Financial Management Practice Exam
Course Introduction
Financial Management is a fundamental course that explores the principles and techniques essential for effective financial decision-making within organizations. The course covers key topics such as financial analysis, planning and forecasting, investment and financing decisions, capital budgeting, cost of capital, and risk management. Students will learn how to evaluate financial performance, allocate resources efficiently, and understand the impact of financial decisions on the value of the firm. Through case studies and practical examples, the course prepares students to address real-world financial challenges and develop strategies for long-term financial sustainability.
Recommended Textbook Principles of Finance 6th Edition by Scott Besley
Available Study Resources on Quizplus
17 Chapters
1889 Verified Questions
1889 Flashcards
Source URL: https://quizplus.com/study-set/3512
Page 2
Chapter 1: An Overview of Finance
Available Study Resources on Quizplus for this Chatper
42 Verified Questions
42 Flashcards
Source URL: https://quizplus.com/quiz/69785
Sample Questions
Q1) The history of banking in the United States is one of continuous regulation to ensure the safety of our banking institution.For this reason, little deregulation has taken place.
A)True
B)False
Answer: False
Q2) Which of the following is consistent with maximizing the value of a firm?
A) increasing the amount and complexity of financial data reported by the firm
B) increasing the riskiness of firm
C) spending large amounts of money perquisites for the managers
D) following sound sustainable business practices
E) None of the above
Answer: D
Q3) At the beginning of the twentieth century, for the most part, the only investments available to individual investors were corporate stocks and bonds; but, today, there are a significantly greater number of investment choices because investors' demands have changed.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Financial Assets Instruments
Available Study Resources on Quizplus for this Chatper
111 Verified Questions
111 Flashcards
Source URL: https://quizplus.com/quiz/69784
Sample Questions
Q1) A firm that issues "no-par" stock will not have a separate common stock and additional paid-in capital account on their balance sheet, it will be consolidated into a single account called common stock.
A)True
B)False Answer: False
Q2) Retained earnings are a balance sheet account that indicates the total amount of earnings the firm has not paid out as dividends throughout its history.
A)True
B)False Answer: True
Q3) Many bond indentures allow the company to acquire bonds for a sinking fund either by purchasing bonds in the market or by a lottery administered by the trustee for the purchase of a percentage of the issue through a call at face value.
A)True
B)False Answer: True
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Financial Markets and the Investment Banking Process
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/69783
Sample Questions
Q1) When a firm makes an earnings announcement that is different than what the analysts expected the market price of the firm's stock adjusts immediately.This is evidence consistent with markets being ____ efficient but not ____ efficient.
A) weak-form; strong-form
B) weak-form; semistrong-form
C) strong-form; semistrong-form
D) semistrong-form; strong-form
Answer: D
Q2) Which of the following assets are traded in the derivative markets?
A) Stocks, bonds, and options
B) Stocks, futures, and options
C) Options, futures, and swaps
D) Futures, bonds, and swaps
Answer: C
Q3) The OTC market is a physical exchange, much like the New York Stock Exchange, where securities dealers provide trading in unlisted securities.
A)True
B)False
Answer: False
5
To view all questions and flashcards with answers, click on the resource link above.
Chapter 4: Financial Intermediaries and the Banking System
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/69782
Sample Questions
Q1) The primary tools of the Federal Reserve monetary policy include all of the following except
A) changing the discount rates.
B) open market operations.
C) changes in reserve requirements.
D) changes in the Federal Funds rate.
E) All of the above are monetary policy tools used by the Fed.
Q2) Which of the following is not a benefit associated with financial intermediaries?
A) reduced costs
B) fund indivisibility
C) financial flexibility
D) diversification of risk
Q3) The primary responsibility of the Federal Open Market Committee (FOMC) is to
A) establish a level and growth of the money supply through open market operations to produce a stable economic environment.
B) supervise the examination of state member banks.
C) change the reserve requirements of banks.
D) determine the level of Federal Reserve notes allowed in circulation.
E) None of the above.
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: The Cost of Money Interest Rates
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/69781
Sample Questions
Q1) During recessions the demand for funds typically ____.
A) increases
B) stays the same
C) decreases
D) doubles
Q2) The market segmentation theory of the term structure is, essentially, the expectations theory with the addition of maturity risk premiums.
A)True
B)False
Q3) Expectations of high inflation lead to low interest rates and vice versa.
A)True
B)False
Q4) Long-term bonds are more vulnerable to reinvestment rate risk than short-term bonds.
