Introduction to Finance Exam Preparation Guide
Course Introduction
Introduction to Finance provides students with an essential overview of financial principles, markets, and instruments. The course covers key topics such as the time value of money, financial statement analysis, risk and return, asset valuation, and the fundamentals of capital budgeting. Students will gain a practical understanding of how individuals and organizations make investment and financing decisions, as well as explore the roles of financial institutions and the global financial system. By the end of the course, learners will be equipped with foundational tools and concepts to analyze financial information and apply them to real-world financial decision-making.
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 Flashcards
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Sample Questions
Q1) The tax liability of a sole proprietorship with ordinary income of $105,000 is closest to ________. Range of taxable income Marginal rate
$ 0 to $ 9,525 10%
9,525 to 38,700 12
38,700 to 82,500 22
82,500 to 157,500 24
A)$25,200
B)$22,050
C)$32,090
D)$19,490
Answer: D
Q2) The wealth of the owners of a corporation is represented by ________.
A)profits
B)earnings per share
C)share value
D)cash flow
Answer: C
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Chapter 2: The Financial Market Environment
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104 Flashcards
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Sample Questions
Q1) ________ is a financial intermediary that specializes in selling new security issues.
A)An investment bank
B)A commercial bank
C)A securities dealer
D)A stock exchange
Answer: A
Q2) NASDAQ is considered an OTC market since it is not recognized by the SEC as a "listed exchange."
A)True
B)False Answer: False
Q3) Which of the following acts regulates the primary market in which securities are originally issued to the public?
A)The Securities Act of 1933
B)The Gramm-Leach-Bliley Act
C)The Securities Exchange Act of 1934
D)The Glass-Steagall Act
Answer: A
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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 return on total assets for Dana Dairy Products for 2019 was ________.(See Table 3.2)
A)0.9 percent
B)5.5 percent
C)25 percent
D)2.5 percent
Answer: D
Q2) Which of the following ratios is difficult for the creditors of a firm to analyze from the published financial statements?
A)debt equity ratio
B)average payment period
C)quick ratio
D)total asset turnover
Answer: B
Q3) The net value of fixed assets is also called its ________.
A)market value
B)par value
C)book value
D)intrinsic value
Answer: C
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Chapter 4: Long- and Short-Term Financial Planning
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189 Flashcards
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Sample Questions
Q1) The pro forma net profits after taxes for 2019 are ________.(See Table 4.4)
A)$272,550
B)$207,000
C)$122,550
D)$57,000
Q2) Under MACRS,an asset which originally cost $100,000 is being depreciated using a 10-year normal recovery period.The depreciation expense in year 11 is ________.
A)$3,000
B)$4,000
C)$0
D)$6,000
Q3) Which of the following is a cash flow from financing activities?
A)purchase of a long-term asset
B)decrease in accounts payable
C)increase in accounts payable
D)repurchasing stock
Q4) Depreciation is considered to be an outflow of cash.
A)True
B)False
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Chapter 5: Time Value of Money
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Sample Questions
Q1) John borrowed $12,000 to buy a new car and expects to pay $564.87 per month for the next 2 years to pay off the loan.What is the loan's rate of interest?
Q2) The future value of an ordinary annuity of $1,000 each year for 10 years,deposited at 3 percent,is ________.
A)$11,808.
B)$11,464.
C)$8,530.
D)$8,786.
Q3) When computing an interest or growth rate,the rate will increase with a decrease in future value,holding present value and the number of periods constant.
A)True
B)False
Q4) When computing an interest or growth rate,the rate will decrease with an increase in future value,holding present value and the number of periods constant.
A)True
B)False
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Chapter 6: Interest Rates and Bond Valuation
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Sample Questions
Q1) The value of an asset depends on the historical cash flow(s)up to the present time.
A)True
B)False
Q2) Which of the following affects the cost of a bond to the issuer?
A)maturity of a bond
B)dividend policy
C)fixed assets purchased from the proceeds of bond issue
D)money market regulations
Q3) The liquidity preference theory suggests that long-term interest rates tend to be higher than short-term rates (and therefore the yield curve slopes up)due to the lower liquidity and higher responsiveness to general interest rate movements of longer-term securities.
A)True
B)False
Q4) A flat yield curve indicates generally cheaper long-term borrowing costs than short-term borrowing costs.
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) Which of the following is a difference between common stock and bonds?
A)Bondholders have a voice in management; common stockholders do not.
B)Bondholders have a senior claim on assets and income relative to stockholders.
C)Stocks have a stated maturity but bonds do not.
D)Dividend paid to stockholders is tax-deductible but interest paid to bondholders are not.
Q2) Which of the following is typically a feature of common stock?
A)Most common stocks are callable.
B)Most common stocks are cumulative.
C)Common stocks have a maturity value.
D)Common stocks may or may not pay dividends.
Q3) Daniel Custom Cycles' common stock currently pays no dividends.The company plans to begin paying dividends beginning 3 years from today.The first dividend will be $3.00 and dividends will grow at 5 percent per year thereafter.Given a required return of 15 percent,what would you pay for the stock today?
A)$25.33
B)$18.73
C)$29.86
D)$22.68
Q4) Calculate the estimated dividend for 2020.(See Table 7.1)
Page 9
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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) Suppose the CAPM is true.Asset X has a standard deviation of 25%.The risk-free asset,by definition,has a standard deviation of 0%.Therefore,the expected return on asset X must exceed the risk-free rate.
A)True
B)False
Q3) Two assets whose returns move in the same direction and have a correlation coefficient of +1 are very risky assets.
