Fundamentals of Financial Management Review Questions
Course Introduction
Fundamentals of Financial Management provides an essential overview of the principles and practices involved in financial decision-making within organizations. The course covers key topics such as financial analysis, planning and control, working capital management, capital budgeting, risk and return analysis, and sources of financing. Students gain an understanding of how financial managers use tools and techniques to maximize firm value, assess financial health, and allocate resources efficiently. Practical case studies and problem-solving exercises are incorporated to help students apply theoretical concepts to real-world business scenarios. This foundational course is critical for those seeking careers in finance, accounting, or business management.
Recommended Textbook
Principles of Managerial Finance Brief 8th Edition by Chad J. Zutter
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15 Chapters
2711 Verified Questions
2711 Flashcards
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Chapter 1: The Role of Managerial Finance
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111 Verified Questions
111 Flashcards
Source URL: https://quizplus.com/quiz/68037
Sample Questions
Q1) The marginal tax rate paid on a firm's ordinary income can be calculated by dividing its taxes by its net income.
A)True
B)False
Answer: False
Q2) The money that firms raise to finance their activities is called ________.
A)the capital budget
B)working capital
C)capital
D)accruals
Answer: C
Q3) All dividend income received by a corporation is exempted from taxation.
A)True
B)False
Answer: False
Q4) The average tax rate paid on the firm's ordinary income can be calculated by dividing its taxes by its taxable income.
A)True
B)False
Answer: True
Page 3
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Chapter 2: The Financial Market Environment
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) A crisis in the financial sector often spills over into other industries because when financial institutions ________ borrowing,activity in most other industries ________.
A)increase; slows down
B)contract; slows down
C)increase; increases
D)contract; increases
Answer: B
Q2) Which of the following is TRUE of preferred stock?
A)It has features of bonds and a common stock.
B)It has a claim on assets prior to creditors in the event of liquidation.
C)Its dividends can be paid only after paying dividends to the common stockholders.
D)It usually has a maturity of thirty years.
Answer: A
Q3) Commercial banks advise firms on major transactions such as mergers or financial restructurings.
A)True
B)False
Answer: False
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Chapter 3: Financial Statements and Ratio Analysis
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218 Flashcards
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Sample Questions
Q1) The DuPont system allows a firm to break its return on equity into a profit-on-sales component,an efficiency-of-asset-use component,and a liquidity component.
A)True
B)False
Answer: False
Q2) The ________ is a popular approach for evaluating profitability in relation to sales by expressing each item on the income statement as a percent of sales.
A)retained earnings statement
B)common-size balance sheet
C)common-size income statement
D)profit and loss statement
Answer: C
Q3) Earnings per share represents the dollar amount earned and distributed to shareholders.
A)True
B)False
Answer: False
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Chapter 4: Long- and Short-Term Financial Planning
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Sample Questions
Q1) The external funds requirement results primarily from ________.(See Table 4.5)
A)the payment of dividends
B)the retirement of debt and purchase of new fixed assets
C)low profit margin
D)high cost of sales
Q2) In cash budgeting,other cash receipts are cash receipts expected to result from sources other than sales.
A)True
B)False
Q3) Under the basic MACRS procedures,the depreciable value of an asset is its full cost,including outlays for installation.
A)True
B)False
Q4) Strategic financial plans are planned long-term financial actions and the anticipated financial impact of those actions.
A)True
B)False
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Chapter 5: Time Value of Money
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185 Flashcards
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Sample Questions
Q1) Everything else being equal,the higher the discount rate,the higher the present value.
A)True
B)False
Q2) The annual percentage yield (APY)is the effective rate of interest that must be disclosed to customers by banks on their savings products as a result of "truth in savings laws."
A)True
B)False
Q3) The time value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today.
A)True
B)False
Q4) Aunt Tillie has deposited $33,000 today in an account which will earn 10 percent annually.She plans to leave the funds in this account for seven years earning interest.If the goal of this deposit is to cover a future obligation of $65,000,what recommendation would you make to Aunt Tillie?
Q5) Find the equal annual end-of-year payment on $50,000,15 year,and 10 percent loan.
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Chapter 6: Interest Rates and Bond Valuation
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Sample Questions
Q1) Putable bonds give the bondholders an option to sell the bond at a price higher than par value by the amount of one year interest payment when and if the firm takes specified actions such as being acquired,acquiring another company,or issuing a large amount of additional debt.
A)True
B)False
Q2) As a bond approaches maturity,the price of the bond will approach its par value until,the bond is worth its face value at maturity.
A)True
B)False
Q3) A call premium is the amount by which the call price exceeds the market price of the bond.
A)True
B)False
Q4) A bond issued by an American company that is denominated in Swiss Francs and sold in Switzerland would be an example of a foreign bond.
A)True
B)False
Q5) Calculate the current value of Bond M.(See Table 6.2)
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Chapter 7: Stock Valuation
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Sample Questions
Q1) If the expected return is above the required return on an asset,rational investors will
A)buy the asset,which will drive the price up and cause expected return to reach the level of the required return
B)buy the asset,which will drive the price down and cause the expected return to reach the level of the required return
C)sell the asset,which will drive the price up and cause the expected return to reach the level of the required return
D)sell the asset,since price is expected to decrease
Q2) Patrick Company expects to generate free cash flow of $120,000 per year forever.If the firm's required return is 12 percent,the market value of debt is $300,000,the market value of preferred stock is $70,000,and the company has 100,000 shares of stock outstanding.What is the value of Patrick's stock?
A)$6.30
B)$10.00
C)$7.00
D)$9.70
Q3) Calculate the estimated dividend for 2020.(See Table 7.1)
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Chapter 8: Risk and Return
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Sample Questions
Q1) In the capital asset pricing model,an increase in inflationary expectations will be reflected by ________.
