Financial Management
Mock Exam
Course Introduction
Financial Management explores the principles and practices essential for effectively managing an organization's financial resources. The course covers topics such as financial analysis, capital budgeting, risk and return, cost of capital, working capital management, and the role of financial markets and institutions. Students learn to evaluate investment opportunities, analyze financial statements, and make informed decisions to maximize shareholder value. Emphasis is placed on both theoretical foundations and practical applications, equipping students with the tools needed to address real-world financial challenges in corporate environments.
Recommended Textbook
Managerial Economics Theory Applications and Cases 8th Edition by W. Bruce Allen
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693 Verified Questions
693 Flashcards
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) In managerial economics,managers are assumed to maximize:
A) current profits.
B) their take-home pay.
C) their employees' welfare.
D) the value of their firm.
E) social welfare.
Answer: D
Q2) The market supply curve shows the quantity of a good or service that ,holding other possible influences constant.
A) households would sell at various prices
B) households would buy at various outputs
C) firms would sell at various prices
D) firms would buy at various prices
E) households would buy at various prices
Answer: C
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3
Chapter 2: Demand Theory
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Sample Questions
Q1) In 1965,as per capita income among a particular segment of the population fell from $10,200 to $9,800,everything else remaining constant,annual per capita consumption of beer fell from 55 to 45 gallons; this implied an income elasticity of demand for beer of:
A) 4.44.
B) 4.55.
C) 5.0.
D) 4.65.
E) 0.5.
Answer: C
Q2) In Russia,as per capita income rises from $1,980 to $2,020,everything else remaining constant,annual per capita consumption of vodka falls from 525 to 475 liters; this implies an income elasticity of demand for vodka of:
A) -0.50.
B) -5.0.
C) 2.0.
D) 5.0.
E) 0.50.
Answer: B
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4
Chapter 3: Consumer Behavior and Rational Choice
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Sample Questions
Q1) Jamie is considering the purchase of a new car for $20,000.Her income is $60,000,and her alternative is "all other things," which sell for $1 each.If all other things are plotted on the vertical axis and her marginal rate of substitution is ,then she will buy car(s).
A) 15,000; 0
B) 15,000; 1
C) 15,000; 2
D) 15,000; 3
E) 1/15,000; 3
Answer: A
Q2) A budget constraint:
A) must be convex to the origin if consumers prefer more to less.
B) will be upward-sloping if consumers consider one good a "bad."
C) must be downward-sloping if both goods have positive prices.
D) will be concave to the origin if the consumer's budget is fixed.
E) will always have slope equal to -1.
Answer: C
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Chapter 4: Estimating Demand Functions
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Sample Questions
Q1) Serial correlation occurs when:
A) independent variables are correlated across observations.
B) dependent variables are correlated across observations.
C) error terms are correlated across observations.
D) R-squared is near 1 and the t-statistics are near 0.
E) R-squared is near 0 and the t-statistics are near 1.
Q2) The standard error of the estimate is also known as:
A) the root-mean-squared error.
B) the standard error of the coefficient estimate.
C) R-squared.
D) the t-ratio.
E) t-squared.
Q3) In simple regression analysis (Y = a + bX),the estimate of the intercept coefficient a is equal to
A) Y<sub>mean</sub> - bX<sub>mean</sub>.
B) X<sub>mean</sub> - bY<sub>mean</sub>.
C) Y<sub>mean</sub> + bX<sub>mean</sub>.
D) X<sub>mean</sub> + bY<sub>mean</sub>.
E) Y<sub>mean</sub> - X<sub>mean</sub> / b.
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Page 6
Chapter 5: Production Theory
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Sample Questions
Q1) Cast-Steel Chairs produces office chairs using steel and labor with Q = 1/2L<sup>0.4</sup> S<sup>0.6</sup>.If labor costs $10 per hour and steel costs $60 per unit,what is the optimal combination of labor and steel if Cast-Steel's budget is $10,000?
