Financial Planning and Analysis
Test Questions
Course Introduction
Financial Planning and Analysis (FP&A) is a course that explores the key concepts, tools, and practices used in the financial management of organizations. It focuses on understanding and applying budgeting, forecasting, financial modeling, and data analysis techniques to support strategic decision-making. Students will learn how to interpret financial statements, evaluate business performance, and develop actionable recommendations based on quantitative and qualitative analysis. The course also covers risk assessment, scenario planning, and the role of FP&A professionals in aligning financial goals with organizational strategy. Through real-world case studies and practical exercises, students will gain the skills necessary to contribute effectively to the financial planning processes within corporations, nonprofits, or government entities.
Recommended Textbook
Fundamentals of Corporate Finance 11thEdition by Stephen Ross
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Chapter 1: Introduction to Corporate Finance
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Sample Questions
Q1) A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:
A)must continue to provide audited financial statements to the public.
B)must continue to provide a detailed list of internal control deficiencies on an annual basis.
C)can provide less information to its shareholders than it did prior to "going dark".
D)can continue publicly trading its stock but only on the exchange on which it was previously listed.
E)ceases to exist.
Answer: C
Q2) Which one of the following actions by a financial manager is most apt to create an agency problem?
A)refusing to borrow money when doing so will create losses for the firm
B)refusing to lower selling prices if doing so will reduce the net profits
C)refusing to expand the company if doing so will lower the value of the equity
D)agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales
E)increasing current profits when doing so lowers the value of the firm's equity
Answer: E
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Chapter 2: Financial Statements, Taxes, and Cash Flow
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Sample Questions
Q1) The 2010 balance sheet of The Beach Shoppe showed long-term debt of $2.1 million,and the 2011 balance sheet showed long-term debt of $2.3 million.The 2011 income statement showed an interest expense of $250,000.What was the cash flow to creditors for 2011?
A)-$200,000
B)-$150,000
C)$50,000
D)$200,000
E)$450,000
Answer: C
Q2) Adelson's Electric had beginning long-term debt of $42,511 and ending long-term debt of $48,919.The beginning and ending total debt balances were $84,652 and $78,613,respectively.The interest paid was $4,767.What is the amount of the cash flow to creditors?
A)-$1,641
B)-$1,272
C)$1,272
D)$7,418
E)$11,175
Answer: A
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Page 4
Chapter 3: Working With Financial Statements
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Sample Questions
Q1) Taylor's Men's Wear has a debt-equity ratio of 42 percent,sales of $749,000,net income of $41,300,and total debt of $206,300.What is the return on equity?
A)7.79 percent
B)8.41 percent
C)8.74 percent
D)9.09 percent
E)9.16 percent
Answer: B
Q2) The Burger Hut has sales of $29 million,total assets of $43 million,and total debt of $13 million.The profit margin is 11 percent.What is the return on equity?
A)7.42 percent
B)10.63 percent
C)11.08 percent
D)13.31 percent
E)14.28 percent
Answer: B
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Chapter 4: Long-Term Financial Planning and Growth
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Q1) Designer's Outlet has a capital intensity ratio of 0.92 at full capacity.Currently,total assets are $48,900 and current sales are $51,200.At what level of capacity is the firm currently operating?
A)89.1 percent
B)91.6 percent
C)96.3 percent
D)96.8 percent
E)98.2 percent
Q2) Which of the following are needed to determine the amount of fixed assets required to support each dollar of sales?
I.current amount of fixed assets
II.current sales
III.current level of operating capacity
IV.projected growth rate of sales
A)I and III only
B)II and IV only
C)I, II, and III only
D)II, III, and IV only
E)I, II, III, and IV
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Chapter 5: Introduction to Valuation: The Time Value of Money
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Sample Questions
Q1) You're trying to save to buy a new $160,000 Ferrari.You have $58,000 today that can be invested at your bank.The bank pays 6 percent annual interest on its accounts.How many years will it be before you have enough to buy the car? Assume the price of the car remains constant.
A)16.67 years
B)17.04 years
C)17.41 years
D)17.87 years
E)18.02 years
Q2) Luis is going to receive $20,000 six years from now.Soo Lee is going to receive $20,000 nine years from now.Which one of the following statements is correct if both Luis and Soo Lee apply a 7 percent discount rate to these amounts?
A)The present values of Luis and Soo Lee's monies are equal.
B)In future dollars, Soo Lee's money is worth more than Luis' money.
C)In today's dollars, Luis' money is worth more than Soo Lee's.
D)Twenty years from now, the value of Luis' money will be equal to the value of Soo Lee's money.
