Course Introduction
Financial Management Study Guide
Questions
Financial Management is a comprehensive course that introduces students to the principles and practices of managing an organizations financial resources. The course covers essential topics such as financial statement analysis, planning and budgeting, capital structure, risk and return, valuation of assets, and working capital management. Students learn how to apply financial concepts and analytical tools to make informed decisions that maximize shareholder value. Through case studies, problem-solving exercises, and real-world applications, the course equips learners with the skills necessary to assess financial performance and develop effective financial strategies within a business context.
Recommended Textbook
Essentials of Corporate Finance 9th Edition by Stephen Ross
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18 Chapters
1640 Verified Questions
1640 Flashcards
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Page 2
Chapter 1: Introduction to Financial Management
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58 Flashcards
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Sample Questions
Q1) Which one of the following correctly defines a common chain of command within a corporation?
A)The controller reports directly to the corporate treasurer.
B)The treasurer reports directly to the board of directors.
C)The chief financial officer reports directly to the board of directors.
D)The credit manager reports directly to the controller.
E)The controller reports directly to the chief financial officer.
Answer: E
Q2) The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods.However,Weil's board of directors rejects the acquisition offer.This is an example of:
A)a corporate takeover.
B)a capital structure issue.
C)a working capital decision.
D)an agency conflict.
E)a compensation issue.
Answer: D
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Page 3
Chapter 2: Financial Statements,Taxes,and Cash Flow
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Sample Questions
Q1) Bleu Berri Farms had equity of $58,900 at the beginning of the year.During the year,the company earned net income of $8,200 and paid $2,500 in dividends.Also during the year,the company repurchased $3,500 of stock from one of its shareholders.What is the value of the owners' equity at year end?
A)$61,100
B)$67,600
C)$64,900
D)$64,400
E)$68,100
Answer: A
Q2) A firm has earnings before interest and taxes of $27,130,net income of $16,220,and taxes of $5,450 for the year.While the firm paid out $31,600 to pay off existing debt it then later borrowed $42,000.What is the amount of the cash flow to creditors?
A)-$14,040
B)$0
C)-$4,660
D)$14,040
E)$4,660
Answer: C
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Page 4
Chapter 3: Working With Financial Statements
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119 Flashcards
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Sample Questions
Q1) A firm has net working capital of $6,800 and current assets of $21,800.What is the current ratio?
A).69
B).60
C)1.45
D)1.67
E).92
Answer: C
Q2) Which one of the following best indicates a firm is utilizing its assets more efficiently than it has in the past?
A)A decrease in the total asset turnover
B)A decrease in the capital intensity ratio
C)An increase in days' sales in receivables
D)A decrease in the profit margin
E)A decrease in the inventory turnover rate
Answer: B
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Chapter 4: Introduction to Valuation: The Time Value of Money
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63 Flashcards
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Sample Questions
Q1) Katlyn needs to invest $5,318 today in order for her savings account to be worth $8,000 six years from now.Which one of the following terms refers to the $5,318?
A)Present value
B)Compound value
C)Future value
D)Complex value
E)Factor value
Q2) Eleven years ago,you deposited $3,200 into an account.Seven years ago,you added an additional $1,000 to this account.You earned 9.2 percent,compounded annually,for the first 4 years and 5.5 percent,compounded annually,for the last 7 years.How much money do you have in your account today?
A)$8,666.67
B)$7,717.29
C)$7,411.90
D)$8,708.15
E)$8,073.91
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Chapter 5: Discounted Cash Flow Valuation
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) A preferred stock pays an annual dividend of $4.50.What is one share of this stock worth to you today if you require a rate of return of 11 percent?
A)$56.14
B)$37.98
C)$43.00
D)$40.91
E)$38.56
Q2) Which one of the following is the annuity present value formula?
A)C ×({1 - [1/(1 + r)t]}/r)
B)C ×({1 - [1/(1 + r)t]} -r)
C)C ×({1 - [r/(1 + r)t]}/r)
D)C ×({1 - [1/(1 ×r)t]} ×r)
E)C ×({1 - [r/(1 ×r)t]} ×r)
Q3) All else held constant,the future value of an annuity will increase if you:
A)decrease both the interest rate and the time period.
B)increase the time period.
C)decrease the present value.
D)decrease the payment amount.
E)decrease the interest rate.
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Page 7
Chapter 6: Interest Rates and Bond Valuation
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) A company needs to raise $22 million and plans to issue 20-year bonds for this purpose.The required rate of return is7.6 percent in the current market.The company has two issue alternatives: a 7.6 percent coupon and a zero coupon bond.The company's tax rate is 34 percent.At bond maturity,how much will the company need to pay to its bondholders if it issues the coupon bonds? What if it issue the zeros?