A) S = 75 units, L = 550 hours.
B) S = 0 units, L = 1,000 hours.
C) S = 25 units, L = 850 hours.
D) S = 50 units, L = 700 hours.
E) S = 100 units, L = 400 hours.
Q2) If output is produced according to Q = 3K + 4L,then this production process exhibits:
A) increasing returns to scale.
B) decreasing returns to scale.
C) first increasing and then decreasing returns to scale.
D) constant returns to scale.
E) first decreasing and then increasing returns to scale.
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Chapter 6: The Analysis of Costs
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Sample Questions
Q1) Hedge Fun is a landscaping firm that specializes in topiary.It contracts with the owners of 125 local homes and provides its service at an annual fee of $1,300.Its average variable cost is $800,and its annual fixed cost is $28,000.What is the break-even level of output?
A) 125.
B) 87.
C) 63.
D) 56.
E) None of the above.
Q2) If total cost is given by TC = 10Q - 5Q<sup>2</sup> + 0.1Q<sup>3</sup>,then average cost is minimized at units of output.
A) 0.5.
B) 0.01.
C) 50.
D) 25.
E) 0.1.
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Chapter 7: Perfect Competition
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Sample Questions
Q1) Meteor Tie Company produces ties from fabric according to Q = 10 + 4F(1/3)F<sup>3</sup>.If fabric is free and ties sell for $20,what is Meteor's optimal usage of fabric?
A) 0.
B) 2.
C) 4.
D) 6.
E) 8.
Q2) If the perfectly competitive market supply of pork bellies shifts from Q<sub>S</sub><sub>,93</sub> = 250 + 50P to Q<sub>S</sub><sub>,94</sub> = 400 + 40P,and the market demand is given by Q<sub>D</sub> = +10,000 - 200P,then the change in equilibrium quantity will be:
A) 200 units.
B) 100 units.
C) 0 units.
D) -100 units.
E) -200 units.
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9
Chapter 8: Monopoly and Monopolistic Competition
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Sample Questions
Q1) For a producer of joint products X and Y with total revenue and R<sub>Y</sub>,an isorevenue curve:
A) isolates R<sub>X</sub> and R<sub>Y</sub> separately.
B) shows points where R<sub>X</sub> = R<sub>Y </sub>.
C) shows points where revenue curves are tangent.
D) shows points where R<sub>X</sub> /R<sub>Y</sub> is constant.
E) shows points where R<sub>X</sub> + R<sub>Y</sub> is constant.
Q2) For a producer of joint products X and Y with total costs C<sub>X</sub> and C<sub>Y</sub>,an isocost curve:
A) isolates C<sub>X</sub> and C<sub>Y</sub> separately.
B) shows points where C<sub>X</sub> = C<sub>Y </sub>.
C) shows points where cost curves are tangent.
D) shows points where C<sub>X</sub> /C<sub>Y</sub> is constant.
E) shows points where C<sub>X</sub> + C<sub>Y</sub> is constant.
Q3) In the model of monopolistic competition,firms produce a:
A) standardized product with considerable control over price.
B) differentiated product with considerable control over price.
C) standardized product with no control over price.
D) differentiated product with no control over price.
E) differentiated product with some control over price.
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Chapter 9: Managerial Use of Price Discrimination
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Sample Questions
Q1) The per-week demand for use of the Golden Gate Bridge in San Francisco is P = 130.15Q during peak traffic periods and P = 7 - 0.1Q during off-peak hours,where Q is the number of cars crossing the bridge in thousands and P is the toll in dollars.If the marginal congestion cost of using the bridge is MC = 5 + 0.2Q,what is the optimal off-peak load toll for crossing the bridge?
A) 6.5.
B) 8.0.
C) 8.7.
D) 9.9.
E) 10.6.
