Financial Management
Exam Practice Tests
Course Introduction
Financial Management is a comprehensive course that introduces students to the principles and techniques essential for effective financial decision-making within organizations. The course covers key topics such as financial statement analysis, budgeting, time value of money, capital budgeting, cost of capital, and working capital management. By exploring both theoretical frameworks and practical applications, students gain the skills to evaluate financial performance, assess investment opportunities, and implement strategies for maximizing shareholder value. Emphasis is placed on understanding the financial markets, risk and return trade-offs, and the ethical considerations involved in financial management, preparing students for roles in corporate finance, banking, and investment management.
Recommended Textbook
Fundamentals of Financial Management 15th Edition by Eugene F. Brigham
Available Study Resources on Quizplus 21 Chapters
1827 Verified Questions
1827 Flashcards
Source URL: https://quizplus.com/study-set/3546
Page 2
Chapter 1: An Overview of Financial Management
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/131698
Sample Questions
Q1) Which of the following actions would be likely to encourage a firm's managers to make decisions that are in the best interests of shareholders?
A) The percentage of executive compensation that comes in the form of cash is increased and the percentage coming from long-term stock options is reduced.
B) The state legislature passes a law that makes it more difficult to successfully complete a hostile takeover.
C) The percentage of the firm's stock that is held by institutional investors such as mutual funds,pension funds,and hedge funds rather than by small individual investors rises from 10% to 80%.
D) The firm's founder,who is also president and chairman of the board,sells 90% of her shares.
E) The firm's board of directors gives the firm's managers greater freedom to take whatever actions they think best without obtaining board approval.
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
3
Chapter 2: Financial Markets and Institutions
Available Study Resources on Quizplus for this Chatper
33 Verified Questions
33 Flashcards
Source URL: https://quizplus.com/quiz/131699
Sample Questions
Q1) If you wanted to know what rate of return stocks have provided in the past,you could examine data on the Dow Jones Industrial Index,the S&P 500 Index,or the NASDAQ Index.
A)True
B)False
Answer: True
Q2) A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital.A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary.
A)True
B)False
Answer: True
Q3) Private markets are those like the NYSE,where transactions are handled by members of the organization,while public markets are those like the NASDAQ,where anyone can make transactions.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
4
Chapter 3: Financial Statements,cash Flow and Taxes
Available Study Resources on Quizplus for this Chatper
138 Verified Questions
138 Flashcards
Source URL: https://quizplus.com/quiz/131700
Sample Questions
Q1) Which of the following statements is CORRECT?
A) Dividends paid reduce the net income that is reported on a company's income statement.
B) If a company uses some of its bank deposits to buy short-term,highly liquid marketable securities,its current assets as shown on the balance sheet will decline.
C) If a company issues new long-term bonds to purchase fixed assets during the current year,its reported current assets and current liabilities at the end of the year will increase.
D) Accounts receivable are reported as a current liability on the balance sheet.
E) If a company pays more in dividends than it generates in net income,its retained earnings as reported on the balance sheet will decline from the previous year's balance.
Answer: E
Q2) Free cash flow is the amount of cash that,if withdrawn,would harm the firm's ability to operate and to produce future cash flows.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Analysis of Financial Statements
Available Study Resources on Quizplus for this Chatper
133 Verified Questions
133 Flashcards
Source URL: https://quizplus.com/quiz/131701
Sample Questions
Q1) Refer to Exhibit 4.1.What is the firm's inventory turnover ratio? Do not round your intermediate calculations.
A) 4.67
B) 3.78
C) 4.81
D) 5.46
E) 4.15
Q2) Refer to Exhibit 4.1.What is the firm's market-to-book ratio? Do not round your intermediate calculations.
A) 1.35
B) 1.00
C) 1.65
D) 1.33
E) 1.32
Q3) Other things held constant,the more debt a firm uses,the lower the firm's profit margin will be.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
6
Chapter 5: Time Value of Money
Available Study Resources on Quizplus for this Chatper
163 Verified Questions
163 Flashcards
Source URL: https://quizplus.com/quiz/131702
Sample Questions
Q1) Last year Rocco Corporation's sales were $700 million.If sales grow at 6% per year,how large (in millions)will they be 5 years later?
A) $974.23
B) $749.41
C) $1,133.48
D) $1,096.01
E) $936.76
Q2) You want to quit your job and return to school for an MBA degree 3 years from now,and you plan to save $5,000 per year,beginning immediately.You will make 3 deposits in an account that pays 5.2% interest.Under these assumptions,how much will you have 3 years from today?
