Financial Management
Exam Questions
Course Introduction
Financial Management is a foundational course that introduces students to the principles and practices essential for effective management of financial resources within organizations. The course covers key concepts such as financial planning, analysis, and control; budgeting; capital structure; investment decision-making; cost of capital; and working capital management. Students will learn how to interpret financial statements, assess risk and return, and make informed decisions to maximize shareholder value. By the end of the course, students will be equipped with the analytical tools and strategic insights necessary to address real-world financial challenges in both corporate and personal finance environments.
Recommended Textbook M Finance 3rd Edition by Marcia Millon Cornett
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14 Chapters
1604 Verified Questions
1604 Flashcards
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Chapter 1: Introduction to Financial Management
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66 Flashcards
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Sample Questions
Q1) Which of these are NOT basic approaches to minimizing the agency problem?
A)Ignore the conflict of interest.
B)Monitor managers' actions.
C)Align managers' personal interest with those of the owners by making the managers owners.
D)All of these are basic approaches to minimizing the agency problem.
Answer: D
Q2) The financial crisis that started in 2006 was magnified by which of the following?
A)Public concern over the war in Afghanistan
B)Consistently increasing oil and gas prices
C)Ethical issues affecting high value investment
D)Mortgage lenders securitizing large quantities of their loans
Answer: D
Q3) Which of the following personal decisions is NOT impacted by finance?
A)Borrowing money to purchase cars or homes.
B)Making credit card payments.
C)Making retirement decisions.
D)All of these are impacted by finance.
Answer: D
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Chapter 2: Reviewing Financial Statements
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115 Flashcards
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Sample Questions
Q1) Which financial statement reconciles net income earned during a given period and any cash dividends paid within that period using the change in retained earnings between the beginning and end of the period?
A)Balance sheet
B)Income statement
C)Statement of retained earnings
D)Statement of cash flows
Answer: C
Q2) Which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period?
A)Balance sheet
B)Income statement
C)Statement of retained Earnings
D)Statement of cash Flows
Answer: D
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Chapter 3: Analyzing Financial Statements
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Sample Questions
Q1) Nicole's Neon Signs, Inc. reported a debt to equity ratio of 1.9 times at the end of 2013. If the firm's total assets at year-end are $100 million, how much of their assets is financed with equity?
A)$34.48m
B)$65.52m
C)$52.63m
D)$100m
Answer: A
Q2) Which of the following is NOT one of the cautions in using ratios to evaluate firm performance?
A)The firm has seasonal cash flow differences.
B)The firm has different accounting procedures.
C)The firm has a different capital structure.
D)The firm had a one-time event.
Answer: C
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Chapter 4: Time Value of Money 1: Analyzing Single Cash Flows
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144 Flashcards
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Sample Questions
Q1) What is the value in year 5 of a $600 cash flow made in year 10 when interest rates are 5 percent?
A)$368.35
B)$450.00
C)$470.12
D)$570.00
Q2) Which of the following will not increase a present value?
A)Increase the interest rate
B)Decrease the number of periods
C)Increase the future value
D)None of these answers is correct
Q3) What is the value in year 2 of a $200 cash flow made in year 8 if interest rates are 3 percent?
A)$132.89
B)$147.23
C)$152.91
D)$167.50
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Chapter 5: Time Value of Money 2: Analyzing Annuity Cash Flows
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147 Flashcards
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Sample Questions
Q1) What is the interest rate of a 6-year, annual $3,000 annuity with present value of $14,000?
A)5.64 percent
B)7.69 percent
C)10.17 percent
D)11.32 percent
Q2) Given a 4 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,200, and $1,400.
A)$4,334.53
B)$5,070.78
C)$5,191.68
D)$5,484.56
Q3) Level sets of frequent, consistent cash flows are called: A)loans. B)budgets. C)annuities. D)bills.
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Chapter 6: Understanding Financial Markets and Institutions
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Sample Questions
Q1) The Wall Street Journal reports that the rate on three-year Treasury securities is 6.50 percent, and the six-year Treasury rate is 6.80 percent. From discussions with your broker, you have determined that expected inflation premium is 2.25 percent next year, 2.50 percent in Year 2, and 2.60 percent in Year 3 and beyond. Further, you expect that real interest rates will be 3.4 percent annually for the foreseeable future. Calculate the maturity risk premium on the three-year and the six-year Treasury security.
A)3-year: 0.6 percent; 6-year: 0.80 percent
B)3-year: 0.5 percent; 6-year: 0.90 percent
C)3-year: 0.6 percent; 6-year: 1.20 percent
D)3-year: 0.5 percent; 6-year: 0.80 percent
Q2) Which of the following statements is correct?
A)According to the unbiased expectations theory, the return for holding a two-year bond to maturity is equal to the nominal rate divided by the real interest rate.
B)The rate on a 10-year Corporate can never be less than the rate on a 10-year Treasury.
C)We usually observe the inverted yield curve.
D)The rate on a three-year Treasury can never be less than the rate on a 15-year Treasury.
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Chapter 7: Valuing Bonds
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Sample Questions
Q1) Consider a 3.75 percent TIPS with an issue CPI reference of 183.5. At the beginning of this year, the CPI was 190.6 and was at 199.4 at the end of the year. What was the capital gain of the TIPS in percentage terms? (Assume semi-annual interest payments and $1,000 par value.)
A)3.75 percent
B)4.62 percent
C)7.10 percent
D)8.80 percent
Q2) A 30-year bond with an 8 percent coupon has a yield to maturity of 6 percent. The bond could be called in seven years and if called would generate a yield to call of 5.75 percent. What is this bond's call premium? Assume the coupon payments are made annually and par value is $1,000.
