Hospitality Business Finance
Exam Practice Tests
Course Introduction
Hospitality Business Finance explores the financial principles and practices essential to successful management in the hospitality industry, including hotels, restaurants, and tourism operations. This course covers topics such as budgeting, financial statement analysis, cost control, revenue management, capital investment decisions, and sources of financing specific to hospitality businesses. Students will develop the skills to interpret financial data, make informed financial decisions, and apply financial strategies to improve profitability and operational efficiency within various sectors of the hospitality industry.
Recommended Textbook
Hospitality Financial Management 1st Edition by Robert E. Chatfield
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12 Chapters
393 Verified Questions
393 Flashcards
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Page 2
Chapter 1: Introduction
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27 Verified Questions
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Sample Questions
Q1) The three major decisions in financial management involve investing, financing, and the payment of dividends.
A)True
B)False
Answer: True
Q2) Financial management is the process of classifying financial information.
A)True
B)False
Answer: False
Q3) The goal of hospitality financial management is to maximize the wealth of the owners.
A)True
B)False
Answer: True
Q4) The goal of wealth maximization for the owners makes sense for the firm because A)the owners always know what is best for themselves.
B)the lenders really don't have the right to make decisions.
C)the owners will fire all the employees otherwise.
D)if we have satisfied the owners, we have satisfied all other parties as well.
Answer: D
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Chapter 2: Financial Markets and Financial Instruments
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) When calculating a holding period of return, dividends are excluded.
A)True
B)False Answer: False
Q2) The current yield of a bond is the rate of return on a bond if you hold it until maturity.
A)True
B)False Answer: False
Q3) Forward contracts are easier to sell than a futures contract.
A)True
B)False Answer: False
Q4) Interest expense is tax deductible but dividends are not.
A)True
B)False Answer: True
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Page 4
Chapter 3: Review of Financial Statements and Selected
Ratios
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) A current ratio of less than 1.0 for a hospitality company is always bad.
A)True
B)False
Answer: False
Q2) The number of times interest earned is a
A)liquidity ratio.
B)turnover ratio.
C)profitability ratio.
D)solvency ratio.
Answer: D
Q3) A manager at a local food service establishment recently calculated her food cost percentage to be 43%. This percentage is:
A)very high.
B)sort of low.
C)can't tell.
D)high, but not too high.
Answer: C
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Chapter 4: The Relationship Between Risk and Return
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Sample Questions
Q1) The concept that the next dollar will not give as much happiness as the last dollar is known as
A)declining marginal utility for money.
B)inflation.
C)risk.
D)loss of purchasing power.
Q2) If we plot the risk-return profile of a project on a graph and it falls below the Security Market Line, the project is creating value.
A)True
B)False
Q3) All else being equal, risk averse investors prefer wider, flatter distribution of returns around the mean.
A)True
B)False
Q4) The best definition of "risk" is
A)taking a chance.
B)not being able to understand all the outcomes.
C)uncertainty about an outcome.
D)how large the outcome is.
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Chapter 5: Time Value of Money
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Sample Questions
Q1) You plan to borrow $20,000 and repay the loan with 48 equal monthly payments. Which of the following best describes this?
A)present value of a perpetuity
B)future value of an annuity
C)present value of an annuity
D)present value of a series of non-constant cash flows
Q2) The process of computing the present value of a future value is called discounting.
A)True
B)False
Q3) The first payment of a deferred annuity is deferred more than one period into the future.
A)True B)False
Q4) What happens to the future value of an annuity as the interest rate increases?
A)It decreases.
B)It stays the same.
C)It increases.
D)None of the above.
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Chapter 6: Fixed Income Securities: Bonds and Preferred Stock
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Sample Questions
Q1) Which of the following requires the issuing corporation to retire a portion of their bonds prior to maturity?
A)cumulative feature
B)call feature
C)put feature
D)sinking fund feature
Q2) Bonds and common stock are generally both classified as fixed income securities.
A)True
B)False
Q3) A 95/8% bond matures in 12 years. Assuming the coupon is paid annually and the par value is $1,000, what is the value of this bond to an investor requiring a 7% rate of return?
A)$885.91
B)$1,208.50
C)$891.61
D)$1,198.57
Q4) The cumulative feature on preferred stock allows investors to accumulate more preferred stock at reduced prices.