Q2) When a monopolist requires a customer to pay an initial fee for the right to buy a product as well as a usage fee for each unit of the product bought,this is known as a(n):
A) bundling contract.
B) price differentiation.
C) oligopolistic device.
D) two-part tariff.
E) maximizing device.
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Page 11
Chapter 10: Bundling and Intrafirm Pricing
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Sample Questions
Q1) When the NCAA basketball tournament will only sell tickets to all three games held at a given site as a package,it is practicing:
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) markup pricing.
E) tying.
Q2) The XYZ Steel Company produces its own coal for use in its production facility.The demand for steel is given by P<sub>s</sub> = 500 - 2Q<sub>s</sub> and the total cost of producing steel is given by TC<sub>s</sub> = 175Q<sub>s</sub>,where Q<sub>s</sub> is tons of steel per week.The price of coal in a perfectly competitive market outside the firm is $250 per ton,and the total cost of producing coal is given by TC<sub>c</sub> = 40 + 5Q<sub>c</sub><sup>2</sup>,where Q<sub>c</sub> is tons of coal per week.How much coal will XYZ sell outside the firm?
A) 6.25 tons.
B) 18.75 tons.
C) 25 tons.
D) 43.75 tons.
E) 75 tons.
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Page 12
Chapter 11: Oligopoly
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Sample Questions
Q1) Sticky prices are an outcome of the kinked demand model because:
A) firms in an oligopoly will collude to hold prices fixed.
B) marginal costs are constant in oligopolistic industries.
C) marginal costs can vary to some extent, but firms will have no incentive to change their prices in oligopolistic industries.
D) demand is perfectly elastic in oligopolistic industries.
E) firms will set price equal to marginal cost in oligopolistic industries.
Q2) An oligopolist that faces a kinked demand curve is charging price P = 6.Demand for an increase in price is Q = 280 - 40P and demand for a decrease in price is Q = 10010P.Over what range of marginal cost would the optimal price remain unchanged?
A) Between 3 and 5.
B) Between 2 and 5.
C) Between 1 and 4.
D) Between 2 and 4.
E) Between 3 and 4.
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Chapter 12: Game Theory
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Sample Questions
Q1) Strategic foresight is the ability to make decisions today that are rational based on:
A) complete uncertainty about the future.
B) our best information about what will happen in the future.
C) what we know only about behavior in the past.
D) information that we have only about our own behavior in the past.
E) incorrect information about the past.
Q2) Radio City promises if you can find a lower advertised price for anything you bought at Radio City,anywhere in town within 30 days,it will return the difference plus 20%.A sophisticated game theoretic analysis suggests Radio City may be:
A) losing money in the long run.
B) colluding with other stores.
C) using a commitment to threaten competitors.
D) preempting competitors.
E) using price leadership.
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Chapter 13: Auctions
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Sample Questions
Q1) Which of the following is an example of an ascending-bid auction?
A) Sealed-bid auction.
B) Japanese auction.
C) Dutch auction.
D) Vickrey auction.
E) Rabbit auction.
Q2) In an English auction:
A) the dominant strategy is to bid up to your reservation price.
B) the dominant strategy is to bid beyond your reservation price.
C) there is no dominant strategy.
D) the dominant strategy is to bid up to half of your reservation price.
E) the dominant strategy is to maximize expected utility.
Q3) When significant uncertainty exists surrounding the true value of an object at auction,buyers contemplating a bid should bid less when:
A) they have less information about the true value of the item.
B) they are less confident in their own estimates of the true value of the object.
C) there are many other buyers bidding against them.
D) all of the above.
E) none of the above.
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Page 15
Chapter 14: Risk Analysis
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Sample Questions
Q1) A risk-loving person has a utility function that,with income on the horizontal axis and utility on the vertical axis,as income increases:
A) is horizontal.
B) is vertical.
C) has constant, positive slope.
D) is curved down.
E) is curved up.