A)True
B)False
Q4) A portfolio of two negatively correlated assets may have less risk than either of the individual assets.
A)True
B)False
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Chapter 9: The Cost of Capital
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Sample Questions
Q1) The target capital structure is the desired optimal mix of debt and equity financing that firms attempt to achieve and maintain.
A)True
B)False
Q2) A firm finances its activities with both debt (that costs 8%)and equity (that costs 14%).The firm can borrow additional funds at 8% if it so desires.A financial analyst at this firm argues that the firm should undertake any investment that earns a return of at least 8% because such investments will enable the firm to pay debtholders what they desire,and any earnings above 8% will go to stockholders.If a firm decides to make investments based on this logic it will ________.
A)decline to make investments that it should undertake
B)undertake investments that it should decline
C)make only those investment decisions that increase shareholder value
D)have exorbitant interest expenses
Q3) The firm's cost of a new issue of common stock is ________.(See Table 9.1)
A)7 percent
B)9.08 percent
C)14.2 percent
D)13.4 percent
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Chapter 10: Capital Budgeting Techniques
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Sample Questions
Q1) The capital budgeting process consists of five distinct but interrelated steps: proposal generation,review and analysis,decision making,implementation,and follow-up.
A)True
B)False
Q2) A capital budgeting technique that can be computed by solving for the discount rate that equates the present value of a project's inflows to the present value of its outflows is called net present value.
A)True
B)False
Q3) Time value of money should be ignored in capital budgeting techniques to make accurate decisions.
A)True
B)False
Q4) For calculating payback period for an annuity,all cash flows must be adjusted for time value of money.
A)True
B)False
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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) The annualized NPV of Project B is ________.(See Table 11.11)
A)$11,673
B)$12,947
C)$38,227
D)$21,828
Q2) Behavioral approaches for dealing with risk include scenario analysis and simulation.
A)True
B)False
Q3) A preferred approach for risk adjustment of capital budgeting cash flows,from a practical viewpoint,is ________.
A)sensitivity analysis
B)simulation analysis
C)scenario analysis
D)risk-adjusted discount rates
Q4) Because of the basic mathematics of compounding and discounting,the risk-adjusted discount rate (RADR)approach implicitly assumes that risk is an increasing function of time.
A)True
B)False
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Chapter 12: Leverage and Capital Structure
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Sample Questions
Q1) In theory,a firm's optimal capital structure is that which minimized the firm's overall cost of capital resulting in a maximization of the market value of a firm.
A)True
B)False
Q2) According to the pecking order theory,which of the following is the order in which corporations use different financing sources to fund investment projects?
A)retained earnings,equity,debt
B)retained earnings,debt,equity
C)debt,retained earnings,equity
D)equity,retained earnings,debt
Q3) A firm's operating breakeven point is the point at which ________.
A)total operating costs equal total fixed costs
B)total operating costs are zero
C)EBIT is less than sales
D)EBIT is zero
Q4) Which plan has a higher degree of financial leverage and financial risk? (See Table 13.1)
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Chapter 13: Payout Policy
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133 Flashcards
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Sample Questions
Q1) In a(n)________,a firm specifies a range of prices that it is willing to repurchase shares and the quantity of shares that it desires.
A)Dutch auction
B)tender offer
C)American option
D)self-tender offer
Q2) In a Dutch auction,________.
A)a firm offers to repurchase a fixed number of shares,at a discount
B)a firm offers to repurchase a fixed number of shares,at a premium
C)a firm specifies a range of prices at which it is willing to repurchase shares and the quantity of shares that it desires
D)a firm enables stockholders to use dividends received on the firm's stock to acquire additional shares
Q3) The purpose of a stock split is to ________.
A)change a firm's capital structure
B)decrease the dividend
C)enhance the trading activity of the stock by lowering the market price
D)increase the market price of a stock
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Chapter 14: Working Capital and Current Assets Management
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Sample Questions
Q1) The basic strategies for determining the appropriate financing mix are ________.
A)seasonal and permanent funding
B)short-term and long-term financing
C)aggressive and conservative funding
D)current and non-current liabilities
Q2) When a firm's credit standards are relaxed ________.
A)its sales are expected to decrease with a corresponding increase in costs
B)its costs are expected to decrease with a corresponding decrease in sales
C)its costs are expected to increase faster than sales if the standards are not relaxed
D)its profit contribution from sales will be greater than the cost contribution
Q3) Current liabilities can be viewed as ________.
A)debts that mature in a period of one year or less
B)liabilities which represent a firm's long-term financing
C)sources of cash inflows from the operating activities of a firm
D)funds used to finance the noncurrent assets' portion of a firm
Q4) Float exists when a payee has received funds in a spendable form but these funds have not been withdrawn from the account of the payer.
A)True
B)False
Page 16
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Chapter 15: Current Liabilities Management
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Sample Questions
Q1) The effective interest rate for a discount loan is greater than the loan's stated interest rate.
A)True
B)False
Q2) A firm issued $2 million worth of commercial paper that has a 90-day maturity and sells for $1,900,000.The annual interest rate on the issue of commercial paper is ________ (assume 360 days in a year).
A)5.26 percent
B)10 percent
C)17.77 percent
D)21.05 percent
Q3) For firms that are in a financial position to take a cash discount,it is advisable to take the discount if the terms offered are 2/10 net 30.
A)True
B)False
Q4) A commitment fee is the fee that is normally charged on a revolving credit agreement.
A)True
B)False
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