Intermediate Finance
Question Bank
Course Introduction
Intermediate Finance builds upon foundational financial concepts to deepen students understanding of corporate finance, investment decisions, and financial markets. The course explores topics such as risk and return, capital budgeting, capital structure, dividend policy, asset pricing models, and financial planning. Through case studies and quantitative analysis, students develop the skills to evaluate investment opportunities, assess financial performance, and understand the impact of market forces on corporate decision-making. This course is essential for students aiming to pursue advanced studies or careers in finance, as it bridges basic financial principles with real-world application and strategic financial management.
Recommended Textbook
Corporate Finance Core Principles and Applications 5th Edition by Stephen Ross
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Chapter 1: Introduction to Corporate Finance
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Sample Questions
Q1) Which one of these parties cannot be a stakeholder of a firm?
A)Newly hired company employee
B)Government
C)Firm's creditors
D)Business located next door to the firm
E)Firm's customers
Answer: C
Q2) Sole proprietorships
A)are expensive to set up.
B)create unlimited liability for their owners.
C)are faced with double taxation of profits.
D)can have multiple owners.
E)provide limited liability to owners.
Answer: B
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Chapter 2: Financial Statements AMCQ Cash Flow
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Sample Questions
Q1) Which one of the following accounts is generally the most liquid?
A)Patent
B)Building
C)Accounts receivable
D)Equipment
E)Inventory
Answer: C
Q2) A firm starts its year with positive net working capital.During the year,the firm acquires more short-term debt than it does short-term assets.This means that
A)the ending net working capital might be positive,negative,or equal to zero.
B)both accounts receivable and inventory decreased during the year.
C)the beginning current assets were less than the beginning current liabilities.
D)accounts payable increased and inventory decreased during the year.
E)the ending net working capital will be negative.
Answer: A
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Chapter 3: Financial Statements Analysis Amcq Financial
Models
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Sample Questions
Q1) The Top Shop has net income of $648 and total equity of $6,600.The debt-equity ratio is 0.6 and the plowback ratio is 55 percent.What is the internal growth rate?
A)3)49%
B)3)87%
C)4)92%
D)5)88%
E)4)33%
Answer: A
Q2) Martin's Lumber has a profit margin of 7 percent and a dividend payout ratio of 30 percent.The total asset turnover is 0.90,and the debt-equity ratio is 0.45.What is the sustainable rate of growth?
A)6)33%
B)6)83%
C)6)67%
D)6)90%
E)6)99%
Answer: B
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Chapter 4: Discounted Cash Flow Valuation
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Sample Questions
Q1) Westover Ridge has a management contract with its president that requires a lump sum payment of $15 million to be paid upon the completion of the president's first 5 years of service.The company can earn 6.5 percent on its investments and wants to set aside an equal amount of money each year over the next 5 years to fund this obligation.How much money must the firm save each year?
A)$2,895,734.60
B)$2,698,346.17
C)$2,401,033.67
D)$2,634,518.06
E)$2,848,018.22
Q2) Which one of the following will increase the present value of a finite stream of even cash flows? Assume a positive rate of return.
A)Moving every cash flow one time period further into the future
B)Decreasing the amount of each cash flow
C)Increasing the Time 2 cash flow by $100 and lowering the Time 3 cash flow by $100
D)Moving the Time 1 cash inflow to Time 2
E)Increasing the discount rate
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Chapter 5: Interest Rates AMCQ Bomcq Valuation
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Sample Questions
Q1) Debt securities
A)increase a firm's cost of doing business.
B)pay tax-deductible dividends.
C)are treated the same as equity securities in a bankruptcy proceeding.
D)represent a minority ownership interest in the issuer.
E)are considered a liability only at the time payment is actually due.
Q2) If the nominal rate of return on a bond is 7.47 percent and the real rate is 3.49 percent,what is the rate of inflation?
A)3)85%
B)3)92%
C)3)98%
D)10.96%
E)11.22%
Q3) Long-term debt securities that are issued but not offered to the general public are referred to as
A)privately placed.
B)zero coupon bonds.
C)internal debt.
D)equity securities.
E)unfunded debt.
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Chapter 6: Stock Valuation
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Sample Questions
Q1) What is the primary role of a designated market maker (DMM)?