Assume semiannual compounding for both bond issues.(For simplicity's sake,assume the company can issue a partial bond.)
A)$21.407 million; $102.12 million
B)$23.672 million; $97.795.51 million
C)$22.836 million; $102.12 million
D)$22.836 million; $97.795 million
E)$23.672 million; $102.12 million
Q2) A bond? s annual interest divided by its face value is referred to as the:
A)market rate.
B)call rate.
C)coupon rate.
D)current yield.
E)yield-to-maturity.
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Chapter 7: Equity Markets and Stock Valuation
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91 Flashcards
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Sample Questions
Q1) An agent who buys and sells securities from inventory is called a:
A) floor trader.
B) dealer.
C) commission broker.
D) broker.
E) floor broker.
Q2) Juniper Trees has earnings per share of $1.38, all of which is added to retained earnings. What is the value of a share of its stock if the PE ratio is 9.8 and market-to-book ratio is 2.5?
A) $13.52
B) $13.67
C) $15.30
D) $33.80
E) $34.18
Q3) When valuing a stock using the constant-growth model, D1 represents the:
A) expected difference in the stock price over the next year.
B) expected stock price in one year.
C) last annual dividend paid.
D) the next expected annual dividend.
E) discount rate.
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Chapter 8: Net Present Value and Other Investment Criteria
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109 Flashcards
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Sample Questions
Q1) The reinvestment approach to the modified internal rate of return:
A)individually discounts each separate cash flow back to the present.
B)reinvests all the cash flows, including the initial cash flow, to the end of the project.
C)discounts all negative cash flows to the present and compounds all positive cash flows to the end of the project.
D)discounts all negative cash flows back to the present and combines them with the initial cost.
E)compounds all of the cash flows, except for the initial cash flow, to the end of the project.
Q2) Which one of the following indicates that an independent project is definitely acceptable?
A)Profitability index greater than 1.0
B)Negative net present value
C)Modified internal rate return that is lower than the requirement
D)Zero internal rate of return
E)Positive average accounting return
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Chapter 9: Making Capital Investment Decisions
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105 Flashcards
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Sample Questions
Q1) Assume an all-equity firm has positive net earnings.The operating cash flow of this firm:
A)ignores both depreciation and taxes.
B)is unaffected by the depreciation expense.
C)must be negative.
D)increases when the tax rate decreases.
E)is equal to net income minus depreciation.
Q2) The Corner Market has decided to expand its retail store by building on a vacant lot it currently owns.This lot was purchased four years ago at a cost of $299,000,which the firm paid in cash.To date,the firm has spent another $38,000 on land improvements,all of which was also paid in cash.Today,the lot has a market value of $329,000.What value should be included in the analysis of the expansion project for the cost of the land?
A)The sum of the cash paid to date for both the lot and the improvements
B)The original purchase price only
C)The current market value of the land plus the cash paid for the improvements
D)The current market value of the land
E)Zero because the land and the improvements were previously purchased with cash
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Chapter 10: Some Lessons From Capital Market History
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86 Flashcards
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Sample Questions
Q1) Dan is a chemist for ABC,a major drug manufacturer.Dan cannot earn excess profits on ABC stock based on the knowledge he has related to his experiments if the financial markets are:
A)weak form efficient.
B)strong form efficient.
C)semistrong form efficient.
D)efficient at any level.
E)aware that the trader is an insider.
Q2) Assume large-company stocks returned 12.1 percent on average over the past 88 years.The risk premium on these stocks was 8.6 percent and the inflation rate was 3.0 percent.What was the average nominal risk-free rate of return for those 88 years?
A)3.5 percent
B)9.1 percent
C)4.6 percent
D)5 percent
E)6.5 percent58
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Chapter 11: Risk and Return
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39 Flashcards
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Sample Questions
Q1) The slope of the security market line represents the:
A)risk-free rate.
B)market risk premium.
C)beta coefficient.
D)risk premium on an individual asset.
E)market rate of return.
Q2) The systematic risk principle states that the expected return on a risky asset depends only on the asset? s risk.
A)unique
B)diversifiable
C)asset-specific
D)market
E)unsystematic
Q3) Which statement is true?
A)The expected rate of return on any portfolio must be positive.
B)The arithmetic average of the betas for each security held in a portfolio must equal 1.0.
C)The beta of any portfolio must be 1.0.
D)The weights of the securities held in any portfolio must equal 1.0.
E)The standard deviation of any portfolio must equal 1.0.
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Page 13
Chapter 12: Cost of Capital
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) S&W has 21,000 shares of common stock outstanding at a price of $29 a share.It also has 2,000 shares of preferred stock outstanding at a price of $71 a share.The firm has 7 percent,12-year bonds outstanding with a total market value of $386,000.The bonds are currently quoted at 100.6 percent of face and pay interest semiannually.What is the capital structure weight of the firm's preferred stock if the tax rate is 34 percent?
