Course Introduction
Financial Planning Review
Questions
Financial Planning is a comprehensive course designed to introduce students to the principles and techniques involved in managing personal and organizational finances. The course covers key areas such as budgeting, saving, investing, retirement planning, risk management, tax strategies, and estate planning. Students will learn how to analyze financial statements, develop financial goals, evaluate investment opportunities, and create effective financial plans that align with short-term and long-term objectives. Through case studies and practical exercises, the course equips students with the knowledge and skills necessary to make informed financial decisions and achieve financial stability and growth.
Recommended Textbook
Foundations of Financial Management 14th Edition by Stanley B. Block
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21 Chapters
2273 Verified Questions
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Page 2
Chapter 1: The Goals and Functions of Financial Management
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Sample Questions
Q1) Dividends paid to corporate stockholders have already been taxed once as corporate income.
A)True
B)False
Answer: True
Q2) Maximization of shareholder wealth is a concept in which
A) increased earnings is of primary importance.
B) profits are maximized on a quarterly basis.
C) virtually all earnings are paid as dividends to common stockholders.
D) optimally increasing the long-term value of the firm is emphasized.
Answer: D
Q3) The partnership form of an organization
A) avoids the double taxation of earnings and dividends found in the corporate form of organization.
B) usually provides limited liability to the partners.
C) has unlimited life.
D) simplifies decision making.
Answer: A
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Chapter 2: Review of Accounting
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Sample Questions
Q1) Assuming a tax rate of 40%, depreciation expenses of $500,000 will
A) reduce income by $200,000.
B) reduce taxes by $200,000.
C) reduce taxes by $500,000.
D) have no effect on income or taxes, since depreciation is not a cash expense.
Answer: B
Q2) Preferred stock is excluded from stockholders equity because it does not have full voting rights.
A)True
B)False Answer: False
Q3) Balance sheet items are usually adjusted for inflation.
A)True
B)False
Answer: False
Q4) Book value per share is of greater concern to the financial manager than market value per share.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Financial Analysis
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Sample Questions
Q1) Which two ratios are used in the DuPont system to create return on assets?
A) Return on assets and asset turnover
B) Profit margin and asset turnover
C) Return on total capital and the profit margin
D) Inventory turnover and return on fixed assets
Answer: B
Q2) To compute the quick ratio, accounts receivable are not included in current assets.
A)True
B)False
Answer: False
Q3) Because ratios are historic, they have minimal value to an investor.
A)True
B)False
Answer: False
Q4) Higher debt utilization ratios will always increase a firm's return on equity given a positive return on assets.
A)True
B)False
Answer: True
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Chapter 4: Financial Forecasting
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Sample Questions
Q1) In developing data for accounts receivable for the pro forma balance sheet, the analyst is most likely to turn to the:
A) pro forma income statement.
B) cash budget.
C) prior balance sheet.
D) statement of retained earnings.
Q2) In order to estimate production requirements, we
A) add beginning inventory to projected sales in units and subtract desired ending inventory.
B) add projected sales in units to desired ending inventory and subtract beginning inventory.
C) add beginning inventory to desired ending inventory and divide by two.
D) add beginning inventory to desired ending inventory and subtract projected sales in units.
Q3) In the percent-of-sales method, an increase in dividends
A) will increase required new funds.
B) will decrease required new funds.
C) has no effect on required new funds.
D) more information is needed.
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Page 6
Chapter 5: Operating and Financial Leverage
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Sample Questions
Q1) The degree of financial leverage is concerned with the relation between A) changes in volume and changes in EPS.
B) changes in volume and changes in EBIT.
C) changes in EBIT and changes in EPS.
D) changes in EBIT and changes in operating income.
