Financial Management Test Preparation
Course Introduction
Financial Management is a comprehensive course that introduces students to the principles, techniques, and tools essential for effective financial decision-making in organizations. The course covers fundamental topics such as financial statement analysis, time value of money, risk and return, capital budgeting, cost of capital, and working capital management. Students will learn how to analyze financial data, assess investment opportunities, and understand the impact of financial decisions on the overall health and strategy of a business. Real-world case studies and practical exercises help reinforce concepts and prepare students for managing corporate finances in dynamic environments.
Recommended Textbook
Corporate Finance Asia 1st Global Edition by Stephen
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16 Chapters
1174 Verified Questions
1174 Flashcards
Source URL: https://quizplus.com/study-set/3718
Page 2
Ross
Chapter 1: Introduction to Corporate Finance
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61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/74148
Sample Questions
Q1) Which one of the following statements is correct?
A)Both partnerships and corporations incur double taxation.
B)Both sole proprietorships and partnerships are taxed in a similar fashion.
C)Partnerships are the most complicated type of business to form.
D)Both partnerships and corporations have limited liability for general partners and shareholders.
E)All types of business formations have limited lives.
Answer: B
Q2) Which one of the following is a capital budgeting decision?
A)determining how much debt should be borrowed from a particular lender
B)deciding whether or not to open a new store
C)deciding when to repay a long-term debt
D)determining how much inventory to keep on hand
E)determining how much money should be kept in the checking account
Answer: B
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3
Chapter 2: Financial Statements and Cash Flow
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92 Verified Questions
92 Flashcards
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Sample Questions
Q1) Note that in all of our cash flow computations to determine cash flow of the firm,we never include the addition to retained earnings.Why not? Is this an oversight?
Answer: The addition to retained earnings is not a cash flow.It is simply an accounting entry that reconciles the balance sheet.Any additions to retained earnings will show up as cash flow changes in other balance sheet accounts.
Q2) What is the cash flow to creditors for 2011?
A)-$405
B)-$225
C)$225
D)$405
E)$630
Answer: D
Q3) What is net new borrowing for 2011?
A)-$70
B)-$35
C)$35
D)$70
E)$105
Answer: D
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Chapter 3: Financial Statements Analysis and Long-Term Planning
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117 Verified Questions
117 Flashcards
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Sample Questions
Q1) Ratios that measure how efficiently a firm uses its assets to generate sales are known as _____ ratios.
A)asset management
B)long-term solvency
C)short-term solvency
D)profitability
E)market value
Answer: A
Q2) If shareholders want to know how much profit a firm is making on their entire investment in the firm,the shareholders should look at the:
A)profit margin.
B)return on assets.
C)return on equity.
D)equity multiplier.
E)earnings per share.
Answer: C
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Chapter 5: Net Present Value and Other Investment Rules
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92 Verified Questions
92 Flashcards
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Sample Questions
Q1) Net present value:
A)cannot be used when deciding between two mutually exclusive projects.
B)is more useful to decision makers than the internal rate of return when comparing different sized projects.
C)is easy to explain to non-financial managers and thus is the primary method of analysis used by the lowest levels of management.
D)is not an as widely used tool as payback and discounted payback.
E)is very similar in its methodology to the average accounting return.
Q2) All else equal,the payback period for a project will decrease whenever the:
A)initial cost increases.
B)required return for a project increases.
C)assigned discount rate decreases.
D)cash inflows are moved earlier in time.
E)duration of a project is lengthened.
Q3) An investment is acceptable if its IRR:
A)is exactly equal to its net present value (NPV).
B)is exactly equal to zero.
C)is less than the required return.
D)exceeds the required return.
E)is exactly equal to 100%.
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Chapter 8: Interest Rates and Bond Valuation
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67 Verified Questions
67 Flashcards
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Sample Questions
Q1) A zero coupon bond:
A)is sold at a large premium.
B)has a price equal to the future value of the face amount given a specified rate of return.
C)can only be issued by the U.S.Treasury.
D)has less interest rate risk than a comparable coupon bond.
E)has implicit interest which is calculated by amortizing the loan.
Q2) The relationship between nominal rates,real rates,and inflation is known as the:
A)Miller and Modigliani theorem.
B)Fisher effect.
C)Gordon growth model.
D)term structure of interest rates.
E)interest rate risk premium.
Q3) All else constant,a coupon bond that is selling at a premium,must have:
A)a coupon rate that is equal to the yield to maturity.
B)a market price that is less than par value.
C)semi-annual interest payments.
D)a yield to maturity that is less than the coupon rate.
E)a coupon rate that is less than the yield to maturity.