A)Provide a two-sided market
B)Act as a floor broker
C)Function as a supplementary liquidity provider
D)Act as a one-sided trader
E)Process only electronic trades
Q2) ALP Inc.has decided to issue preferred stock with an annual dividend of $5 a share.Similar stocks are currently yielding 14 percent.What price should the firm expect to receive for each new share issued?
A)$35.71
B)$33.08
C)$44.92
D)$40.71
E)$38.97
Q3) A ________ is a form of equity security that has a stated liquidating value.
A)debenture
B)bond
C)common stock
D)preferred stock
E)proxy
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Chapter 7: Net Present Value AMCQ Other Investment Rules
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Sample Questions
Q1) What is the primary shortcoming of the average accounting rate of return from a financial perspective?
A)The lack of use in the business world
B)The lack of a clear-cut decision rule
C)The degree of the calculation difficulty
D)The degree of estimation involved with the initial cost
E)The use of net income rather than cash flows
Q2) The internal rate of return
A)is more reliable as a decision making tool than net present value when considering mutually exclusive projects.
B)is the discount rate that makes the net present value of a project equal to one.
C)is easier to apply than net present value when cash flows are unconventional.
D)will provide the same accept/reject decision as NPV when cash flows are conventional and projects are independent.
E)is influenced by daily changes in the market rate of interest.
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Chapter 8: Making Capital Investment Decisions
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Sample Questions
Q1) Kurt's Kabinets is looking at a 4-year project that will require $76,000 in fixed assets and another $20,000 in net working capital.Annual sales are projected at $142,800 with costs of $79,600.The company uses straight-line depreciation to a zero book value over the life of the project.The tax rate is 35 percent.What is the annual operating cash flow for this project?
A)$42,240
B)$60,440
C)$40,440
D)$47,730
E)$67,730
Q2) Which one of these statements related to depreciation is correct for a firm with taxable income of $121,600 and after-tax income of $74,200?
A)Depreciation increases the net book value of the firm's assets.
B)Depreciation is a noncash expense that increases the firm's cash flows.
C)Depreciation lowers the firm's net income but does not affect its cash flows.
D)Depreciation has no effect on either the firm's net income or its cash flows.
E)Depreciation decreases both the firm's net income and its cash flows.
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Chapter 9: Risk Analysis, Real Options, AMCQ Capital
Budgeting
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Sample Questions
Q1) In financial breakeven,the EAC is used to
A)allocate depreciation over the life of a project.
B)determine the tax benefit of depreciation.
C)allocate the initial investment over the life of a project.
D)determine the ideal contribution margin.
E)ascertain the appropriate discount rate.
Q2) Les is concerned that his variable cost per unit projection for a project may not be reliable.Which type of analysis will best help him determine the effect that an incorrect variable cost estimate could have on the final outcome of the project?
A)Net income breakeven analysis
B)Financial breakeven analysis
C)Sensitivity analysis
D)Contribution margin analysis
E)Scenario analysis
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Chapter 10: Risk Amcq Return: Lessons From Market History
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Sample Questions
Q1) One year ago,you purchased a stock at a price of $47.26 a share.Today,you sold the stock and realized a total return of 9.8 percent.Your capital gain was $3.68 a share.What was your dividend yield on this stock?
A)1)25%
B)1)85%
C)2)01%
D)1)75%
E)1)35%
Q2) For our historical comparison purposes,how are large-company stocks defined?
A)Stocks of the lowest 20 percent of the firms listed on the NYSE based on market capitalization
B)Stocks with average annual returns that exceed the average annual return of the U.S.Treasury bill
C)Any firm that has been listed on the NYSE for 40 years or more
D)Stocks of firms included in the S&P 500 composite index
E)Stocks of firms that employ over 5,000 employees
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Chapter 11: Return Amcq Risk: the Capital Asset Pricing
Model Capm
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Sample Questions
Q1) The stock of Martin Industries has a beta of 1.17.The risk-free rate of return is 2.9 percent,and the market risk premium is 6.93 percent.What is the expected rate of return on Martin Industries stock?
A)11.01%
B)6)91%
C)16.42%
D)14.46%
E)10.19%
Q2) The expected return on a portfolio
A)can be greater than the expected return on the best performing security in the portfolio.
B)can be less than the expected return on the worst performing security in the portfolio.