E)Soo Lee's money is worth more than Luis' money given the 7 percent discount rate.
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Chapter 6: Discounted Cash Flow Valuation
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Sample Questions
Q1) You need some money today and the only friend you have that has any is your miserly friend.He agrees to loan you the money you need,if you make payments of $30 a month for the next six months.In keeping with his reputation,he requires that the first payment be paid today.He also charges you 2 percent interest per month.How much money are you borrowing?
A)$164.09
B)$168.22
C)$169.50
D)$170.68
E)$171.40
Q2) You just paid $750,000 for an annuity that will pay you and your heirs $42,000 a year forever.What rate of return are you earning on this policy?
A)4.85 percent
B)5.10 percent
C)5.35 percent
D)5.60 percent
E)5.85 percent
Q3) Why might a borrower select an interest-only loan instead of an amortized loan,which would be cheaper?
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Chapter 7: Interest Rates and Bond Valuation
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Sample Questions
Q1) Global Communications has a 7 percent,semiannual coupon bond outstanding with a current market price of $1,023.46.The bond has a par value of $1,000 and a yield to maturity of 6.72 percent.How many years is it until this bond matures?
A)12.26 years
B)12.53 years
C)18.49 years
D)24.37 years
E)25.05 years
Q2) A U.S.Treasury bond that is quoted at 100: 11 is selling:
A)for 11 percent more than par value.
B)at an 11 percent discount.
C)for 100.11 percent of face value.
D)at par and pays an 11 percent coupon.
E)for 100 and 11/32nds percent of face value.
Q3) Bonds issued by the U.S.government:
A)are considered to be free of interest rate risk.
B)generally have higher coupons than those issued by an individual state.
C)are considered to be free of default risk.
D)pay interest that is exempt from federal income taxes.
E)are called "munis".
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Chapter 8: Stock Valuation
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Sample Questions
Q1) You own 600 shares of a NASDAQ listed stock that you wish to sell.Which of the following are options available to you for this purpose?
I.sell the shares to a dealer at the dealer's bid price
II.sell directly to another individual via an ECN
III.offer the shares yourself on NASDAQ via an ECN
IV.have a broker offer the shares for sale on the NYSE
A)I and II only
B)III and IV only
C)II and III only
D)I, II, and III only
E)II, III, and IV only
Q2) Free Motion Enterprises paid a $2.20 per share annual dividend last week.Dividends are expected to increase by 3.75 percent annually.What is one share of this stock worth to you today if your required rate of return is 15 percent?
A)$19.06
B)$19.30
C)$19.56
D)$20.29
E)$20.59
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Page 10
Chapter 9: Net Present Value and Other Investment Criteria
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Sample Questions
Q1) The Square Box is considering two projects,both of which have an initial cost of $35,000 and total cash inflows of $50,000.The cash inflows of project A are $5,000,$10,000,$15,000,and $20,000 over the next four years,respectively.The cash inflows for project B are $20,000,$15,000,$10,000,and $5,000 over the next four years,respectively.Which one of the following statements is correct if The Square Box requires a 13 percent rate of return and has a required discounted payback period of 3.5 years?
A)Both projects should be accepted.
B)Both projects should be rejected.
C)Project A should be accepted and project B should be rejected.
D)Project A should be rejected and project B should be accepted.
E)You should be indifferent to accepting either or both projects.
Q2) An investment project costs $21,500 and has annual cash flows of $6,500 for 6 years.If the discount rate is 15 percent,what is the discounted payback period?
A)4.41 years
B)4.91 years
C)5.12 years
D)5.40 years
E)never
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11
Chapter 10: Making Capital Investment Decisions
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Sample Questions
Q1) Hollister & Hollister is considering a new project.The project will require $522,000 for new fixed assets,$218,000 for additional inventory,and $39,000 for additional accounts receivable.Short-term debt is expected to increase by $165,000.The project has a 6-year life.The fixed assets will be depreciated straight-line to a zero book value over the life of the project.At the end of the project,the fixed assets can be sold for 20 percent of their original cost.The net working capital returns to its original level at the end of the project.The project is expected to generate annual sales of $875,000 and costs of $640,000.The tax rate is 34 percent and the required rate of return is 14 percent.What is the amount of the earnings before interest and taxes for the first year of this project?
A)$97,680
B)$130,000
C)$148,000
D)$217,320
E)$235,000
Q2) How can two firms arrive at two different bid prices when bidding for the same job and given the same bid specifications?
Q3) What is the formula for the tax-shield approach to OCF? Explain the two key points the formula illustrates.