A)True
B)False
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Chapter 7: Common Stock
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Sample Questions
Q1) Typically a corporation's board of directors would not make which one of the following decisions?
A)compensation for the president of the corporation
B)who can purchase the corporation's common stock
C)determine long-term corporate policy
D)decide whether to build a new $1 billion casino or not
Q2) The lack of a fixed common stock dividend provides the corporation greater flexibility versus the use of bonds or preferred stock.
A)True
B)False
Q3) If a corporation has two classes of common stock, what is typically unique about the second or class B common stock?
A)It has superior voting rights.
B)It has inferior dividend payments.
C)It has no voting rights.
D)It has superior dividend payments.
Q4) The most typical common stock maturity is 20 years.
A)True
B)False
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Chapter 8: Cost of Capital
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Sample Questions
Q1) Which answer appropriately ranks the securities according to seniority risk, from highest risk first to lowest risk last?
A)common stock, bonds, preferred stock
B)preferred stock, common stock, bonds
C)common stock, preferred stock, bonds
D)bonds, preferred stock, common stock
Q2) Issuance or flotation costs are the costs investors pay to brokers when they purchase common stock.
A)True
B)False
Q3) A firm's weighted average cost of capital is the average cost of the various short-term sources of financing employed by the firm.
A)True
B)False
Q4) The weights in a firm's weighted average cost of capital should be a measure of the firm's target capital structure.
A)True
B)False
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Chapter 9: Introduction to Capital Budgeting and Cash Flow
Estimation
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Sample Questions
Q1) Poon's Noodle House is considering replacing their noodle-processing machine. The current machine was purchased 4 years ago at a total cost of $20,000. It is being depreciated straight-line to a zero value over 8 years. If Poon sells the noodle-processing machine for $10,000, what is the after-tax cash flow to Poon's Noodle House? Use 40% for the effective tax rate.
A)$6,000
B)$4,000
C)$10,000
D)$14,000
Q2) Growth oriented capital budgeting projects typically do not require an increase in net working capital.
A)True
B)False
Q3) Which of the following is a basic principle when estimating a project's cash flows?
A)Cash flows should be measured on a pretax basis.
B)Cash flows should ignore depreciation because it is a non-cash charge.
C)Only direct effects of a project should be included in cash flow calculations.
D)Cash flows should be measured on an incremental basis.
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Chapter 10: Capital Budgeting Decision Methods
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Sample Questions
Q1) If a project is normal, which of the following is true for a project with an internal rate of return exceeding the required rate of return?
A)The net present value is negative
B)The net present value is zero
C)The net present value is positive
D)There is not enough information to determine anything about the project's net present value.
Q2) The payback period is a useful measure of a project's A)profitability.
B)economic life.
C)rate of return.
D)liquidity risk.
Q3) What is the profitability index for an acceptable capital budgeting project?
A)greater than 1.0
B)less than 1.0
C)greater than 0.0
D)less than 0.0
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Page 12
Chapter 11: An Introduction to Hotel Valuation
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Sample Questions
Q1) The fair share concept states that if a hotel represents 10 percent of room supply, it should accommodate 10 percent of market demand.
A)True
B)False
Q2) An estimate of value is good for A)one day.
B)one month.
C)three months.
D)one year.
Q3) Rule of thumb approaches are not allowed to be used in hotel appraisals.
A)True
B)False
Q4) Given a debt percentage of 40 percent, a mortgage constant of .12, and a required return on equity of 16 percent, what is the overall capitalization rate?
A)14 percent
B)13 percent
C)12 percent
D)none of the above
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Chapter 12: Capital Structure
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Sample Questions
Q1) Which of the following is most likely to cause a firm to use more financial leverage?
A)the current owners concern for maintaining control of a healthy firm
B)concern for the firm's Moodys and S & P bond ratings
C)concern for maintaining excess borrowing capacity
D)management's concern for their own risk
Q2) What is a firm doing if it is using financial leverage?
A)Marketable securities is part of its assets structure.
B)It is using common stock as part of its capital structure.
C)It is using debt or preferred stock as part of its capital structure.
D)Accounts receivable is part of its asset structure.
Q3) The desire to maintain excess borrowing capacity will tend to increase the use of debt financing in a firm's capital structure.
A)True B)False
Q4) Increasing financial leverage decreases the volatility of owners' returns.
A)True
B)False
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