A)$219.73
B)$152.64
C)$106.29
D)$301.76
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Chapter 8: Valuing Stocks
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Sample Questions
Q1) A firm is expected to pay a dividend of $2.00 next year and $3.75 the following year. Financial analysts believe the stock will be at their price target of $125.00 in two years.
Compute the value of this stock with a required rate of return of 15 percent.
A)$78.34
B)$81.05
C)$87.13
D)$99.09
Q2) You would like to buy shares of International Business Machines (IBM). The current bid and ask quotes are $96.17 and $96.24, respectively. You place a market buy-order for 100 shares that executes at these quoted prices. How much money did it cost to buy these shares?
A)$7.00
B)$9,617.00
C)$9,624.00
D)$19,241.00
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Chapter 9: Characterizing Risk and Return
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Sample Questions
Q1) Rank the following three stocks by their total risk level, highest to lowest. Night Ryder has an average return of 14 percent and standard deviation of 30 percent. The average return and standard deviation of WholeMart are 12 percent and 25 percent; and of Fruit Fly are 25 percent and 40 percent.
A)Fruit Fly, Night Ryder, WholeMart
B)Night Ryder, WholeMart, Fruit Fly
C)WholeMart, Fruit Fly, Night Ryder
D)WholeMart, Night Ryder, Fruit Fly
Q2) Which of these is the dollar return characterized as a percentage of money invested?
A)Average return
B)Dollar return
C)Market return
D)Percentage return
Q3) Which of these is the portion of total risk that is attributable to overall economic factors?
A)Firm specific risk
B)Market risk
C)Modern portfolio risk
D)Total risk
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Chapter 10: Estimating Risk and Return
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Sample Questions
Q1) Which of the following is correct?
A)Hedge funds often sell stock they don't even own.
B)Hedge funds maintain secrecy about their holdings, trading, and strategies.
C)Hedge funds are limited to sophisticated investors.
D)All of these statements are correct.
Q2) The study of the cognitive processes and biases associated with making financial and economic decisions is known as:
A)asset pricing model.
B)behavioral finance.
C)efficient market hypothesis.
D)stock market bubble.
Q3) ABC Inc. has a dividend yield equal to 3 percent and is expected to grow at a 7 percent rate for the next seven years. What is ABC's required return?
A)10 percent
B)11 percent
C)4 percent
D)5 percent
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Chapter 11: Calculating the Cost of Capital
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Sample Questions
Q1) Suppose a new project was going to be financed partially with retained earnings. What flotation costs should you use for retained earnings?
A)Use the same flotation cost that would be used to issue new common stock
B)Use an average of the flotation costs for debt, preferred and common stock
C)Use the industry average flotation cost for common stock
D)Zero
Q2) Suppose that Tan Lotion's common shares sell for $18 per share, are expected to set their next annual dividend at $1.00 per share, and that all future dividends are expected to grow by 7 percent per year, indefinitely. If Tan Lotion faces a flotation cost of 12 percent on new equity issues, what will be the flotation-adjusted cost of equity?
A)6.37 percent
B)7.06 percent
C)12.56 percent
D)13.31 percent
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Chapter 12: Estimating Cash Flows on Capital Budgeting Projects
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Sample Questions
Q1) Your firm needs a computerized machine tool lathe that costs $50,000, requires $10,000 in installation, $5,000 in freight charges, and another $12,000 in maintenance for each year of its three-year life. After three years, this machine will be replaced. The machine falls into the MACRS three-year class life category. Assume a tax rate of 30 percent and a discount rate of 12 percent. If the lathe can be sold for $7,000 at the end of year 3, what is the after-tax salvage value?
A)$6,499.35
B)$6,344.95
C)$5,999.45
D)$6,554.95
Q2) Your firm needs a machine which costs $500,000, and requires $10,000 in maintenance for each year of its three-year life. After three years, this machine will be replaced. The machine falls into the MACRS three-year class life category. Assume a tax rate of 35 percent and a discount rate of 15 percent. What is the depreciation tax shield for this project in year 3?
A)$7,219.88
B)$24,500.00
C)$25,917.50
D)$48,132.50
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Chapter 13: Weighing Net Present Value and Other Capital
Budgeting Criteria
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Sample Questions
Q1) Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years, respectively. Use the NPV decision to evaluate this project; should it be accepted or rejected? \[\begin{array} { | l | l | l |
\hline \text { Time } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\
}
\hline \text { Cash } & - 85,000 & \$ 12,000 & \$ 11,000 & \$ 13,000 & \$ 21,000 & \$ 31,000 & \$ 32,000 \\
\text { Flow } & & & & & & &\\
\hline
\end{array}\]
A)NPV = $1,766.55; accept the project
B)NPV = -$892.19; reject the project
C)NPV = $1,288.94; accept the project
D)NPV = -$3,577.90; reject the project
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Chapter 14: Working Capital Management and Policies
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Sample Questions
Q1) Which of the following is a checking account that the firm sets up so that the bank agrees to automatically transfer funds from an interest-bearing account to pay off any checks presented?
A)Lockbox system
B)Concentration banking
C)Wire transfers
D)Zero-balance account
Q2) If demand for a firm's products suddenly increases so that inventory decreases while sales increase, how will the firm's needs for net working capital react?
A)Net working capital would increase.
B)Net working capital would decrease.
C)There would be no change in net working capital.
D)Net working capital would first decrease, then increase slowly over time.
Q3) Why do firms offer customers discounts for paying early?
A)If customers pay early, the firm increases the likelihood of being paid.
B)If customers pay early, the firm's cash cycle is shortened.
C)If customers pay early, the firm improves its credit policy.
D)All of the above are reasons firms offer customers discounts for paying early.
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