Q2) If a firm has a price of $6.00, variable cost per unit of $4.00 and a breakeven point of 40,000 units, fixed costs are equal to:
A) $27,000
B) $90,000
C) $80,000
D) $50,000
Q3) Use of financial leverage must consider risk, not just maximizing profit. A)True B)False
Q4) Sales commissions and raw material are variable costs. A)True B)False
Q5) The contribution margin is equal to price per unit minus total costs per unit. A)True
B)False
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Chapter 6: Working Capital and the Financing Decision
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Sample Questions
Q1) During tight money periods
A) long-term rates are higher than short-term rates.
B) short-term rates are higher than long-term rates.
C) short-term rates are equal to long-term rates.
D) the relationship between short and long-term rates remains unchanged.
Q2) Some analysts believe that the term structure of interest rates is determined by the behavior of various types of financial institutions. This theory is called the A) expectations hypothesis.
B) market segmentation theory.
C) liquidity premium theory.
D) theory of industry supply and demand for bonds.
Q3) Publishing companies are characterized by
A) fluctuating production to match sales.
B) seasonal sales.
C) low inventories due to computer inventory management.
D) a and b.
Q4) Interest rates and inflation are inversely related.
A)True
B)False
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Chapter 7: Current Asset Management
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Sample Questions
Q1) Companies that are mostly influenced by seasonal sales have to make a choice between
A) level production and inventory buildup.
B) seasonal production and an uneven workforce.
C) a stable workforce and a fluctuating workforce.
D) All of these.
Q2) Multinational firms find it difficult to shift funds from one country to another.
A)True
B)False
Q3) Cost savings from JIT inventory management include(s)
A) reduced overhead expenses.
B) lower inventory financing costs.
C) greater productivity.
D) all of these.
Q4) One of the first considerations in cash management is A) to have as much cash as possible on hand.
B) synchronization of cash inflows and cash outflows.
C) profitability.
D) to put any excess cash into accounts receivable.
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Chapter 8: Sources of Short-Term Financing
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Sample Questions
Q1) Commercial paper that is sold without going through a broker or dealer is known as A) direct paper.
B) dealer paper.
C) book-entry transactions.
D) term paper.
Q2) Analog Computers needs to borrow $475,000 from the Midland Bank. The bank requires a 15% compensating balance. How much money will Analog need to borrow in order to end up with $475,000 spendable cash?
A) $546,250
B) $758,264
C) $558,824
D) None of these
Q3) It is difficult to acquire a loan in US dollars outside the United States.
A)True
B)False
Q4) The commercial paper market is available to all New York Stock Exchange companies.
A)True
B)False
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Chapter 9: The Time Value of Money
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Sample Questions
Q1) The amount of annual payments necessary to repay a mortgage loan can be found by reference to the present value of an annuity table.
A)True
B)False
Q2) John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the loan in 15 equal annual payments. What is the principal outstanding after the first loan payment?
A) $143,555
B) $134,560
C) $141,200
D) None of these
Q3) If Gerry makes a deposit of $1,500 at the end of each quarter for 5 years, how much will he have at the end of the 5 years assuming a 12% annual return and quarterly compounding?
A) $40,305
B) $30,000
C) $108,078
D) $161,220
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Chapter 10: Valuation and Rates of Return
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Sample Questions
Q1) State Street Corp. will pay a dividend on common stock of $2.10 per share at the end of the year. The required return on common stock (K<sub>e</sub>) is 8%. The firm has a constant growth rate of 5%. Compute the current price of the stock (P<sub>o</sub>).
Q2) A stock that has a high required rate of return because of its risky nature will usually have a high P/E ratio.
A)True
B)False
Q3) The variable growth dividend model can be used for both constant and variable growth stocks.
A)True
B)False
Q4) The price of preferred stock may react strongly to a change in k<sub>p</sub>because
A) preferred stock may be cumulative.
B) preferred stock dividends have to be paid before common stock dividends.
C) there is no maturity date.
D) corporate recipients of preferred stock dividends may receive a partial tax exemption.
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Chapter 11: Cost of Capital
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Sample Questions
Q1) A firm that does not earn the cost of capital in the long run will not maximize shareholder wealth.
