
Q4) How does a firm value an asset?
Q5) What is a "paymentinkind" bond and why is it considered a "weak security"?
Q7) Explain a sinking fund. Page 9
Q6) List the advantages and disadvantages of long-term debt financing:
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Chapter 7: Common Stock: Characteristics, Valuation, and Issuance
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Q1) All of the following are reasons that companies hold treasury stock EXCEPT:
A)to comply with SEC regulations that a certain amount of company shares must be kept by the company.
B)disposition of excess cash
C)financial restructuring
D)future corporate needs
Q2) A firm that wishes to raise additional equity capital by selling a portion of the existing owners' stock while maintaining control of the firm should consider a . A)stock split
B)stock dividend
C)share repurchase
D)separate class of nonvoting stock
Q3) When Facebook launched its IPO, the sale of the stock did not go as planned. In fact, class action lawsuits have been filed. What is the accusation against Facebook?
Q4) What are the disadvantages of owning minority interest in a closely held corporation and how can this be overcome?
Q5) List the various rights of common stockholders.
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Q6) What are the advantages and disadvantages of common stock financing?
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Chapter 8: Analysis of Risk and Return
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Q1) The is a relative measure of variability because it measures the risk per unit of expected return.
A)coefficient of variation
B)correlation coefficient
C)covariance
D)standard deviation
Q2) Quick Start, Inc.is expected to pay a dividend of $1.05 next year and dividends are expected to continue their 7 percent annual growth rate.The SML has been estimated as follows:
K = 0.08 + 0.064
If Quick Start has a beta of 1.1, what would happen to its stock price if inflation expectations went from the current 5 percent to 8 percent?
A)decrease $8.14
B)decrease $3.55
C)decrease $3.18
D)stock price will not change
Q3) How can standard deviation, a statistical measure of dispersion, be used in investment analysis?
Q4) What is an efficient portfolio?
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Chapter 9: Capital Budgeting and Cash Flow Analysis
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Q1) Shunt Technology will spend $800,000 on a piece of equipment that will manufacture fine wire for the electronics industries.The shipping and installation charges will be $240,000 and net working capital will increase $48,000.The equipment will replace an existing machine that has a salvage value of $75,000 and a book value of $125,000.If Shunt has a current marginal tax rate of 34 percent, what is the net investment?
A)$1,030,000
B)$1,163,000
C)$1,033,000
D)$996,000
Q2) What is the net investment required for a pitting machine that will cost $35,000 including installation? The machine replaces a machine that cost $5,000 when purchased five years ago.The old machine has been fully depreciated but has a market value of $6,000.Assume the marginal tax rate is 40 percent.
A)$29,000
B)$31,400
C)$32,600
D)$34,505
Q3) Why should sunk costs not be considered when evaluating a project?
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Chapter 10: Capital Budgeting: Decision Criteria and Real
Option Considerations
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Q1) Kinetics is considering a project that has a NINV of $874,000 and generates net cash flows of $170,000 per year for 12 years.What is the NPV of this project if Kinetics cost of capital is 14%?
A)$252,760
B)$110,840
C)$88,200
D)$47,570
Q2) Which of the following statements about comparing capital budget techniques is/are correct?
A)I only
B)II only
C)Both I and II
D)Neither I nor II
Q3) The approach takes into account both the magnitude and timing of cash flows over the entire life of a project in measuring its economic desirability.
A)payback period
B)accounting rate of return
C)average rate of return
D)internal rate of return
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Chapter 10: A: Capital Budgeting: Decision Criteria and Real Option Considerations
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Q1) Using the equivalent annual annuity method, which project should be chosen?
A)Project B, NPV is approximately $823 higher
B)Project A, NPV is negative
C)Project B, NPV is $10,473 approximately higher
D)Project B, NPV is $90.56 approximately higher
Q2) When two or more mutually exclusive alternative investments have , neither the net present value nor the internal rate of return method yields reliable accept-reject information unless the projects are evaluated for an equal period of time.