C)is independent of the performance of the overall economy.
D)is limited by the returns on the individual securities within the portfolio.
E)is an arithmetic average of the returns of the individual securities when the weights of those securities are unequal.
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Chapter 12: Risk, cost of Capital, AMCQ Valuation
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Sample Questions
Q1) An all-equity firm has a beta of 0.94.Assume the beta of debt is equal to the risk-free beta.If the firm changes to a debt-equity ratio of 0.35,its equity beta would be ________,and if it changes its debt-equity ratio to 0.40,its equity beta would be
A)1)269;1.316
B)1)269;1.234
C)1)190;1.234
D)1)190;1.316
E)1)234;1.316
Q2) NuPress Valet has a proposed investment with an initial cost of $62 million and cash flows of $12.5 million for 5 years.Debt represents 44 percent of the capital structure.The cost of equity is 13.7 percent,the pretax cost of debt is 8.5 percent,and the tax rate is 34 percent.What is the company's WACC?
A)9)93%
B)9)12%
C)10.14%
D)10.25%
E)9)75%
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Chapter 13: Efficient Capital Markets Amcq Behavioral Challenges
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Sample Questions
Q1) The efficient market hypothesis implies that
A)all investments should earn the same average rate of return over time.
B)any investment should earn a normal return commensurate with the investment's risk.
C)efficient markets will tend to have fixed prices from one day to the next.
D)stock prices are only efficient when all investors review their portfolios on a daily basis.
E)investors must be disinterested in their investments for the markets to be efficient.
Q2) Sam,an avid day trader,has noticed that a particular stock has increased in value in each of the last three trading days.Given this trend,he believes the stock price will increase over the next two trading days.This is an example of A)a timing decision.
B)irrational exuberance.
C)representativeness.
D)conservatism.
E)arbitrage.
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Chapter 14: Capital Structure: Basic Concepts
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Sample Questions
Q1) MM Proposition I,without taxes,supports the argument that
A)business risk determines the return on assets.
B)it is completely irrelevant how a firm arranges its finances.
C)the cost of equity rises as leverage rises.
D)a firm should borrow money up to the point where the cost of debt equals the cost of equity.
E)financial risk is determined by the debt-equity ratio.
Q2) Models and More has a bond issue outstanding with a face value of $215,000.These bonds have a coupon rate of 5.65 percent,pay interest semiannually,and have a current market price quote of 1.01.The tax rate is 34 percent.What is the amount of the annual interest tax shield?
A)$5,125.50
B)$4,130.15
C)$4,176.13
D)$4,171.45
E)$5,297.89
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Chapter 15: Capital Structure: Limits to the Use of Debt
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Sample Questions
Q1) Burger Queen has a value of $38,000 in a good economy and $24,000 in a recession.The firm has $25,000 of debt.The probability of a recession is 50 percent.The firm is considering a project that would change the firm values to $42,000 in a good economy and $22,000 in a recession.Will shareholders accept this project? Will bondholders like this project?
A)Both shareholders and bondholders will like this project.
B)Neither shareholders nor bondholders will like this project.
C)Shareholders,but not bondholders,will like this project.
D)Bondholders,but not shareholders,will like this project.
E)Shareholders will like this project but bondholders will be indifferent.
Q2) The Window Store will have a value of $139,000 if the economy does well this coming year and a value of $121,000 if the economy does poorly.The probability of a good economy is 68 percent.The firm owes its bondholders $63,000.The firm will only operate for one more year.What is the value of this firm to its shareholders?
A)$68,500
B)$70,240
C)$70,450
D)$73,550
E)$74,660
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Chapter 16: Dividemcqs AMCQ Other Payouts
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Sample Questions
Q1) Bruno's has 13,000 shares of stock outstanding with a par value of $1 per share and a market value of $38.29 per share.The balance sheet shows $13,000 in the common stock account,$78,300 in the capital in excess of par value account,and $82,500 in retained earnings.The firm just announced a large stock dividend of 40 percent.What will be the balance in the capital in excess of par value account after the dividend?
A)$272,208
B)$277,408
C)$145,300
D)$78,300
E)$91,300
Q2) Shareholders are more apt to prefer a high dividend payout if a firm
A)has high flotation costs.
B)has a high rate of growth which requires additional funding.
