Financial Management Exam Preparation Guide
Course Introduction
Financial Management is a comprehensive course that explores the fundamental principles and practices involved in managing an organizations financial resources. Students will learn key concepts such as financial analysis, planning, and control, with a focus on the time value of money, capital budgeting, risk and return, cost of capital, and working capital management. The course also covers financial statement analysis, long-term financing, and the strategic role of finance in achieving business objectives. Through a combination of theoretical frameworks and practical case studies, students gain the analytical tools necessary to make sound financial decisions and understand the broader impact of financial management in both corporate and investment settings.
Recommended Textbook
Financial Management Principles and Applications 11th Edition by Sheridan Titman
Available Study Resources on Quizplus
20 Chapters
2091 Verified Questions
2091 Flashcards
Source URL: https://quizplus.com/study-set/3556 Page 2
Chapter 1: Getting Started-Principles of Finance
Available Study Resources on Quizplus for this Chatper
87 Verified Questions
87 Flashcards
Source URL: https://quizplus.com/quiz/70602
Sample Questions
Q1) For these types of organization,no distinction is made between business and personal assets.
A)Sole proprietorship
B)General partnership
C)Limited partnership
D)All of the above
E)Both A and B
Answer: E
Q2) Which of the following is NOT an advantage of the sole proprietorship?
A)Limited liability
B)No time limit imposed on its existence
C)No legal requirements for starting the business
D)None of the above
Answer: A
Q3) Ethical dilemmas frequently exist in finance.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Firms and the Financial Market
Available Study Resources on Quizplus for this Chatper
35 Verified Questions
35 Flashcards
Source URL: https://quizplus.com/quiz/70603
Sample Questions
Q1) Which of the following is true about Preferred Stock?
A)Preferred shareholders always have voting rights.
B)If at a time a dividend is due on preferred stock,if the company does not have the funds to pay the dividend,the right of the preferred shareholders to collect that dividend lapses.
C)Preferred dividends are not tax deductible to the corporation.
D)Like bonds,preferred stock always has a maturity date at which time the issue price must be repaid to shareholders.
Answer: C
Q2) The difference between mutual funds and ETFs is that ETFs are traded on exchanges and mutual funds are not.
A)True
B)False
Answer: True
Q3) Owners of common stock are the owners of the firm.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above.
4
Chapter 3: Understanding Financial Statements, taxes, and Cash Flows
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/70604
Sample Questions
Q1) Which of the basic financial statements is best used to answer the question,"How profitable is the business?"
A)Balance sheet
B)Statement of shareholder's equity
C)Income statement
D)Accounts receivable aging schedule
Answer: C
Q2) Which of the following would NOT be included as an asset on a corporate balance sheet?
A)Accounts receivable
B)Common stock
C)Inventory
D)Buildings
Answer: B
Q3) The balance sheet provides a statement of the firm's financial position.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Financial Analysis-Sizing up Firm Performance
Available Study Resources on Quizplus for this Chatper
114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/70605
Sample Questions
Q1) GAAP,Inc.has total assets of $2,575,000,sales of $5,950,000,total liabilities of $1,855,062,and a net profit margin of 2.9%.What is GAAP's return on equity? Round to the nearest 0.1%.
A)8.6%
B)24.0%
C)16.4%
D)4.4%
Q2) Spinnit,Limited has a debt ratio of .57,current liabilities of $14,000,and total assets of $70,000.What is the level of Spinnit,Limited's total liabilities?
A)$25,900
B)$24,600
C)$39,900
D)$53,900
Q3) On a common size balance sheet,total assets are equal to 100%.
A)True
B)False
Q4) On a common size income statement,EBIT is equal to 100%.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Time Value of Money-The Basics
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/70606
Sample Questions
Q1) What will the dollar amount be in four years,assuming that interest is paid annually?
A)$2,800
B)$3,100
C)$3,111
D)$3,148
Q2) What will the dollar amount be if the interest is compounded semiannually for those four years?
A)$3,100
B)$3,188
C)$3,240
D)$3,290
Q3) The annual percentage yield is also referred to as the:
A)quoted rate.
B)nominal rate.
C)effective annual rate.
D)all of the above.
Q4) The more frequent the compounding periods in a year,the higher the future value.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: The Time Value of Money-Annuities and Other Topics
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/70607
Sample Questions
Q1) Consider an investment that has cash flows of $500 the first year and $400 for the next four years.If your opportunity cost is 10%,how much is this investment worth to you?