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Chapter 11: Project Analysis and Evaluation
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Sample Questions
Q1) Operating leverage is the degree of dependence a firm places on its:
A)variable costs.
B)fixed costs.
C)sales.
D)operating cash flows.
E)net working capital.
Q2) Uptown Promotions has three divisions.As part of the planning process,the CFO requested that each division submit its capital budgeting proposals for next year.These proposals represent positive net present value projects that fall within the long-range plans of the firm.The requests from the divisions are $4.2 million,$3.1 million,and $6.8 million,respectively.For the firm as a whole,the management of Uptown Promotions has limited spending to $10 million for new projects next year.This is an example of:
A)scenario analysis.
B)sensitivity analysis.
C)determining operating leverage.
D)soft rationing.
E)hard rationing.
Q3) What are the key features of the accounting,cash,and financial break-even points?
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13
Chapter 12: Some Lessons From Capital Market History
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Q1) Standard deviation is a measure of which one of the following?
A)average rate of return
B)volatility
C)probability
D)risk premium
E)real returns
Q2) A stock had returns of 15 percent,8 percent,12 percent,-15 percent,and -4 percent for the past five years.Based on these returns,what is the approximate probability that this stock will return at least 20 percent in any one given year?
A)less than 0.5 percent
B)greater than 0.5 percent but less than 1.0 percent
C)greater than 1.0 percent but less than 2.5 percent
D)greater than 2.5 percent but less than 16 percent
E)greater than 16.0 percent
Q3) To convince investors to accept greater volatility,you must:
A)decrease the risk premium.
B)increase the risk premium.
C)decrease the real return.
D)decrease the risk-free rate.
E)increase the risk-free rate.
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Chapter 13: Return, Risk, and the Security Market Line
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Q1) According to CAPM,the expected return on a risky asset depends on three components.Describe each component and explain its role in determining expected return.
Q2) You have a $12,000 portfolio which is invested in stocks A and B,and a risk-free asset.$5,000 is invested in stock A.Stock A has a beta of 1.76 and stock B has a beta of 0.89.How much needs to be invested in stock B if you want a portfolio beta of 1.10?
A) $3,750.00
B) $4,333.33
C) $4,706.20
D) $4,943.82
E) $5,419.27
Q3) Total risk is measured by _____ and systematic risk is measured by _____.
A)beta; alpha
B)beta; standard deviation
C)alpha; beta
D)standard deviation; beta
E)standard deviation; variance
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Chapter 14: Cost of Capital
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Q1) Southern Home Cookin' just paid its annual dividend of $0.65 a share.The stock has a market price of $13 and a beta of 1.12.The return on the U.S.Treasury bill is 2.5 percent and the market risk premium is 6.8 percent.What is the cost of equity?
A)9.98 percent
B)10.04 percent
C)10.12 percent
D)10.37 percent
E)10.45 percent
Q2) Cookie Dough Manufacturing has a target debt-equity ratio of 0.5.Its cost of equity is 15 percent,and its cost of debt is 11 percent.What is the firm's WACC given a tax rate of 31 percent?
A)12.53 percent
B)12.78 percent
C)13.11 percent
D)13.48 percent
E)13.67 percent
Q3) What are some advantages of the subjective approach to determining the cost of capital and why do you think that approach is utilized?
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Page 16
Chapter 15: Raising Capital
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Q1) Shelf registration allows a firm to register multiple issues at one time with the SEC and then sell those registered shares anytime during the subsequent:
A)3 months.
B)6 months.
C)180 days.
D)2 years.
E)5 years.
Q2) Suzie is a chemist who has been experimenting with fragrances in her home laboratory and feels that she now has three viable perfumes that could be successfully marketed.She knows a venture capitalist who has offered to finance her business to the point where she would be ready to begin the manufacturing and marketing stage.Which type of financing is Suzie being offered?
A)syndicate
B)introduction
C)second-stage
D)mezzanine-level
E)seed money
Q3) Explain both a rights offering and the basic characteristics of a right.
Q4) Explain why there is a tendency for IPOs to be underpriced.
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Chapter 16: Financial Leverage and Capital Structure Policy
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Q1) The basic lesson of M & M Theory is that the value of a firm is dependent upon:
A)the firm's capital structure.
B)the total cash flow of the firm.
C)minimizing the marketed claims.
D)the amount of marketed claims to that firm.
E)size of the stockholders' claims.
Q2) A business firm ceases to exist as a going concern as a result of which one of the following?
A)divestiture
B)share repurchase
C)liquidation
D)reorganization
E)capital restructuring
Q3) A firm is technically insolvent when:
A)it has a negative book value.