A)12.49 percent
B)9.00 percent
C)8.24 percent
D)11.84 percent
E)13.63 percent
Q2) Which one of the following will decrease the aftertax cost of debt for a firm?
A)Decrease in the firm's beta
B)Increase in tax rates
C)Increase in the risk-free rate of return
D)Decrease in the market price of the debt
E)Increase in a bond's yield to maturity
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14
Chapter 13: Leverage and Capital Structure
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89 Flashcards
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Sample Questions
Q1) T.L.C.Enterprises just revised its capital structure from a debt-equity ratio of .37 to a debt-equity ratio of .48.The firm's shareholders who prefer the old capital structure should:
A)sell some shares and hold the sale proceeds in cash.
B)sell all of their shares and loan out the entire sale proceeds.
C)do nothing.
D)sell some shares and loan out the sale proceeds.
E)borrow funds and purchase more shares
Q2) Assume both corporate taxes and financial distress costs apply to a firm.Given this,the static theory of capital structure illustrates that:
A)a firm's value and its weighted average cost of capital are inversely related.
B)a firm's value and its tax rate are inversely related.
C)the maximum value of a firm is obtained when a firm is financed solely with debt.
D)the value of a firm rises as the interest rate on debt rises.
E)the value of a firm rises as both the interest rate on debt and the tax rate rise.
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Chapter 14: Dividends and Dividend Policy
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87 Flashcards
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Sample Questions
Q1) Davidson International has 13,700 shares of stock outstanding at a price per share of $28.The firm has decided to repurchase 500 of those shares in the open market.What will the price per share be after the share repurchase is completed? Ignore taxes and market imperfections.
A)$29.14
B)$28.84
C)$28.89
D)$28.00
E)$29.06
Q2) B& K Lumber has 50,600 shares of stock outstanding at a price per share of $68.How many shares will be outstanding if the firm does a 5-for-2stock split?
A)20,240 shares
B)22,300 shares
C)55,667 shares
D)126,500 shares
E)121,120 shares
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16
Chapter 15: Raising Capital
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Sample Questions
Q1) What is the legal document called that is provided to potential investors and describes a new security offering?
A)Security agreement
B)Prospectus
C)Public statement
D)Registration statement
E)Formal filing
Q2) Deep Water Marina has 12,000 shares of stock outstanding that were sold to the general public last year.The firm has just decided to issue an additional 4,000 shares and will make these shares available to the firm's current shareholders before making any offer to the general public.Which type of offer is this?
A)General cash offer
B)Rights offer
C)In-house offering
D)Private placement
E)Initial public offering
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Page 17
Chapter 16: Short-Term Financial Planning
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Sample Questions
Q1) Which one of the following can occur if the operating cycle decreases while both the accounts receivable and the accounts payable periods remain constant?
A)Inventory period remains constant
B)Cash cycle increases
C)Inventory turnover rate increases
D)Accounts receivable turnover rate increases
E)Cash cycle remains constant
Q2) Accounts receivable financing is the term used to describe which one of the following types of loans that involve either the assignment or the factoring of a firm's accounts receivable?
A)Secured short-term loan
B)Unsecured short-term loan
C)Secured long-term loan
D)Unsecured long-term loan
E)Trust receipt loan
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18
Chapter 17: Working Capital Management
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Sample Questions
Q1) Which of these is the most ethical practice related to cash disbursement management?
A)Intentionally delaying payments by creating a complex accounts payable system
B)Taking the cash discount but paying after the discount period
C)Paying a supplier from a zero-balance account
D)Purposely losing a supplier's invoice and requiring the supplier to submit another copy
E)Mailing a check from the most remote location possible
Q2) Which one of the following best illustrates the concept of derived demand?
A)A minimum wage worker tends to buy more off-brand products than do more highly paid professionals.
B)A windshield company has to step up production because auto sales are increasing.
C)A grocery store is selling more fresh fruits and vegetables.
D)Restaurant sales are rising because unemployment is falling.
E)Retail stores have increased sales around the holiday season.
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19
Chapter 18: International Aspects of Financial Management
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85 Flashcards
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Sample Questions
Q1) An agreement to exchange currencies sometime in the future is referred to as which one of the following?
A)Forward trade
B)Hedge
C)Gilt
D)Forward exchange rate
E)Spot trade
Q2) Which one of the following is the suggested method of handling exchange rate risk for a large,multinational firm headquartered in the U.S.? Assume the operations in each country represent a different division of the firm.
A)At the division level
B)At a level that combines all divisions representing a separate geographic continent
C)At a level that combines divisions based on the currency used by each division
D)By segregating U.S.operations and foreign operations
E)On a centralized basis for all divisions
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