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Page 7
Chapter 10: Risk and Return: Lessons From Market History
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81 Verified Questions
81 Flashcards
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Sample Questions
Q1) The dollar value of the world stock market capitalization,from largest to smallest is:
A)Europe and Middle East,Americas,Asia-Pacific
B)Americas,Europe and Middle East,Asia-Pacific
C)Americas,Asia-Pacific,Europe and Middle East
Q2) A year ago,you purchased 300 shares of IXC Technologies,Inc.stock at a price of $10.05 per share.The stock pays an annual dividend of $.10 per share.Today,you sold all of your shares for $29.32 per share.What is your total dollar return on this investment?
A)$8,781
B)$8,796
C)$8,811
D)$8,832
E)$8,921
Q3) What are the lessons learned from capital market history? What evidence is there to suggest these lessons are correct?
Q4) What securities have offered the highest average annual returns over the last several decades? Can we conclude that return and risk are related in real life?
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Page 8
Chapter 11: Return and Risk: the Capital Asset Pricing Model
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) You are considering purchasing stock S.This stock has an expected return of 8% if the economy booms and 3% if the economy goes into a recessionary period.The overall expected rate of return on this stock will:
A)be equal to one-half of 8% if there is a 50% chance of an economic boom.
B)vary inversely with the growth of the economy.
C)increase as the probability of a recession increases.
D)be equal to 75% of 8% if there is a 75% chance of a boom economy.
E)increase as the probability of a boom economy increases.
Q2) According to the CAPM,the expected return on a risky asset depends on three components.
Describe each component,and explain its role in determining expected return.
Q3) A stock with an actual return that lies above the security market line:
A)has more systematic risk than the overall market.
B)has more risk than warranted based on the realized rate of return.
C)has yielded a higher return than expected for the level of risk assumed.
D)has less systematic risk than the overall market.
E)has yielded a return equivalent to the level of risk assumed.
Q4) Explain in words what beta is and why it is important.
Q5) Why are some risks diversifiable and some nondiversifiable? Give an example of each.
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Chapter 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory
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45 Verified Questions
45 Flashcards
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Sample Questions
Q1) If the expected return on the stock is 6%,and no unexpected news concerning the stock surfaces,calculate the stock's total return.
A)2.95%
B)4.95%
C)6.55%
D)7.40%
E)8.85%
Q2) A criticism of the CAPM is that it:
A)ignores the return on the market portfolio.
B)ignores the risk-free return.
C)requires a single measure of systematic risk.
D)utilizes too many factors.
E)None of the above.
Q3) The Fama-French three factor model predicts the expected return on a portfolio increases:
A)linearly with its factor loading of the size factor.
B)linearly with its factor loading of the volume.
C)exponentially with its factor loading of the size factor.
D)exponentially with its factor loading of the volume factor.
E)None of the above.
Page 10
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Chapter 14: Efficient Capital Markets and Behavioral Challenges
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50 Verified Questions
50 Flashcards
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Sample Questions
Q1) In the three years prior to a forced departure of management,stock prices,adjusted for market performance,on average will:
A)decline about 20%.
B)decline about 40%.
C)decline about 60%.
D)remain stable.
E)increase about 20%.
Q2) If the market is weak form efficient:
A)semistrong form efficiency holds.
B)strong form efficiency must hold.
C)semistrong form efficiency may hold.
D)markets are not weak form efficient.
E)None of the above.
Q3) The abnormal return in an event study is described as:
A)the return earned on the day of announcement for the stock.
B)the excess return earned on the day of announcement for the stock.
C)the total return earned for the investment holding period.
D)All of the above.
E)None of the above.
11
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Chapter 15: Long-Term Financing: an Introduction
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43 Verified Questions
43 Flashcards
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Sample Questions
Q1) There are 3 directors' seats up for election.If you own 1,000 shares of stock and you can cast 3,000 votes for a particular director,this is illustrative of:
A)cumulative voting.
B)absolute priority voting.
C)sequential voting.
D)straight voting.
E)None of the above.
Q2) Which of the following statements about preferred stock is true?
A)Unlike dividends paid on common stock,dividends paid on preferred stock are a tax-deductible expense.
B)Unpaid dividends on preferred stock are a debt of the corporation.
C)If preferred dividends are non-cumulative,then preferred dividends not paid in a particular year will be carried forward to the next year.
D)There is no difference in the voting rights of preferred and common stockholders.
E)None of the above.
Q3) Preferred Stock,as a hybrid security,presents somewhat of a puzzle as to why they are issued.What elements give rise to the puzzle and how is it explained?
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Page 12
Chapter 20: Raising Capital
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Sample Questions
Q1) An IPO of a firm formerly financed by venture capital is carried out for what primary purposes?