B)total debt exceeds total equity.
C)it is unable to meet its financial obligations.
D)it files for bankruptcy protection.
E)the market value of its stock is less than its book value.
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Page 18
Chapter 17: Dividends and Payout Policy
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Q1) Taylor's Tools declared a $0.48 per share dividend on Friday,March 7.The dividend will be paid on Monday,April 7.The ex-dividend date is Tuesday,March 18.What is the record date?
A)Friday, March 14
B)Monday, March 17
C)Wednesday, March 19
D)Thursday, March 20
E)Friday, March 21
Q2) Alfonzo's Italian House has 25,000 shares of stock outstanding with a par value of $1 per share and a market price of $28 a share.The firm just announced a 5-for-3 stock split.What will the market price per share be after the split?
A)$16.80
B)$21.60
C)$28.00
D)$46.67
E)$56.00
Q3) Explain the meaning of the dividend clientele effect and why it is important.
Q4) Explain how cash dividends affect individual shareholders differently than an equal amount of funds spent on a repurchase.
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Chapter 18: Short-Term Finance and Planning
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Q1) As of the beginning of the quarter,Swenson's,Inc.had a cash balance of $460.During the quarter,the company collected $480 from customers and paid suppliers $360.The company also paid an interest payment of $20 and a tax payment of $110.In addition,the company repaid $140 on its long-term debt.What is Callahan's cash balance at the end of the quarter?
A)-$110
B)$290
C)$310
D)$350
E)$490
Q2) Taylor Supply has made an agreement with its bank that it can borrow up to $10,000 at any time over the next year.This arrangement is called a(n):
A)floor loan.
B)open loan.
C)compensating balance.
D)line of credit.
E)bank note.
Q3) List and describe the three basic types of secured inventory loans.Compare the advantages and disadvantages of these loans.
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Page 20
Chapter 19: Cash and Liquidity Management
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Q1) A lockbox system:
A)entails the use of a bank which is centrally located to collect payments on a nationwide basis.
B)is designed to deposit a customer's check into the firm's bank account prior to recording the receipt of that check to a customer's account.
C)is used to reduce the disbursement float of a firm.
D)is efficient regardless of the locations selected for lockbox destinations.
E)automatically records payments to a customer's account when the customer's check is received at the lockbox location.
Q2) Why do firms need liquidity?
I.to meet compensating balance requirements
II.to take advantage of an opportunity that suddenly arises
III.to conduct daily business activities
IV.to be prepared for a financial emergency
A)I and II only
B)III and IV only
C)I, III, and IV only
D)II, III, and IV only
E)I, II, III, and IV
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Chapter 20: Credit and Inventory Management
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Q1) Which one of the following statements is correct in regards to credit periods?
A)Perishable items tend to have longer credit periods.
B)Items with low markups tend to have longer credit periods.
C)Smaller accounts tend to have longer credit periods.
D)Different customers may be offered different credit periods by the same firm.
E)Newer products tend to have shorter credit periods.
Q2) Roger's Store begins each week with 150 phasers in stock.This stock is depleted each week and reordered.The carrying cost per phaser is $48 per year and the fixed order cost is $70.What is the optimal number of orders that should be placed each year?
A)48.69
B)51.71
C)54.20
D)61.10
E)64.50
Q3) All else equal,firms with (1)excess capacity,(2)low variable costs,and (3)repeat customers are more apt to offer liberal credit terms to their customers than are other firms.Explain why this tendency exists.
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Chapter 21: International Corporate Finance
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Q1) Party A has agreed to exchange $1 million U.S.dollars for $1.21 million Canadian dollars.What is this agreement called?
A)gilt
B)LIBOR
C)SWIFT
D)Yankee agreements
E)swap
Q2) In the spot market,$1 is currently equal to £0.6211.Assume the expected inflation rate in the U.K.is 2.6 percent while it is 4.3 percent in the U.S.What is the expected exchange rate four years from now if relative purchasing power parity exists?
A)£0.5799
B)£0.5822
C)£0.6105
D)£0.6623
E)£0.6644
Q3) What conditions are necessary for absolute purchasing power parity (PPP)to exist? Is it realistic to believe PPP can exist within a country let alone across national borders?
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Page 23
Chapter 22: Behavioral Finance: Implications for Financial Management
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Q1) Which one of the following statements is true?
A)Market crashes tend to be accompanied by low market volume.
B)The Asian market crash was followed by a quick recovery.
C)The market crash of 1929 and the crash of 1987 are very similar in both the percentage decline in market value and in the ensuing market recovery.