Q2) You have borrowed $70,000 to buy a sports car.You plan to make monthly payments over a 15-year period.The bank has offered you a 9% interest rate compounded monthly.Calculate the total amount of interest dollars you will pay the bank over the life of the loan.Round to the nearest dollar and assume end-of-month payments.
A)$47,451
B)$51,644
C)$54,776
D)$57,798
Q3) What is the present value of the following perpetuities?
a.$600 discounted at 7%
b.$450 discounted at 12%
c.$1,000 discounted at 6%
d.$880 discounted at 9%
Q4) You are planning to deposit $10,000 today into a bank account.Five years from today you expect to withdraw $7,500.If the account pays 5% interest per year,how much will remain in the account eight years from today?
Page 8
To view all questions and flashcards with answers, click on the resource link above.
Chapter 7: An Introduction to Risk and Return-History of
Financial Market Returns
Available Study Resources on Quizplus for this Chatper
44 Verified Questions
44 Flashcards
Source URL: https://quizplus.com/quiz/70608
Sample Questions
Q1) The expected rate of return is the weighted average of the possible returns for an investment.
A)True
B)False
Q2) Spartan Sofas,Inc.is selling for $50.00 per share today.In one year,Spartan will be selling for $48.00 per share,and the dividend for the year will be $3.00.What is the cash return on Spartan stock?
A)0%
B)2%
C)6%
D)10%
Q3) What is the standard deviation of an investment that has the following expected scenario? 18% probability of a recession,2.0% return;65% probability of a moderate economy,9.5% return;17% probability of a strong economy,14.2% return.
A)3.68%
B)1.23%
C)8.47%
D)6.66%
Q4) Why do the arithmetic average return and the geometric return differ?
Page 9
To view all questions and flashcards with answers, click on the resource link above.
Chapter 8: Risk and Return-Capital Market Theory
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/70609
Sample Questions
Q1) The security market line (SML)relates risk to return,for a given set of market conditions.If risk aversion increases,which of the following would most likely occur?
A)The market risk premium would increase.
B)Beta would increase.
C)The slope of the SML would increase.
D)The SML line would shift up.
Q2) Total risk equals unique security risk times systematic risk. A)True B)False
Q3) Investing in foreign stocks is one way to improve diversification of a portfolio. A)True B)False
Q4) The market rewards assuming additional unsystematic risk with additional returns. A)True B)False
Q5) Briefly discuss why there is no reason to believe that the market will reward investors with additional returns for assuming unsystematic risk.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Debt Valuation and Interest Rates
Available Study Resources on Quizplus for this Chatper
114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/70610
Sample Questions
Q1) The discount rate used to value a bond is:
A)the coupon interest rate.
B)determined by the issuing company.
C)fixed for the life of the bond.
D)the market rate of interest.
Q2) Which of the following statements about debentures is FALSE?
A)The earning ability of the issuing corporation is of great concern to the bondholder.
B)Debentures are viewed as less risky than secured bonds.
C)Debentures must provide investors with a higher yield than secured bonds.
D)Debentures allow the firm to issue debt and still preserve some future borrowing power.
Q3) You purchased Gibraltar Corp.bonds exactly one year ago today for $1,075.During the latest year,you received $85 in interest on the bonds.What is your current yield on these bonds?
A)11.3%
To view all questions and flashcards with answers, click on the resource link above.
Page 11
Chapter 10: Stock Valuation
Available Study Resources on Quizplus for this Chatper
114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/70611
Sample Questions
Q1) The higher a firm's P/E ratio,the more optimistic investors' feel about the firm's growth prospects.
A)True
B)False
Q2) Trading on the Nasdaq is done electronically and does not require a physical location.
A)True
B)False
Q3) Which of the following provisions is unique to preferred stockholders and usually NOT available to common stockholders?
A)Cumulative dividends feature
B)Voting rights
C)Fixed dividend
D)Both A and C
Q4) Determine the rate of return on a preferred stock that costs $50 and pays a $6 per share dividend.
Q5) A block trade is a trade involving 10,000 or more shares by a single holder.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Investment Decision Criteria
Available Study Resources on Quizplus for this Chatper
109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/70612
Sample Questions
Q1) The IRR assumes that cash flows are reinvested at the cost of capital.
A)True
B)False
Q2) The present value of the total costs over a five year period for Project April is $50,000.The net present value of total costs over a 4 year period for Project October is $40,000.The company uses a discount rate of 9%.Which project should it choose and why?
A)April because it has a higher NPV.
B)April because is has a higher EAC.