A)True B)False
Q5) The price of a bond bought at a discount cannot go down in the financial markets. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Business Organizations and the Tax Environment
Available Study Resources on Quizplus for this Chatper
96 Verified Questions
96 Flashcards
Source URL: https://quizplus.com/quiz/69780
Sample Questions
Q1) Carter Corporation has some money to invest, and its treasurer is choosing between City of Chicago municipal bonds and U.S.Treasury bonds.Both have the same maturity, and they are equally risky and liquid.If Treasury bonds yield 6 percent, and Carter's marginal income tax rate is 40 percent, what yield on the Chicago municipal bonds would make Carter's treasurer indifferent between the two?
A) 2.40%
B) 3.60%
C) 4.50%
D) 5.25%
E) 6.00%
Q2) ____ decisions are decisions as to how much of current earnings to pay out as dividends rather than to retain for reinvestment in the firm.
A) Capital structure
B) Capital budgeting
C) Dividend policy
D) Investment
Q3) The U.S.corporate tax rate is lower than most industrialized nations.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Analysis of Financial Statements
Available Study Resources on Quizplus for this Chatper
123 Verified Questions
123 Flashcards
Source URL: https://quizplus.com/quiz/69779
Sample Questions
Q1) The retained earnings account on the balance sheet does not represent cash and in fact, represents a claim against the existing assets of the firm.This implies that retained earnings are in fact the reinvested earnings of stockholders.
A)True
B)False
Q2) Culver Inc.has earnings after interest but before taxes of $300.The company's before-tax times-interest-earned ratio is 7.00.Calculate the company's interest charges.
A) $42.86
B) $50.00
C) $40.00
D) $60.00
E) $57.93
Q3) Common stockholders' equity is the current market value of all common shares of stock outstanding.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Financial Planning and Control
Available Study Resources on Quizplus for this Chatper
122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/69778
Sample Questions
Q1) The projected balance sheet method of forecasting is based on which of the following assumptions?
A) All balance sheet accounts are tied directly to sales.
B) Most balance sheet accounts are tied directly to sales.
C) The current level of total assets is optimal for the current sales level.
D) Answers a and c above.
E) Answers b and c above.
Q2) If a firm has a high degree of leverage then a small change in sales results in
A) an unpredictable change in expected profits
B) a very small change in expected profits
C) no change in expected profits
D) a large change in expected profits.
Q3) Financial breakeven analysis can be used to help evaluate the impact various forms of financing, such as debt and equity, will have on the riskiness of a firm.
A)True
B)False
Q4) Operating costs include variable costs, depreciation and interest charges.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Time Value of Money
Available Study Resources on Quizplus for this Chatper
132 Verified Questions
132 Flashcards
Source URL: https://quizplus.com/quiz/69777
Sample Questions
Q1) You deposited $1,000 in a savings account that pays 8 percent interest, compounded quarterly, planning to use it to finish your last year in college.Eighteen months later, you decide to go to the Rocky Mountains to become a ski instructor rather than continue in school, so you close out your account.How much money will you receive?
A) $1,171
B) $1,126
C) $1,082
D) $1,163
E) $1,008
Q2) There exists an IRR solution for each time the direction of cash flows associated with a project is interrupted.
A)True
B)False
Q3) The present value of a future cash flow is the amount of money if invested today at particular interest would turn into the future value at maturity.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Valuation Concepts
Available Study Resources on Quizplus for this Chatper
126 Verified Questions
126 Flashcards
Source URL: https://quizplus.com/quiz/69776
Sample Questions
Q1) Which of the following statements is correct?
A) The constant growth DCF model can be used to value a stock only if the stock's dividends are expected to grow forever at a constant rate which is less than the required rate of return on the stock.
B) If the growth rate is negative, the constant growth DCF model cannot be used.
C) The constant growth DCF model may be written as r<sub>0</sub> = D<sub>0</sub>/P<sub>0</sub> +g
D) The constant growth DCF model may be written as P<sub>0</sub> = D<sub>0</sub>/(r + g).
E) The constant growth DCF model may be written as P<sub>0</sub> = D<sub>0</sub>/(r g).
Q2) The present value of a $1,000 par value bond with an eight percent semi-annual coupon, five years to maturity and a six percent yield to maturity is $1,085.30.
A)True B)False
Q3) A bond is more likely to be called when market interest rates decline.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Risk and Rates of Return
Available Study Resources on Quizplus for this Chatper
104 Verified Questions
104 Flashcards
Source URL: https://quizplus.com/quiz/69775
Sample Questions
Q1) The Y-axis intercept of the SML indicates the return on the individual asset when the realized return on an average stock (beta = 1.0) is zero.
A)True
B)False
Q2) Assume Stock A has a standard deviation of 0.21 while Stock B has a standard deviation of 0.10.If both Stock A and Stock B must be held in isolation, and if investors are risk averse, we can conclude that Stock A will have a greater required return.However, if the assets could be held in portfolios, it is conceivable that the required return could be higher on the low standard deviation stock.