D)Market crashes tend to follow market bubbles.
E)Market bubbles and crashes prove that financial markets are inefficient.
Q2) Kate is attempting to sell her house for $260,000.Fred lives across the street in an identical house.Fred recently stated to his wife that Kate's house is probably worth only $250,000 but that once she sells her house,he would like to put their house on the market at $285,000 and then move into a condominium.Which one of the following behaviors applies to Fred?
A)myopic loss aversion
B)house money effect
C)money illusion
D)self-attribution bias
E)endowment effect
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Page 24
Chapter 23: Enterprise Risk Management
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Q1) An agreement that grants its owner the right,but not the obligation,to buy or sell a specific asset at a specific price for a set period of time is called a(n)_____ contract.
A)option
B)forward
C)futures
D)swap
E)spot
Q2) Farmer Jones raises several hundred acres of corn and would suffer a significant loss should the price of corn decline at harvest time.Which one of the following would he be doing if he purchased financial securities to offset this price risk?
A)abating
B)deriving
C)hedging
D)forwarding
E)manipulating
Q3) Explain how a manufacturer who has an ongoing need for silver as a raw material in the production process might use futures to hedge.What does the manufacturer hope to gain?
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Chapter 24: Options and Corporate Finance
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Q1) Which one of the following describes the intrinsic value of a put option?
A)lesser of the strike price or the stock price
B)lesser of the stock price minus the exercise price or zero
C)lesser of the stock price or zero
D)greater of the strike price minus the stock price or zero
E)greater of the stock price minus the exercise price or zero
Q2) Marti owns an option that allows him to purchase ABC stock at $50 a share.The $50 price is referred to as the:
A)opening price.
B)intrinsic value.
C)strike price.
D)market price.
E)time value.
Q3) Explain how the floor and the ceiling prices for a convertible bond are determined.
Q4) Explain the rationale behind the idea that equity is a call option on a firm's assets.When would a shareholder allow this call to expire?
Q5) What are the upper and lower bounds for an American call option?
Explain what would happen in each case if the bound was violated.
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Chapter 25: Option Valuation
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Q1) The current market value of the assets of Cristopherson Supply is $46.5 million.The market value of the equity is $28.7 million.The risk-free rate is 4.75 percent and the outstanding debt matures in 4 years.What is the market value of the firm's debt?
A)$17.80 million
B)$19.80 million
C)$20.23 million
D)$22.66 million
E)$23.01 million
Q2) The current market value of the assets of Smethwell,Inc.is $54 million,with a standard deviation of 16 percent per year.The firm has zero-coupon bonds outstanding with a total face value of $40 million.These bonds mature in 2 years.The risk-free rate is 4 percent per year compounded continuously.What is the value of d1?
A)1.32
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Chapter 26: Mergers and Acquisitions
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Q1) Taylor's Hardware is acquiring The Corner Store for $25,000 in cash.Taylor's has 1,500 shares of stock outstanding at a market value of $46 a share.The Corner Store has 2,200 shares of stock outstanding at a market price of $8 a share.Neither firm has any debt.The incremental value of the acquisition is $3,500.What is the value of Taylor's Hardware after the acquisition?
A)$49,000
B)$50,300
C)$57,300
D)$65,100
E)$72,400
Q2) Troyer Markets and Deb's Grocery are all-equity firms.Troyer Markets has 2,400 shares outstanding at a market price of $14.80 a share.Deb's Grocery has 3,200 shares outstanding at a price of $28 a share.Deb's Grocery is acquiring Troyer Markets for $37,500 in cash.What is the merger premium per share?
A)$0
B)$0.825
C)$1.108
D)$1.216
E)$1.320
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Page 28
Chapter 27: Leasing
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Sample Questions
Q1) Charleston Marina is considering either leasing or buying some new equipment it needs for repairing boats.The lease payments would be $7,200 a year for 3 years.The purchase price is $20,800.The equipment has a 3-year life and then is expected to have a resale value of $4,700.The firm uses straight-line depreciation,borrows money at 8.5 percent,and has a 34 percent tax rate.What is the net advantage to leasing?
A)-$1,507
B)-$1,222
C)-$975
D)$408
E)$611
Q2) You are comparing a lease to a purchase.The NPV associated with this analysis is referred to as the:
A)open interest net present value.
B)depreciated net present value.
C)net advantage to leasing.
D)profitability index.
E)net value of purchasing.
Q3) Explain the differences between purchasing an asset and leasing an asset.
Q4) What are some "good" reasons for opting to lease rather than purchase an asset?
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