C)October because it has a shorter life.
D)October because it has a lower EAC.
Q3) A machine has a cost of $5,375,000.It will produce cash inflows of $1,825,000 (Year 1);$1,775,000 (Year 2);$1,630,000 (Year 3);$1,585,000 (Year 4);and $1,650,000 (Year 5).At a discount rate of 16.25%,what is the NPV?
A)$81,724
B)$257,106
C)$416,912
D)$190,939
Q4) Why is it so difficult for firms to find good investment ideas?
Q5) Briefly describe the actual capital budgeting methods of large U.S.corporations.
Page 13
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: Analyzing Project Cash Flows
Available Study Resources on Quizplus for this Chatper
112 Verified Questions
112 Flashcards
Source URL: https://quizplus.com/quiz/70613
Sample Questions
Q1) Your company is considering replacing an old steel cutting machine with a new one.Two months ago,you sent the company engineer to a training seminar demonstrating the new machine's operation and efficiency.The $2,500 cost for this training session has already been paid.If the new machine is purchased,it would require $5,000 in installation and modification costs to make it suitable for operation in your factory.The old machine originally cost $50,000 five years ago and has been depreciated by $7,000 per year for five years up to now.The new machine will cost $75,000 before installation and modification.It will be depreciated by $5,000 per year.The old machine can be sold today for $10,000.The marginal tax rate for the firm is 40%.Compute the relevant initial outlay in this capital budgeting decision.
A)$72,500
B)$68,000
C)$70,500
D)$78,000
Q2) Because installment costs of a new asset are a current cash expense,they are excluded from the initial outlay.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Risk Analysis and Project Evaluation
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/70614
Sample Questions
Q1) An appropriate tool to analyze the interaction of various value drivers for Orange Electronics would be
A)simulation
B)sensitivity analysis
C)scenario analysis
D)either A or C
Q2) One advantage of simulation is that it can differentiate between unsystematic and systematic risk.
A)True
B)False
Q3) Jeffrey believes that if he can make a good case for opening a new store in the chain for which he works,he will be promoted to manager.Can we be confident that Jeffrey's sales forecasts are accurate?
Q4) List at least four typical value drivers that could seriously impact the outcome of a project.
Q5) In capital-budgeting decisions,simulation analysis gives a probability distribution only for cash flows.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: The Cost of Capital
Available Study Resources on Quizplus for this Chatper
130 Verified Questions
130 Flashcards
Source URL: https://quizplus.com/quiz/70615
Sample Questions
Q1) The total capital that should be used in computing the weights for Grafton's WACC is:
A)$800.
B)$525.
C)$750.
D)$425.
Q2) The percentage of debt in Grafton's weighted average cost of capital is:
A)38.1%.
B)25%.
C)31.25%.
D)57.14%.
Q3) The best estimate of the cost of new common equity is:
A)11.00%.
B)between 11.0%.and 11.2%
C)11.50%.
D)between 10%.and 12%
Q4) Why are market values preferred to book (balance sheet)values when computing a firm's weighted average cost of capital.
Q5) Briefly identify and describe some important uses of a firm's weighted average cost of capital.
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Capital Structure Policy
Available Study Resources on Quizplus for this Chatper
108 Verified Questions
108 Flashcards
Source URL: https://quizplus.com/quiz/70616
Sample Questions
Q1) An optimal capital structure is achieved:
A)when a firm's expected profits are maximized.
B)when a firm's expected EPS are maximized.
C)when a firm's expected stock price is maximized.
D)when a firm's break-even point is achieved.
Q2) What is meant by the terms "favorable" and "unfavorable" leverage?
Q3) The independence hypothesis suggests that the cost of equity decreases as financial leverage increases.
A)True
B)False
Q4) Investors require a higher return on common stock investments if a firm uses less leverage.
A)True
B)False
Q5) If a firm chose to increase its debt ratio from 20% to 40%,what is the potential risk?
A)The average cost of capital would most likely rise.
B)The price of the firm's common stock would definitely decline.
C)If economic forces cause a reduction of sales,the firm's EPS might decline.
D)The firm's WACC might decline.
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Dividend Policy
Available Study Resources on Quizplus for this Chatper
130 Verified Questions
130 Flashcards
Source URL: https://quizplus.com/quiz/70617
Sample Questions
Q1) Kelly owns 10,000 shares in McCormick Spices,which currently has 500,000 shares outstanding.The stock sells for $86 on the open market.McCormick's management has decided on a 2-1 split.
a.Will Kelly's financial position alter after the split,assuming that the stocks will fall proportionately?
b.Assuming only a 35% fall on each stock,what will be Kelly's value after the split?