C)offers high capital gains that are taxed at a favorable rate.
D)has lower tax rates than the shareholder.
E)will spend the funds on a high-premium acquisition if the dividend is not paid.
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Chapter 17: Options Amcq Corporate Finance
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Sample Questions
Q1) In the Black-Scholes option pricing model,what does the variable R represent?
A)The annually compounded risk-free rate of return
B)The continuously compounded variance
C)The continuously compounded annual risk-free rate of return
D)The annually compounded market rate of return
E)The continuously compounded market rate of return
Q2) Which term applies to the purchase or sale of an underlying asset via an option contract?
A)Exercising the option
B)Striking the price
C)Opening the bid
D)Splitting the security
E)Expiring the option
Q3) Which variable within the Black-Scholes option pricing formula is the delta?
A)S
B)e<sup> Rt</sup>
C)N(d<sub>2</sub>)
D)N(d<sub>1</sub>)
E)E
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Chapter 18: Short-Term Finance Amcq Planning
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Sample Questions
Q1) Snow Mountain Resort had a beginning cash balance of $9,720 for the quarter.During the quarter,the firm had cash collections of $157,311,wages and other cash expenses of $67,900,payments on account of $57,412,and dividends paid of $2,500.The minimum cash balance was just set at $1,200.The beginning short-term debt is $28,000 with a quarterly interest rate of 1.4 percent.At quarter end,the cumulative surplus (deficit)is ________ and the ending short-term debt is ________.
A)$0;$0
B)$0;$1,892
C)$0;$9,627
D)$1,892;$0
E)$9,627;$0
Q2) A supplier offers you credit terms of 2/10,net 45.What is the cost of forgoing the discount on a purchase of $318,600? Assume a 365-day year.
A)20.41%
B)21.08%
C)24.83%
D)22.69%
E)23.45%
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Chapter 19: Raising Capital
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Sample Questions
Q1) Wood Cabinet's is an all-equity firm with 180,000 shares of stock outstanding that sell for $42 per share.The current net income is $320,400.An expansion project will cost $1.26 million.Assume the price-earnings ratio remains constant.By what amount must the new project increase the net income for the stock price to remain at $42?
A)$51,300
B)$57,600
C)$59,700
D)$62,100
E)$53,400
Q2) Which one of these is not a reason given for issuing shares without a rights offering?
A)The risk of the subscription price exceeding the market price is significant.
B)Underwriters provide a wider distribution of shares than would be possible with a rights offering.
C)Rights must be exercised by their original owner or forfeited.
D)Underwritten issues provide funds faster than rights offerings do.
E)Investment bankers provide valuable advice.
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Chapter 20: International Corporate Finance
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Sample Questions
Q1) You want to import $327,000 of merchandise from New Zealand.How many New Zealand dollars will you need to pay for this purchase if the indirect quote is 1.1136?
A)NZ$364,147.20
B)NZ$308,000.00
C)NZ$330,018.02
D)NZ$299,607.50
E)NZ$293,642.24
Q2) Which one of these combinations of country,currency,and currency symbol is incorrect?
A)Mexico,peso,Ps
B)Japan,yen,¥
C)United Kingdom,pound,£
D)Saudi Arabia,riyal,Ry
E)EMU,euro,
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Chapter 21: Mergers Amcq Acquisitions Web Only
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Sample Questions
Q1) The purchase ________ best fits the definition of a vertical acquisition.
A)of a men's clothing store by a women's clothing company
B)of a vacation resort by a steel manufacturer
C)of a coal mine by an electric utility company
D)by a restaurant of its main competitor
E)of an airline by a major retail chain
Q2) Under the purchase accounting method,
A)goodwill must be amortized straight-line over the target firm's estimated life.
B)acquired assets are recorded based on their target firms' book values.
C)goodwill always remains on the acquirer's books at its original value.
D)goodwill will generally be a long-term liability on the acquirer's books.
E)acquired assets are recorded at fair market value.
Q3) Assume Firm A acquires Firm B.As a result,the EPS of Firm A increase by 10 percent.Given this increase,you know for certain that the A)acquisition created synergy.
B)purchase price was below market value.
C)value of B to A exceeded the value of B as a stand-alone firm.
D)acquisition provided diversification benefits.
E)total earnings divided by the total shares increased.
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Page 23