A) $16,614.78
B) $17,943.97
C) $17,445.52
D) $18,442.41
E) $14,953.30
Q3) A time line is not meaningful unless all cash flows occur annually.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: Interest Rates
Available Study Resources on Quizplus for this Chatper
82 Verified Questions
82 Flashcards
Source URL: https://quizplus.com/quiz/131703
Sample Questions
Q1) One of the four most fundamental factors that affect the cost of money as discussed in the text is the expected rate of inflation.If inflation is expected to be relatively high,then interest rates will tend to be relatively low,other things held constant.
A)True
B)False
Q2) Which of the following statements is CORRECT?
A) The higher the maturity risk premium,the higher the probability that the yield curve will be inverted.
B) The most likely explanation for an inverted yield curve is that investors expect inflation to increase.
C) The most likely explanation for an inverted yield curve is that investors expect inflation to decrease.
D) If the yield curve is inverted,short-term bonds have lower yields than long-term bonds.
E) Inverted yield curves can exist for Treasury bonds,but because of default premiums,the corporate yield curve can never be inverted.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 7: Bonds and Their Valuation
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/131705
Sample Questions
Q1) A call provision gives bondholders the right to demand,or "call for," repayment of a bond.Typically,companies call bonds if interest rates rise and do not call them if interest rates decline.
A)True
B)False
Q2) There is an inverse relationship between bonds' quality ratings and their required rates of return.Thus,the required return is lowest for AAA-rated bonds,and required returns increase as the ratings get lower.
A)True
B)False
Q3) Sadik Inc.'s bonds currently sell for $1,300 and have a par value of $1,000.They pay a $105 annual coupon and have a 15-year maturity,but they can be called in 5 years at $1,100.What is their yield to call (YTC)?
A) 5.10%
B) 5.31%
C) 4.94%
D) 6.00%
E) 4.30%
To view all questions and flashcards with answers, click on the resource link above.
Chapter 8: Risk and Rates of Return
Available Study Resources on Quizplus for this Chatper
147 Verified Questions
147 Flashcards
Source URL: https://quizplus.com/quiz/131706
Sample Questions
Q1) Assume that you are the portfolio manager of the SF Fund,a $3 million hedge fund that contains the following stocks.The required rate of return on the market is 11.00% and the risk-free rate is 2.00%.What rate of return should investors expect (and require)on this fund? Do not round your intermediate calculations. \(\begin{array}{lrl}\text { Stock }&\text { amount }&\text { Beta }\\ \text { A } & \$ 1,075,000 & 1.20 \\ B & \$ 675,000 & 0.50 \\ \mathrm{C} & \$ 750,000 & 1.40 \\ \mathrm{D} & \$ 500,000 & 0.75\\&\$3,000,000 \end{array}\)
?
A) 11.16%
B) 10.82%
C) 9.93%
D) 9.37%
E) 9.71%
Q2) Diversification will normally reduce the riskiness of a portfolio of stocks. A)True B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Stocks and Their Valuation
Available Study Resources on Quizplus for this Chatper
89 Verified Questions
89 Flashcards
Source URL: https://quizplus.com/quiz/131709
Sample Questions
Q1) 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
Q2) If markets are in equilibrium,which of the following conditions will exist?
A) Each stock's expected return should equal its realized return as seen by the marginal investor.
B) Each stock's expected return should equal its required return as seen by the marginal investor.
C) All stocks should have the same expected return as seen by the marginal investor.
D) The expected and required returns on stocks and bonds should be equal.
E) All stocks should have the same realized return during the coming year.
Q3) The preemptive right gives current stockholders the right to purchase,on a pro rata basis,any new shares issued by the firm.This right helps protect current stockholders against both dilution of control and dilution of value.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: The Cost of Capital
Available Study Resources on Quizplus for this Chatper
94 Verified Questions
94 Flashcards
Source URL: https://quizplus.com/quiz/131710
Sample Questions
Q1) The higher the firm's flotation cost for new common equity,the more likely the firm is to use preferred stock,which has no flotation cost,and retained earnings,whose cost is the average return on the assets that are acquired.
A)True
B)False
Q2) Several years ago the Jakob Company sold a $1,000 par value,noncallable bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually.The bond currently sells for $875,and the company's tax rate is 40%.What is the component cost of debt for use in the WACC calculation? Do not round your intermediate calculations.
A) 4.58%
B) 4.97%
C) 3.78%
D) 4.92%
E) 5.87%
Q3) The firm's cost of external equity raised by issuing new stock is the same as the required rate of return on the firm's outstanding common stock.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: The Basics of Capital Budgeting
Available Study Resources on Quizplus for this Chatper
107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/131711
Sample Questions
Q1) Normal Projects S and L have the same NPV when the discount rate is zero.However,Project S's cash flows come in faster than those of L.Therefore,we know that at any discount rate greater than zero,L will have the higher NPV.
A)True
B)False
Q2) Which of the following statements is CORRECT?