A)unequal lives
B)unequal net cash flows
C)unequal net investments
D)a and b
Q3) The best way to measure projects with unequal lives is:
A)the Gordon Model
B)the payback period
C)the net present value method
D)equivalent annual annuity approach
Q4) How does the equivalent annual annuity approach solve the time discrepancy problem?
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Chapter 11: Capital Budgeting and Risk
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Q1) Haulin' It Towing Company is considering adding more tow trucks to its fleet.The cost of the new trucks is $150,000.The project will utilize the risk adjusted discount, the firm has a beta of 1.3, the risk free rate is 7% and the return in the market is 15%.Should Haulin' It add the additional trucks if the expected increased revenues will be as follows?
\[\begin{array} { | c | c | }
\hline \text { Years } & \text { Cash Flaws } \\
\hline 1 & \text { \$od,00] } \\
\hline 2 & 195,000 \\
\hline 3 & 110,000 \\
\hline
\end{array}\]
A)No, the NPV of the project is -$15,175.19
B)Yes, the NPV of the project is $75,275.16
C)No, the NPV of the project is -$9,765.12
D)Yes, the NPV of the project is $55,050.92
Q2) What is the reason companies utilize the certainty equivalent approach in evaluating projects?
Q3) List the ways that a company's decision maker can adjust for total project risk in capital budgeting.
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Chapter 12: The Cost of Capital, Capital Structure, and Dividend Policy
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Q1) If a firm sells assets, generating cash flows, the cost of these funds is .
A)the firm's cost of equity
B)the firm's cost of cash flows
C)the firm's weighted cost of capital
D)zero
Q2) The historic beta of a firm is of little use as a forecast of the firm's future systematic risk characteristics when
A)the firm is growing at a rate of 7-10 percent a year
B)the firm is expanding an existing product line
C)the firm is expanding into a new product line
D)all of these answers are correct
Q3) Break points can be determined by dividing the amount of funds available from each financing source at a fixed cost by the proportion for that financing source.
A)weighted capital structure
B)target capital structure
C)economic capital structure
D)divisional capital structure
Q4) What is the investment opportunity curve and how is it accomplished?
Q5) Explain how the investment opportunity curve is determined.
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Chapter 13: Capital Structure Concepts
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Q1) Agency costs
A)increase as the debt/total assets ratio decreases
B)affect the present value of the tax shield
C)decrease as financial distress increases
D)reduce the market value of the levered firm
Q2) In determining the capital structure for an international firm, the managerial objective is to
A)minimize exchange rate risk
B)minimize the risk of expropriation
C)minimize the overall cost of capital
D)minimize available local low-cost financing
Q3) The mix of debt, preferred stock, and common equity that minimizes the weighted cost of capital to the firm is known as the
A)optimal corporate structure
B)target financial structure
C)optimal capital structure
D)optimal degree of combined leverage
Q4) There are many factors that influence a firm's business risk.List them.
Q5) Explain how industry effects need to be considered in the capital structure decision.
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Chapter 14: Capital Structure Management in Practice
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Q1) The percentage change in a firm's EBIT that results in a 1% change in sales or output is known as the
A)degree of combined leverage
B)degree of financial leverage
C)degree of operating leverage
D)degree of business risk
Q2) The degree of combined leverage is defined as the percentage change in earnings per share resulting from a given percentage change in
A)operating costs
B)interest charges
C)common stock dividends
D)sales (or output)
Q3) In using Nestle Corporation as a model, when a subsidiary is first formed, about one-half of the financing needed to acquired fixed assets comes from:
A)debt
B)federal funds
C)tax breaks
D)equity from the parent company
Q4) What are the effects of leverage on shareholder wealth and the cost of capital?
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Chapter 14: A: Capital Structure Management in Practice
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Q1) Kettle of Fish Hatcheries provides a stocked pond for fishing enthusiasts.They have fixed costs of $525,000, they charge $50 per person for pond access and the variable costs of stocking the pond average about $15 per person.How many people need to fish the pond annually to break even?
A)45,000
B)15,000
C)32,000
D)10,000
Q2) An example of a noncash outlay is:
A)property
B)marketing costs
C)advertising
D)depreciation
Q3) Breakeven analysis can be used:
A)when planning renovations
B)when planning expansions
C)when planning financial resources
D)when planning new product development
Q4) How can a firm have more than one breakeven output point?