A)True
B)False
Q3) When comparing two stocks with the same standard deviation but the different expected returns, you must compute the coefficient of variation to determine which stock is preferred.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
13
Chapter 12: The Cost of Capital
Available Study Resources on Quizplus for this Chatper
115 Verified Questions
115 Flashcards
Source URL: https://quizplus.com/quiz/69774
Sample Questions
Q1) The firm's cost of capital represents the maximum rate of return earned on the firm's investments.
A)True
B)False
Q2) Which of the following is not considered a capital component?
A) Long-term debt.
B) Common stock.
C) Short-term debt.
D) Preferred stock.
E) All of the above are considered capital components.
Q3) Refer to Rollins Corporation.What is Rollins' WACC once it starts using new common stock financing?
A) 13.6%
B) 14.1%
C) 16.0%
D) 16.6%
E) 16.9%
Q4) Flotation costs lower the cost of capital to a firm when issuing new securities.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Capital Budgeting
Available Study Resources on Quizplus for this Chatper
201 Verified Questions
201 Flashcards
Source URL: https://quizplus.com/quiz/69773
Sample Questions
Q1) Any capital budgeting investment rule should depend solely on forecasted cash flows and the opportunity rate of return.The rule itself should not be affected by managers' tastes, the choice of accounting method, or the profitability of other independent projects.
A)True
B)False
Q2) Which of the following rules are essential to successful cash flow estimates, and ultimately, to successful capital budgeting?
A) The return on invested capital is the only relevant cash flow.
B) Only incremental cash flows are relevant to the accept/reject decision.
C) Total cash flows are relevant to capital budgeting analysis and the accept/reject decision.
D) All of the above are correct.
E) Only answers a and b are correct.
Q3) Superior analytical techniques, such as NPV, used in combination with adjustments to the average required rate of return, can overcome the problem of poor cash flow estimation in decision making.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Capital Structure and Dividend Policy Decisions
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/69772
Sample Questions
Q1) Asymmetric information involves a situation where the firm's managers have different (better) information about their firm's prospects than do investors.
A)True
B)False
Q2) If Miller and Modigliani had considered the cost of bankruptcy, it is unlikely that they would have concluded that 100 percent debt financing is optimal for the firm.
A)True
B)False
Q3) The announcement of a stock offering by a mature firm that seems to have financing alternatives is taken as a signal that the firm's prospects are very good.
A)True
B)False
Q4) The degree of financial risk is the single most important determinant of a firm's capital structure.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Working Capital Management
Available Study Resources on Quizplus for this Chatper
174 Verified Questions
174 Flashcards
Source URL: https://quizplus.com/quiz/69771
Sample Questions
Q1) Wildthing Amusements Company's total assets fluctuate between $320,000 and $410,000, while its fixed assets remain constant at $260,000.If the firm follows a maturity matching or moderate working capital financing policy, what is the likely level of its long-term financing?
A) $90,000
B) $260,000
C) $350,000
D) $410,000
E) $320,000
Q2) The economic ordering quantity will rise due to an increase in which of the following variable(s)?
A) Product demand (sales).
B) Carrying costs.
C) Ordering costs.
D) Both a and b above.
E) Both a and c above.
Q3) Lockbox arrangements are one way for a firm to speed up the receipt of payments from customers.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Investment Concepts
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/69770
Sample Questions
Q1) The costs associated with trading securities, which include the costs of time, effort, and phone calls, as well as brokered commissions are called
A) Arbitrage.
B) Economies of scale.
C) Transaction costs.
D) Portfolio management.
E) Taxes.
Q2) A bond with an annual coupon rate of 12 percent and face value of $1,000.00 was purchased for $990.00 and sold two years later for $1,050.00.What was the holding period return?
A) 15.1%
B) 18.2%
C) 30.3%
D) 28.5%
E) 30.0%
Q3) Because the simple arithmetic average return does not consider compounding, its value is always less than or equal to the geometric average return.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 17: Security Valuation and Selection
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/69769
Sample Questions
Q1) If the stock market is semi-strong efficient, which of the following statements is correct?
A) All stocks should have the same expected returns; however, they may have different realized returns.
B) In equilibrium, stocks and bonds should have the same expected returns.
C) Investors can outperform the market if they have access to information which has not yet been publicly revealed.
D) If the stock market has been performing strongly over the past several months, stock prices are more likely to decline than increase over the next several months.
E) None of the above statements is correct.
Q2) Industries that tend to be directly related to business cycles such that they perform best during expansions and worst during contractions are called ____.
A) Defensive industries
B) Industry life cycles
C) Countercyclical industries
D) Growth industries
E) Cyclical industries
To view all questions and flashcards with answers, click on the resource link above.
19