A) An NPV profile graph shows how a project's payback varies as the cost of capital changes.
B) The NPV profile graph for a normal project will generally have a positive (upward)slope as the life of the project increases.
C) An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life.
D) An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital.
E) We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV.
To view all questions and flashcards with answers, click on the resource link above.
13
Chapter 12: Cash Flow Estimation and Risk Analysis
Available Study Resources on Quizplus for this Chatper
80 Verified Questions
80 Flashcards
Source URL: https://quizplus.com/quiz/131712
Sample Questions
Q1) It is extremely difficult to estimate the revenues and costs associated with large,complex projects that take several years to develop.This is why subjective judgment is often used for such projects along with discounted cash flow analysis.
A)True
B)False
Q2) The two cardinal rules that financial analysts should follow to avoid errors are: (1)in the NPV equation,the numerator should use income calculated in accordance with generally accepted accounting principles,and (2)all incremental cash flows should be considered when making accept/reject decisions for capital budgeting projects.
A)True
B)False
Q3) Typically,a project will have a higher NPV if the firm uses accelerated rather than straight-line depreciation.This is because the total cash flows over the project's life will be higher if accelerated depreciation is used,other things held constant.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
14
Chapter 13: Real Options and Other Topics in Capital
Budgeting
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/131713
Sample Questions
Q1) Real options are options to buy real assets,especially stocks,rather than interest-bearing assets,like bonds.
A)True
B)False
Q2) Traditionally,an NPV analysis assumes that projects will be accepted or rejected,which implies that they will be undertaken now or never.However,in practice,companies sometimes have a third choice--delay the decision until later,when more information will be available.
A)True
B)False
Q3) The option to abandon a project is a real option,but a call option on a stock is not a real option.
A)True
B)False
Q4) The optimal capital budget is the size of the capital budget where the rate of return on the marginal project is equal to the marginal cost of capital.
A)True
B)False
Page 15
To view all questions and flashcards with answers, click on the resource link above.
Chapter 14: Capital Structure and Leverage
Available Study Resources on Quizplus for this Chatper
88 Verified Questions
88 Flashcards
Source URL: https://quizplus.com/quiz/131714
Sample Questions
Q1) Your firm is currently 100% equity financed.The CFO is considering a recapitalization plan under which the firm would issue long-term debt with an after-tax yield of 9% and use the proceeds to repurchase some of its common stock.The recapitalization would not change the company's total investor-supplied capital,the size of the firm (i.e. ,total assets),and it would not affect the firm's return on investors' capital (ROIC),which is 15%.The CFO believes that this recapitalization would reduce the firm's WACC and increase its stock price.Which of the following would be likely to occur if the company goes ahead with the recapitalization plan?
A) The company's net income would increase.
B) The company's earnings per share would decline.
C) The company's cost of equity would increase.
D) The company's ROA would increase.
E) The company's ROE would decline.
Q2) Based on the information below,what is the firm's optimal capital structure?
A) Debt = 40%;Equity = 60%;EPS = $2.95;Stock price = $26.50.
B) Debt = 50%;Equity = 50%;EPS = $3.05;Stock price = $28.90.
C) Debt = 60%;Equity = 40%;EPS = $3.18;Stock price = $31.20.
D) Debt = 80%;Equity = 20%;EPS = $3.42;Stock price = $30.40.
E) Debt = 70%;Equity = 30%;EPS = $3.31;Stock price = $30.00.
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: Distributions to Shareholders: Dividends and Share Repurchases
Available Study Resources on Quizplus for this Chatper
75 Verified Questions
75 Flashcards
Source URL: https://quizplus.com/quiz/131715
Sample Questions
Q1) Banerjee Inc.wants to maintain a target capital structure with 30% debt and 70% equity.Its forecasted net income is $825,000,and its board of directors has decreed that no new stock can be issued during the coming year.If the firm follows the residual dividend model,what is the maximum capital budget that is consistent with maintaining the target capital structure?
A) $1,143,214
B) $954,643
C) $1,178,571
D) $1,296,429
E) $1,437,857
Q2) The optimal distribution policy strikes that balance between current dividends and capital gains that maximizes the firm's stock price.
A)True
B)False
Q3) Underlying the dividend irrelevance theory proposed by Miller and Modigliani is their argument that the value of the firm is determined only by its basic earning power and its business risk.
A)True
B)False
Page 17
To view all questions and flashcards with answers, click on the resource link above.
Chapter 16: Working Capital Management
Available Study Resources on Quizplus for this Chatper
127 Verified Questions
127 Flashcards
Source URL: https://quizplus.com/quiz/131716
Sample Questions
Q1) A revolving credit agreement is a formal line of credit.The firm must generally pay a fee on the unused balance of the committed funds to compensate the bank for the commitment to extend those funds.