Q5) What are the possible uses for breakeven analysis?
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Chapter 15: Dividend Policy
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Q1) According to Miller and Modigliani, it is that really determines a firm's value.
A)investment policy
B)dividend policy
C)payout ratio
D)transaction costs
Q2) HiTec is growing fast and wishes to retain all its earnings to finance future growth.Instead of a cash dividend, HiTec declares a 10 percent stock dividend.If the price per share of HiTec stock is $30 before the ex-dividend date, what will be the price on the ex-dividend date?
A)$27.27
B)$27.94
C)$33.00
D)$27.00
Q3) Sorsi has declared a 15% stock dividend.If the stock was selling for $34 before the ex-dividend date, what should its price be on the ex-dividend date?
A)$34.00
B)$29.57
C)$28.90
D)$30.91
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Chapter 16: Working Capital Management
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Q1) Last year Bizmart had credit sales of $32 million and a net profit margin of 8%.If Bizmart had accounts receivable of $4.5 million, what was the length of the receivables conversion period?
A)51.3 days
B)56.3 days
C)54.9 days
D)47.2 days
Q2) A firm's working capital position is important since::
A)it is a measure of risk.
B)it is a measure of efficiency.
C)it is much more in demand due to its scarcity.
D)it reflects the amount of short-term liabilities that the firm must consider.
Q3) The relationship between the maturity of debt and its associated cost (interest rate) is referred to as:
A)term structure of interest rates
B)investment opportunity curve
C)risk-return tradeoff function
D)both the term structure of interest rates and the investment opportunity curve.
Q4) What is financial forecasting?
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Chapter 17: The Management of Cash and Marketable Securities
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Q1) The primary reason(s) that firms do not hold long-term U.S.Treasury securities in their marketable securities portfolio is because
A)the interest-rate risk associated with these securities is too high
B)the transactions costs associated with these securities is too high
C)the default risk associated with these securities is too high
D)these securities are not readily marketable
Q2) All of the following would be viable securities to purchase with temporary excess cash except:
A)a recently issued 30 year Baa corporate bond
B)U.S.Treasury bill
C)the commercial paper of General Motors Acceptance Corporation
D)a repurchase agreement
Q3) , which are similar to other checks except they are not payable on demand, are used primarily to provide for centralized control over payments authorized in field offices.
A)Preauthorized checks
B)Drafts
C)Mail depository transfer checks
D)Electronic depository transfer checks
Q4) Name the three primary components (or sources) of float:
Page 23
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Chapter 18: The Management of Accounts Receivable and Inventories
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Q1) For the firm with a seasonal sales pattern, offering seasonal datings to its customers is likely to result in
A)increased sales
B)higher inventory investment and warehousing costs
C)lower receivables investment cost
D)an offer of a cash discount
Q2) Haulsee Inc.builds 800,000 golf carts a year and purchases the electronic motors for these carts for $370 each.Ordering costs are $540 and Haulsee's inventory carrying costs average 14% of the inventory value.What is the EOQ for Hau1see?
A)4,084
B)1,528
C)2,890
D)572
Q3) All of the following are components of carrying costs except:
A)insurance
B)storage costs
C)handling costs
D)set-up costs
Q4) What information could be used to judge the credit worthiness of a customer?
Page 24
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Chapter 19: Lease and Intermediate-Term Financing
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Q1) In the net advantage to leasing calculation, after-tax salvage value is discounted at the firm's
A)weighted (marginal) cost of capital
B)cost if internal equity capital
C)cost of external equity capital
D)after-tax marginal cost of borrowing
Q2) All of the following are first determined by the lessee before a direct lease EXCEPT:
A)Equipment that will be leased
B)What taxes will be paid based on the lease
C)Options, warranties service agreements that will have to be made
D)What price will be paid for the asset
Q3) In a lease arrangement, the owner of the property is called the
A)lessee
B)lessor
C)equity trustee
D)lender
Q4) What are the advantages of leasing?