Q2) If a payoff is equally likely to be $1,$2,$3,$4,or $5,the square of the standard deviation is:
A) 0.
B) 2.
C) 4.
D) 10.
E) 100.
Q3) If expected profit is R and variance \(\sigma\) <sup>2</sup> = 0,then:
A) R<sub>i</sub> = 0 for all i
B) R - R<sub>i</sub> is a positive constant for all i.
C) R - R<sub>i</sub> is a negative constant for all i.
D) R<sub>i</sub> = 0 for all i.
E) R<sub>i</sub> = R for all i.
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Chapter 15: Principalagent Issues and Managerial Compensation
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Sample Questions
Q1) The savings and loan crisis of the early 1990s was caused by a moral-hazard problem because:
A) government insurance encouraged bank managers to take on more risk than they would have without such insurance.
B) bank managers no longer attempted to maximize the profits of the firm.
C) insurance attracted depositors who would not have used banks otherwise.
D) depositors had more information about the banks than shareholders had.
E) government insurance encouraged bank managers to take on less risk than they would have without such insurance.
Q2) Principal-agent problems can exist between:
A) workers and managers.
B) workers and owners.
C) workers and customers.
D) owners and customers.
E) all the above.
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Chapter 16: Adverse Selection
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Sample Questions
Q1) Requiring applicants for life insurance to undergo a physical examination is an effective way to:
A) reduce moral hazard.
B) increase information asymmetry.
C) reduce adverse selection.
D) increase sales.
E) none of the above.
Q2) Good drivers have a 20% chance,and bad drivers have a 50% chance,of getting into an accident.A car is worth $900,and an accident would reduce its value to $400.Both types of drivers have utility U = (car value)<sup>0.5</sup>.What is a good driver's expected utility without insurance?
A) 20.
B) 25.
C) 28.
D) 30.
E) None of the above.
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Chapter 17: Government and Business
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Sample Questions
Q1) If there are two large firms,each with one-quarter of the market,and 10 firms,each with one-twentieth of the market,in an industry,the market four-firm concentration ratio will be:
A) 40.
B) 50.
C) 60.
D) 10.
E) 12.
Q2) The Supreme Court case that reestablished sheer size as a violation per se of the antitrust laws was the:
A) Alcoa case.
B) Standard Oil case.
C) Von's Grocery case.
D) Brown Shoe case.
E) IBM case.
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Chapter 18: Optimization Techniques
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Sample Questions
Q1) NotAlligator Briefcases estimates that its total cost of producing vinyl bags is TC = 65 + 9 / Q + 5Q<sup>2</sup>.At 3 units of output,NotAlligator's marginal cost is:
A) $113.
B) $29.
C) $27.
D) $119.
E) $9.
Q2) A function of one argument is maximized when the first derivative:
A) is zero and the second derivative is positive.
B) is positive and the second derivative is negative.
C) is zero and the second derivative is negative.
D) is negative and the second derivative is positive.
E) and the second derivative are both zero.
Q3) If Y = -2 + X + 32X<sup>3</sup>,then dY/dX is:
A) 1 + 96X<sup>3</sup>.
B) -1 + 96X<sup>2</sup>.
C) 1 + 96X<sup>2</sup>.
D) 96X<sup>2</sup>.
E) X + 32X<sup>3</sup>.
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Page 20
Chapter 19: Appendix Problems
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Sample Questions
Q1) If the annual interest rate is i,the present value of $X to be received at the end of each future year forever is:
A) $X/(1 + i).
B) $X/i.
C) $X/(1 + i)<sup>n</sup>.
D) $X/i <sup>n</sup>.
E) $X<sup>n</sup>/i <sup>n</sup>.
Q2) You borrow money from Fast Eddie's Fast Cash at 20% per year interest and agree to pay $500 at the end of each of the next four years.You must have borrowed approximately:
A) $2,000.
B) $1,595.
C) $1,295.
D) $1,095.
E) $895.
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21