A)Insiders can sell their shares or cash out
B)Generate cash to pay down bank indebtedness
C)To establish a market value for the equity and provide funds for operations
D)All of the above.
E)None of the above.
Q2) The Direct Interactive Publishing Company is planning to raise $200 million dollars in new capital.There are currently 50 million shares outstanding with an estimated market price of $60 each.The corporate officers are debating whether to use a rights offering (with or without a standby underwriting)or have the issue fully underwritten.The company is currently listed on a regional exchange and plans to list on a national exchange after the security issue.List and explain three advantages/disadvantages of each method.
Q3) For smaller IPOs,direct expenses as a percentage of total proceeds is _______.
A)greater
B)less.
C)the same fixed rate
D)zero
E)None of the above.
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Chapter 22: Options and Corporate Finance
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93 Verified Questions
93 Flashcards
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Sample Questions
Q1) You own one call option with an exercise price of $30 on Nadia Interiors stock.This stock is currently selling for $27.80 a share but is expected to increase to either $28 or $34 a share over the next year.The risk-free rate of return is 5% and the inflation rate is 3%.What is the current value of your option if it expires in one year?
A)$0.76
B)$0.79
C)$0.89
D)$0.92
E)$0.95
Q2) You purchased four WXO 30 call option contracts at a quoted price of $.34.What is your net gain or loss on this investment if the price of WXO is $33.60 on the option expiration date?
A)-$1,576
B)-$136
C)$1,304
D)$1,440
E)$1,576
Q3) How do options apply to capital budgeting? Explain and give an example.
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Chapter 23: Options and Corporate Finance: Extensions and Applications
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42 Verified Questions
42 Flashcards
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Sample Questions
Q1) If a project has optionality:
A)the shorter the available life of the project the less valuable the project is.
B)the longer the available life of the project the less valuable the project is.
C)the shorter the available life of the project the more valuable the project is.
D)available project life does not change optionality.
E)None of the above.
Q2) The value of the options awarded executives is much less than face value to the executives because:
A)the value to the executive depends on the stock price being greater than the exercise price.
B)the options must be held beyond the freeze-out period.
C)a highly undiversified portfolio can have a large drop in value with high variance stocks.
D)All of the above.
E)None of the above.
Q3) In what instances is the binomial option pricing model superior to the Black Scholes option pricing model?
Q4) What is the value of Mr.Maxim's options?
Page 15
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Chapter 24: Warrants and Convertibles
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) If the warrants are all exercised immediately,what would be the market price of the stock?
A)$22.78
B)$25.13
C)$26.96
D)$28.00
E)$29.00
Q2) What is the conversion price?
A)$25.00
B)$33.33
C)$35.00
D)$1,000.00
E)No conversion premium is given.
Q3) Illustrate and explain how a convertible bond value is based on both debt and equity value.What is the option value?
Q4) Explain why there is neither a "Free" nor "Expensive Lunch" when convertible bonds are issued?
Q5) Why are warrants and convertibles issued?
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Chapter 25: Derivatives and Hedging Risk
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56 Verified Questions
56 Flashcards
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Sample Questions
Q1) Suppose you agree to purchase one ounce of gold for $382 any time over the next month.The current price of gold is $380.The spot price of gold then falls to $377 the next day.If the agreement is represented by a futures contract marking to market on a daily basis as the price changes,what is your cash flow at the end of the next business day?
A)$0
B)$3
C)$5
D)-$3
E)-$5
Q2) The duration of a 15 year zero coupon bond priced at $182.70 is:
A)2.74 years.
B)15 years.
C)17.74 years.
D)cannot determine without the interest rate.
E)None of the above.
Q3) Duration is defined as the weighted average time to maturity of a financial instrument.Explain how this knowledge can help protect against interest rate risk.
Q4) Calculate the duration of Tiger State Bank's assets and liabilities.
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Page 17
Chapter 31: International Corporate Finance
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93 Verified Questions
93 Flashcards
Source URL: https://quizplus.com/quiz/74133
Sample Questions
Q1) An international firm which imports raw materials can reduce its _____ exposure to _____ rate risk by entering into a forward contract.
A)long-term;inflation
B)short-term;inflation
C)short-run;exchange
D)long-run;exchange
E)total;interest
Q2) The most important complication of international finance is the:
A)basic principles of corporate finance do not apply.
B)process of foreign exchange valuation of different currencies.
C)NPV principle cannot be applied to foreign operations.
D)All of the above.
E)None of the above.
Q3) The acronym LIBOR stands for:
A)London Interbank Offer Rate.
B)Lending Institution Bank Receipt.
C)Leading Indicator Borrowing Rate.
D)Loan Interest Bank Order Receipt.
E)London International Opportunity Rate.
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Page 18