A)no effect on security market line
B)a decrease in the slope of the security market line
C)a parallel shift downward in the security market line
D)a parallel shift upward in the security market line
Q2) Interest rate risk is the chance that changes in interest rates will adversely affect the value of an investment.
A)True
B)False
Q3) The security market line is not stable over time and shifts over time in response to changing inflationary expectations.
A)True
B)False
Q4) The CAPM uses standard deviation to relate an asset's risk relative to the market to the asset's required return.
A)True
B)False
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Chapter 9: The Cost of Capital
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130 Flashcards
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Sample Questions
Q1) Although a firm's existing mix of financing sources may reflect its target capital structure,it is ultimately ________.
A)the internal rate of return that is relevant for evaluating the firm's future investment opportunities
B)the marginal cost of capital that is relevant for evaluating the firm's future investment opportunities
C)the risk-free rate of return that is relevant for evaluating the firm's future investment opportunities
D)the risk-free rate of return that is relevant for evaluating the firm's future financing opportunities
Q2) The cost of capital is the rate of return a firm must meet or exceed on investments to increase the firm's value.
A)True B)False
Q3) Preferred stockholders must receive their stated dividends prior to the distribution of any earnings to common stockholders and bondholders.
A)True
B)False
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Chapter 10: Capital Budgeting Techniques
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148 Flashcards
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Sample Questions
Q1) If a firm is subject to capital rationing,it has only a fixed number of dollars available for capital expenditures and numerous projects compete for these dollars.
A)True
B)False
Q2) Should Tangshan Mining company accept a new project if its maximum payback is 3.25 years and its initial after-tax cost is $5,000,000 followed by after-tax operating cash inflows of $1,800,000 in year 1,$1,900,000 in year 2,$700,000 in year 3,and $1,800,000 in year 4?
A)Yes,since the payback period of the project is less than the maximum acceptable payback period.
B)No,since the payback period of the project is more than the maximum acceptable payback period.
C)Yes,since the risk exposure of the project is less than the maximum acceptable risk exposure.
D)No,since the risk exposure of the project is more than the maximum acceptable risk exposure.
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Chapter 11: Capital Budgeting Cash Flows and Risk
Refinements
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184 Flashcards
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Sample Questions
Q1) In capital budgeting,risk is generally thought of as the chance that NPV and IRR will provide conflicting recommendations to management.
A)True
B)False
Q2) In selecting the best group of unequal-lived projects,if the projects are mutually exclusive,the length of the projects lives is not critical.
A)True
B)False
Q3) The shares of firms with diversified operations are________.
A)generally positively affected by diversification,because of the reduction in risk
B)generally negatively affected by diversification,because of the increase in risk
C)generally not affected by diversification,because investors can easily diversify their own portfolios
D)generally negatively affected by diversification,because of the increase in the required rate of return
Q4) Which project do you recommend? (See Table 11.9)
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Page 13
Chapter 12: Leverage and Capital Structure
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Sample Questions
Q1) When a firm has fixed operating costs,operating leverage is present.In that case,an increase in sales results in a more-than-proportional increase in EBIT,and a decrease in sales results in a more-than-proportional decrease in EBIT.
A)True
B)False
Q2) The EBIT-EPS approach to capital structure involves selecting the capital structure that maximizes earnings before interest and taxes (EBIT)over the expected range of earnings per share (EPS).
A)True
B)False
Q3) The inexpensive nature of long-term debt in a firm's capital structure is partly because ________.
A)the equity holders are the true owners of the firm
B)equity capital has a fixed return
C)creditors have a higher position in the priority of claims
D)dividend payments are tax-deductible
Q4) Leverage results from the use of equity to magnify returns to a firm's owners.
A)True
B)False
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Chapter 13: Payout Policy
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Sample Questions
Q1) The payment of cash dividends to corporate stockholders is decided by the
A)creditors
B)stockholders
C)SEC
D)board of directors
Q2) A firm that has a large percentage of ________ investors may pay out a lower percentage of its earnings as dividends.
A)wealthy
B)domestic
C)middle-income
D)international
Q3) When a firm pays a stated dollar dividend and adjusts the payment as earnings increase,its dividend policy can be called ________.
A)a low-regular-and-extra dividend policy
B)a regular dividend policy
C)a target dividend-payout ratio policy
D)a constant-payout-ratio dividend policy
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Chapter 14: Working Capital and Current Assets Management
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Sample Questions
Q1) Credit selection involves application of techniques for determining which customers should receive credit.
A)True
B)False
Q2) Increased collection expenditures should reduce the investment in accounts receivable and bad debt expenses,increasing profits.
A)True
B)False
Q3) Too much investment in current assets reduces firm's profitability,whereas too little investment in current assets increases the risk of not being able to pay debts as they come due.
A)True
B)False
Q4) Which of the following elements is required for the calculation of cash conversion cycle?
A)current assets ratio
B)average cost of goods sold
C)average collection period
D)cash flows from operations
Page 16
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Chapter 15: Current Liabilities Management
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171 Flashcards
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Sample Questions
Q1) Lenders of secured short-term funds prefer collateral ________.
A)as it reduces the risk of default
B)that are illiquid assets
C)to reduce the losses if the borrower defaults
D)so that they can charge a higher interest rate
Q2) A ________ guarantees the borrower that a specified amount of funds will be available regardless of the scarcity of money.
A)revolving credit agreement
B)mortgage loan
C)short-term,self-liquidating loan
D)single payment note
Q3) Commercial finance companies are lending institutions that make only unsecured loans-both short-term and long-term-to businesses.
A)True
B)False
Q4) Revolving credit agreements are guaranteed loans that specify the maximum amount that a firm can owe the bank at any point in time.
A)True
B)False
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