A)True
B)False
Q2) Jury Company wants to calculate the component costs in its capital structure. Common stock currently sells for $33, and is expected to pay a dividend of $.40. Jury's dividend growth rate is 8%, and flotation cost is $1.25. Preferred stock sells for $40, pays a dividend of $3.00, and carries a flotation cost of $1.10. Jury Company bonds yield 7% in the market. Jury is in the 30% tax bracket.
Calculate cost of debt, cost of new common stock, cost of preferred stock and cost of retained earnings.
Q3) The cost of retained earnings is equal to the required rate of return on a firm's outstanding common stock.
A)True B)False
Q4) K<sub>e</sub>represents an expected return to stockholders as well as a cost to the firm.
A)True B)False
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Chapter 12: The Capital Budgeting Decision
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Sample Questions
Q1) The internal rate of return assumes that funds are reinvested at the:
A) cost of capital.
B) yield on the investment.
C) minimal acceptable rate to the corporation.
D) yield to maturity.
Q2) If an investment project has a positive net present value, then the internal rate of return is
A) less than the cost of capital.
B) greater than the cost of capital.
C) equal to the cost of capital.
D) indeterminate; it depends on the length of the project.
Q3) Depreciation is important in calculating projected cash flows because it generates a tax deduction.
A)True
B)False
Q4) The longer the life of an investment
A) the more significant the discount rate.
B) the less significant the discount rate.
C) Makes no difference.
D) None of these.
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Chapter 13: Risk and Capital Budgeting
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Sample Questions
Q1) The term "risk averse" means that
A) an individual refuses to take risks.
B) most investors and businessmen seek risk.
C) an individual will seek to avoid risk or be compensated with a higher return.
D) only investment proposals with no risk should be accepted.
Q2) Risk may be integrated into capital budgeting decisions by
A) adjusting the standard deviation of possible outcomes.
B) determining the expected value.
C) adjusting the discount rate.
D) adjusting the time horizon.
Q3) Using the risk-adjusted discount rate approach, the firm's weighted average cost of capital is applied to projects with:
A) no risk.
B) low risk.
C) normal risk.
D) high risk.
Q4) The cost of capital is assumed to contain no risk for the firm.
A)True
B)False
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Chapter 14: Capital Markets
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Sample Questions
Q1) The capital structure of the firm consists of long-term debt and equity.
A)True
B)False
Q2) Research has generally indicated that which Efficient Market hypothesis is clearly not correct?
A) Weak
B) Semi-strong
C) Strong
D) Two of the above
Q3) The strong form of the efficient market hypothesis states that prices reflect all public information.
A)True
B)False
Q4) Brokers on an organized stock exchange act as an agent for the person buying or selling securities.
A)True
B)False
Q5) In times of recession, retain earnings decline as a percent of internal funds.
A)True
B)False
Page 16
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Chapter 15: Investment Banking: Public and Private Placement
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Sample Questions
Q1) When a company first goes public, a registration statement must be filed with the New York Stock Exchange.
A)True
B)False
Q2) Investment bankers can help a firm undertake a secondary offering when the company is too small for a primary offering IPO.
A)True
B)False
Q3) Shelf Registration has been most frequently used with A) common stock.
B) preferred stock.
C) debt.
D) commercial paper.
Q4) Publicly-traded companies generally have
A) more pressure for short-term performance.
B) less pressure for short-term performance.
C) very strong stock market performance.
D) low distribution costs in selling securities.
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Chapter 16: Long-Term Debt and Lease Financing
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Sample Questions
Q1) The call premium tends to increase with the passage of time.
A)True
B)False
Q2) During economic upswings, spreads between bonds of different ratings tend to widen.
A)True
B)False
Q3) The coupon rate of the bond varies indirectly with changes in interest rates.
A)True
B)False
Q4) Zero-coupon bonds are sold at face value.
A)True
B)False
Q5) A capital lease is the same as an operating lease.