Q5) In a leveraged lease, what items secure the mortgage bonds of the lender?
Q6) Explain a leveraged lease.
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Chapter 20: Financing with Derivatives
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Q1) Graybar recently sold a convertible bond with a $1,000 par value for a flotation cost of 2 percent (each bond produced $980 for the firm).What is the conversion price if the conversion ratio is 22?
A)$44.55
B)$45.45
C)$50.00
D)$4.45
Q2) The difference between the market value of a convertible bond and the higher of its conversion or straight-bond value is the
A)exercise premium
B)investment premium
C)conversion premium
D)liquidation premium
Q3) What variables affect the call option valuation?
Q4) are examples of contingent claims.
A)Convertible bonds and warrants
B)Warrants and extendible notes
C)Options and extendible notes
D)Convertible bonds, options, and warrants
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Chapter 20: A: Financing with Derivatives
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Q1) Cutech issued a $150 million of a 20-year, 10.5% debt 5 years ago.Since then, Cutech's financial conditions have improved and management believes that they could refund the old issue with a new 15-year, 7.5% issue.The old debt is now callable at 104 percent of par and issuance costs on the new issue would be 0.6 percent.The unamortized issuance costs on the old issue are $675,000.If Cutech calls the old issue and refunds it, both issues would be outstanding for a two-week period.If the company's marginal tax rate is 40%, should Cutech refund the old issue?
A)Yes, NPV = $43,645,599
B)Yes, NPV = $43,798,975
C)Yes, NPV = $44,364,538
D)No, NPV is negative
Q2) If Alliant can issue a $110 million 20-year refunding bond at 7.45% and call an older $110 million issue with 20-years to maturity that had a coupon of 8.80%, what is the present value of the interest savings? Assume a 40% tax rate.
A)$11,620,259
B)$17,820,000
C)$ 9,117,935
D)$29,561,100
Q3) Why is the after-tax cost of debt used in bond refunding analysis?
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Chapter 21: Risk Management
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Q1) A "clearinghouse" operated by the futures exchange handles:
A)the offices of the future contract buyers.
B)the location of the future contract sellers.
C)the payments between buyers and sellers.
D)the actual products bought and sold.
Q2) List some nonhedging risk management strategies.
Q3) Forward contracts are most common in markets.
A)stock
B)agricultural
C)currency
D)bond
Q4) All of the following are losses generally insured by corporations EXCEPT:
A)Death of key employees
B)Executive bonuses
C)Fraud
D)Product liability
Q5) How does hedging reduce or eliminate business risks?
Q6) What is a hedge?
Q7) List several reasons why a firm may choose to employ risk management techniques.
Q8) What is marking-to-market and how is this process guaranteed?
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Chapter 22: International Financial Management
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Q1) When a multinational firm has one or more foreign subsidiaries with assets and liabilities denominated in a foreign currency, it faces exposure.
A)economic
B)operating
C)translation
D)transaction
Q2) A euro is a
A)monetary unit used in transactions between European central banks
B)monetary unit used in providing capital to the World Bank
C)monetary unit used in transactions between Common Market countries
D)composite currency whose value is based on the weighted value of several European currencies
Q3) Firms transacting business with foreign companies can lower exchange rate risk exposure by
A)limiting transaction exposure
B)hedging
C)purchasing LIBORs
D)using the PPP to make exchange rate forecasts
Q4) Name the factors that affect exchange rates.
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Chapter 23: Corporate Restructuring
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Q1) In general, the greatest economies of scale are possible with mergers.
A)conglomerate
B)vertical
C)horizontal
D)integrated
Q2) Under Chapter(s) of the bankruptcy laws, a company's assets are sold off and the proceeds are distributed to the creditors.
A)11
B)7
C)4
D)7 and 11
Q3) In analyzing a merger the is the number of the acquiring company shares received per share of acquired company stock owned.
A)assignment
B)composition
C)price-purchase ratio
D)exchange ratio
Q4) Explain a form of business combination called a holding company and how the combination is achieved.
To view all questions and flashcards with answers, click on the resource link above. Page 30