A)True
B)False
Q2) Other things held constant,which of the following will cause an increase in net working capital?
A) Cash is used to buy marketable securities.
B) A cash dividend is declared and paid.
C) Merchandise is sold at a profit,but the sale is on credit.
D) Long-term bonds are retired with the proceeds of a preferred stock issue.
E) Missing inventory is written off against retained earnings.
Q3) The risk to the firm of borrowing using short-term credit is usually greater than if it used long-term debt.Added risk stems from (1)the greater variability of interest costs on short-term than long-term debt and (2)the fact that even if its long-term prospects are good,the firm's lenders may not be willing to renew short-term loans if the firm is temporarily unable to repay those loans.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 17: Financial Planning and Forecasting
Available Study Resources on Quizplus for this Chatper
39 Verified Questions
39 Flashcards
Source URL: https://quizplus.com/quiz/131717
Sample Questions
Q1) A typical sales forecast,though concerned with future events,will usually be based on recent historical trends and events as well as on forecasts of economic prospects.
A)True
B)False
Q2) Which of the following is NOT one of the steps taken in the financial planning process?
A) Assumptions are made about future levels of sales,costs,and interest rates for use in the forecast.
B) The entire financial plan is reexamined,assumptions are reviewed,and the management team considers how additional changes in operations might improve results.
C) Projected ratios are calculated and analyzed.
D) Develop a set of projected financial statements.
E) Consult with key competitors about the optimal set of prices to charge,i.e. ,the prices that will maximize profits for our firm and its competitors.
To view all questions and flashcards with answers, click on the resource link above.
19
Chapter 18: Derivatives and Risk Management
Available Study Resources on Quizplus for this Chatper
35 Verified Questions
35 Flashcards
Source URL: https://quizplus.com/quiz/131718
Sample Questions
Q1) Suppose a hypothetical CBOT 13-year U.S. ,semiannual payment,6% coupon Treasury note futures contract has a quoted price of 89-090.If the note has a $1,000 par value,what is the implied annual interest rate inherent in this futures contract? Do not round your intermediate calculations.
?
A) 7.35%
B) 8.30%
C) 7.28%
D) 8.15%
E) 5.97%
Q2) An option that gives the holder the right to buy a stock at a specified price at some time in the future is called a(n)
A) Call option.
B) Put option.
C) Out-of-the-money option.
D) Naked option.
E) Covered option.
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Multinational Financial Management
Available Study Resources on Quizplus for this Chatper
100 Verified Questions
100 Flashcards
Source URL: https://quizplus.com/quiz/131719
Sample Questions
Q1) The cost of capital may be different for a foreign project than for an equivalent domestic project because foreign projects may be more or less risky.
A)True
B)False
Q2) A currency trader observes the following quotes in the spot market:
1 U.S.dollar = 1.34 Japanese yen
1 British pound =2.25 Swiss francs
1 British pound =1.65 U.S.dollars
Given this information,how many yen can be purchased for 1 Swiss franc? Do not round the intermediate calculations and round the final answer to four decimal places.
A) 0.8156
B) 1.1301
C) 0.7370
D) 0.8844
E) 0.9827
Q3) A Eurodollar is a U.S.dollar deposited in a bank outside the United States.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 20: Hybrid Financing: Preferred Stock,leasing,warrants,and Convertibles
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/131720
Sample Questions
Q1) Most convertible securities are bonds or preferred stocks that,under specified terms and conditions,can be exchanged for common stock at the option of the holder.
A)True
B)False
Q2) If a leased asset has a negative residual value (e.g.as a result of a statutory requirement to dispose of an asset in an environmentally sound manner),then the lessee of the asset could reasonably expect to pay a lower lease rate because the asset does not have a positive residual value.
A)True
B)False
Q3) Under a sale and leaseback arrangement,the seller of the leased property is the lessee and the buyer is the lessor.
A)True
B)False
Q4) The "preferred" feature of preferred stock means that it will normally provide a higher expected return than will common stock.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 21: Mergers and Acquisitions
Available Study Resources on Quizplus for this Chatper
39 Verified Questions
39 Flashcards
Source URL: https://quizplus.com/quiz/131721
Sample Questions
Q1) A company seeking to fight off a hostile takeover might employ the services of an investment banking firm to develop a defensive strategy.
A)True
B)False
Q2) Since managers' central goal is to maximize stock price,managers' personal incentives do not interfere with mergers that would benefit the target firm's stockholders.
A)True
B)False
Q3) Most defensive mergers occur as a result of managers' actions to maximize shareholders' wealth.
A)True
B)False
Q4) The primary reason given by managers for most mergers is the acquisition of more assets so as to increase sales and market share.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 23