Q2) In response to a temporary decline in earnings per share,most companies would:
A)decrease their cash dividend.
B)not decrease their cash dividend.
C)suspend their cash dividend.
D)substitute a stock dividend for the cash dividend.
Q3) What is meant by "dividend clienteles"? Give specific examples.
Q4) Which of the following motivates corporations to split their common stock?
A)To keep the price of the firm's common stock within an optimum price range
B)To increase retained earnings
C)To reallocate capital to shareholders
D)To increase their paid-in capital
Q5) Compare the Stable Dividend Payout to the Residual Dividend Policy.
Q6) What are the effects of stock splits and stock dividends? Why are they popular?
Page 18
To view all questions and flashcards with answers, click on the resource link above.
Chapter 17: Financial Forecasting and Planning
Available Study Resources on Quizplus for this Chatper
114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/70618
Sample Questions
Q1) Which of the following is a spontaneous source of financing?
A)Accrued expenses
B)Notes payable
C)Common stock
D)Paid-in capital
Q2) The percent-of-sales method is a commonly used method for estimating a firm's financing needs.
A)True
B)False
Q3) Spontaneous sources of financing include:
A)accounts payable and accrued expenses.
B)notes payable and mortgages payable.
C)long-term debt and capital leases.
D)common stock and paid-in capital.
Q4) Banner's projected accounts payable balance for 2005 is:
A)$160,000.
B)$120,000.
C)$200,000.
D)$300,000.
Q5) Why is financial planning important in a highly uncertain financial environment.
Page 19
To view all questions and flashcards with answers, click on the resource link above.
Chapter 18: Working Capital Management
Available Study Resources on Quizplus for this Chatper
146 Verified Questions
146 Flashcards
Source URL: https://quizplus.com/quiz/70619
Sample Questions
Q1) The primary sources of collateral for short-term secured loans are accounts receivable and inventory.
A)True
B)False
Q2) A firm will borrow $1 million for six months on a discount basis.The annual interest rate on the loan is 12%.What is the annual percentage cost of the loan?
A)11.00%
B)12.77%
C)13.00%
D)14.23%
Q3) If revenues can be forecast to fall within a tight range of outcomes,then the ratio of cash and near-cash to total assets will be greater for the firm than if the prospective cash inflows might be expected to vary over a wide range.
A)True
B)False
Q4) Maximus,Inc.is planning to borrow $2 million for 9 months at a discounted interest rate of 4.5%.What is the annual percentage rate on the loan?
Q5) Describe the differences between secured and unsecured short-term credit.
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: International Business Finance
Available Study Resources on Quizplus for this Chatper
122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/70620
Sample Questions
Q1) If a currency's forward price in U.S.dollars is lower than the spot price,interest rates are higher in the foreign country than they are in the U.S.
A)True
B)False
Q2) A direct quote in Bombay tells one how many British pounds can buy one Indian rupee.
A)True
B)False
Q3) Risks of foreign direct investment potentially include:
A)exchange rate fluctuations.
B)political instability.
C)competition from foreign competitors.
D)all of the above.
Q4) To buy one Indian Rupee you would need:
A)2.199 cents.
B)45.4752 dollars.
C)21.99 cents.
D)4.54752 dollars.
Q5) What is the role of arbitrage in the foreign exchange markets?
Q6) What is the law of one price? How does it apply to foreign exchange rates?
Page 21
To view all questions and flashcards with answers, click on the resource link above.
Chapter 20: Corporate Risk Management
Available Study Resources on Quizplus for this Chatper
129 Verified Questions
129 Flashcards
Source URL: https://quizplus.com/quiz/70621
Sample Questions
Q1) The difference between a stock's current price and the striking price of the option is the minimum value of the option.
A)True
B)False
Q2) Self insurance is the practice of:
A)holding reserves within the firm to cover potential losses.
B)CEO's holding large life insurance policies on themselves,payable to the company. C)companies in unrelated businesses forming subsidiaries to cover their insurance needs.
D)purchasing insurance policies directly rather than through a broker.
Q3) A(n)________ gives the holder the right to sell a stated number of shares at a specified price for a limited time.
A)stock index futures contract
B)put option
C)call option
D)interest rate futures contract
Q4) What is the general rule that firms should follow when deciding how much risk to assume?
To view all questions and flashcards with answers, click on the resource link above.
Page 22