A)True
B)False
Q6) Zero-coupon bonds are sold at a deep discount primarily because investors are not interested in owning them.
A)True
B)False
Page 18
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Chapter 17: Common and Preferred Stock Financing
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Sample Questions
Q1) A proxy is
A) a device for circumventing regular voting procedures.
B) a coupon attached to each share of stock and used by the shareholder in casting his vote on current issues.
C) an authorization of a registered stockholder to another person to act in his place at the meeting.
D) a warrant allowing a stockholder to purchase a specified number of additional shares at a given price.
Q2) Which of the following are benefits of a rights offering?
A) Rights offerings increase return on equity.
B) Rights offerings substantiate higher debt to equity ratios.
C) Rights offerings have lower margin requirements.
D) None of these.
Q3) The difference between the rights-on and ex-rights common stock price is equal to the value of a right.
A)True
B)False
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Chapter 18: Dividend Policy and Retained Earnings
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Sample Questions
Q1) One situation in which a stock dividend may be beneficial to the investor is when the cash dividend per share remains constant.
A)True
B)False
Q2) Which of the following generally does not influence the dividend policy of the firm?
A) Cash position of the firm
B) Desire for control
C) Seasonal changes in the level of income
D) Investor's expectations of the future based on dividend policy
Q3) The Tax Relief Act of 2003
A) taxes dividend and long-term capital gains at the same rate.
B) taxes short-term and long-term capital gains at the same rate.
C) eliminated the tax rate on dividends to avoid double taxation.
D) made high dividend paying stock less attractive to high income investors.
Q4) Which of the following does not affect a company's dividend policy?
A) Legal rules concerning capital impairment
B) The efficient market hypothesis
C) Access to capital markets
D) Tax position of shareholders
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Chapter 19: Convertibles, Warrants, and Derivatives
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Sample Questions
Q1) The floor value of a bond can change if market interest rates for competitive bonds change.
A)True
B)False
Q2) The principle device used by the corporation to force conversion
A) is setting the conversion price above the current market price.
B) is reducing the amount of interest payments.
C) is buying bonds back at below par value.
D) is a call provision.
Q3) Warrants are considered only in the computation of diluted earnings per share.
A)True
B)False
Q4) The conversion premium will be large
A) if investors have great expectations for the price of the common stock.
B) if interest rates decline.
C) when the conversion value is much greater than the pure bond value.
D) when the stock price is very stable.
Q5) Warrants never sell for more than their intrinsic value.
A)True
B)False
21
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Chapter 20: External Growth Through Mergers
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Sample Questions
Q1) It is possible to merge with a company which results in the same earnings per share but still lowers the new firm's cost of capital.
A)True
B)False
Q2) For mergers occurring after 2001, goodwill must be amortized over 40 years or less.
A)True
B)False
Q3) Synergy is
A) the 2 + 2 = 3 effect.
B) the 2 + 2 = 4 effect.
C) the 2 + 2 = 5 effect.
D) always present in a merger.
Q4) A motive for selling stockholders may be the bias against smaller companies.
A)True
B)False
Q5) The potential of a tax loss carryforward has no effect when considering the acquisition of a company.
A)True
B)False
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Chapter 21: International Financial Management
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Sample Questions
Q1) The future rates of currency tend to increase for dates further in the future because of the increasing uncertainty over time.
A)True
B)False
Q2) Which of the following kinds of risk is NOT uniquely associated with MNC's?
A) Exchange rate risk
B) Business risk
C) Political risk
D) None of these are uniquely associated with MNCs
Q3) In a fronting loan arrangement, the intermediary bank extends a risk-free loan to the foreign affiliate.
A)True
B)False
Q4) Eurodollars are
A) United States dollars deposited in foreign banks.
B) foreign dollars deposited in United States banks.
C) investments of common market countries.
D) none of these.
Q5) Assume the following spot and forward rates for the New Zealand dollar ($/NZD).
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