Introduction to Finance Exam Review
Course Introduction
Introduction to Finance provides students with a foundational understanding of financial principles and practices that are essential for making informed personal and business decisions. The course covers key topics such as time value of money, risk and return, financial statement analysis, budgeting, investment evaluation, and an overview of financial markets and institutions. Through real-world examples, case studies, and fundamental financial calculations, students will gain practical skills to analyze financial information, understand the basics of capital budgeting, and appreciate the role of finance in both organizational and individual contexts.
Recommended Textbook M Finance 3rd Edition by Marcia Millon Cornett
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14 Chapters
1604 Verified Questions
1604 Flashcards
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Page 2
Chapter 1: Introduction to Financial Management
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66 Verified Questions
66 Flashcards
Source URL: https://quizplus.com/quiz/58520
Sample Questions
Q1) The opportunity to buy stock at a fixed price over a specific period of time is referred to as:
A)stock opportunities.
B)stock options.
C)real assets.
D)restricted stock.
Answer: B
Q2) This type of business organization is relatively easy to start, and it is subject to much lighter regulatory and paperwork burden than other business forms.
A)Sole proprietorship
B)Partnership
C)Corporation
D)Hybrid organization
Answer: A
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Page 3
Chapter 2: Reviewing Financial Statements
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Which of the following statements is correct?
A)The bottom line on the statement of cash flows equals the change in the retained earnings on the balance sheet.
B)The reason the statement of cash flows is important is because cash is what pays the firm's obligations, not accounting profit.
C)If a firm has accounting profit, its cash account will always increase.
D)All of these statements are correct.
Answer: B
Q2) Brenda's Bar and Grill has total assets of $17 million of which $5 million are current assets. Cash makes up 12 percent of the current assets and accounts receivable makes up another 40 percent of current assets. Brenda's gross plant and equipment has a cost value of $12 million and other long-term assets have a cost value of $1,000,000. Using this information, what are the balance of inventory and the balance of depreciation on Brenda's Bar and Grill's balance sheet?
A)$2.4 million; $1 million
B)$3.4 million; $2 million
C)$1.4 million; $1 million
D)$0.4 million; $3 million
Answer: A
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Page 4
Chapter 3: Analyzing Financial Statements
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124 Verified Questions
124 Flashcards
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Sample Questions
Q1) Which of the following measures the number of days accounts receivable are held before the firm collects cash from the sale?
A)Accounts receivable turnover
B)Average collection period
C)Average payment period
D)Accounts payable turnover
Answer: B
Q2) You are thinking of investing in Ski Sports, Inc. You have only the following information on the firm at year-end 2013: net income = $50,000, total debt = $1 million, and debt ratio = 70 percent. What is Ski's ROE for 2013?
A)2.94 percent
B)3.49 percent
C)7.14 percent
D)11.67 percent
Answer: D
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Chapter 4: Time Value of Money 1: Analyzing Single Cash Flows
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) What is the future value of $1,000 deposited for one year earning 5 percent interest rate annually?
A)$1,000
B)$1,005
C)$1,050
D)$2,050
Q2) What is the value in year 4 of a $9,000 cash flow made in year 13 if interest rates are 7 percent in years 4 through 9 and increase to 11 percent after that?
A)$4,226.99
B)$4,472.06
C)$4,698.17
D)$4,716.52
Q3) You invested $1,000 in the stock market one year ago. Today, the investment is valued at $1,250. What return did you earn? What return would you suffer next year for your investment to be valued at the original $1,000?
A)+25 percent, -20 percent, respectively
B)-25 percent, +20 percent, respectively
C)125 percent, -25 percent, respectively
D)125 percent, -20 percent, respectively
Page 6
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Chapter 5: Time Value of Money 2: Analyzing Annuity Cash Flows
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147 Verified Questions
147 Flashcards
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Sample Questions
Q1) You deposit $1,000 today and want to save $100 each month beginning one month from today. Your account earns a 5 percent annual interest rate. How long will it take you to accumulate $5,000?
A)29.3 months
B)35.7 months
C)42.6 months
D)52.1 months
Q2) A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $1,500 per month for the next 3 years and then $500 per month for three years after that. If the bank is charging customers 10 percent APR, how much would it be willing to lend the business owner?
A)$32,019.95
B)$57,980.57
C)$61,982.47
D)$192,119.70
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Chapter 6: Understanding Financial Markets and Institutions
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) Nikki G's Corporation's 10-year bonds are currently yielding a return of 9.25 percent. The expected inflation premium is 2.0 percent annually and the real interest rate is expected to be 3.10 percent annually over the next 10 years. The liquidity risk premium on Nikki G's bonds is 0.1 percent. The maturity risk premium is 0.10 percent on two-year securities and increases by 0.05 percent for each additional year to maturity. Calculate the default risk premium on Nikki G's 10-year bonds.
A)2.55 percent
B)5.65 percent
C)3.55 percent
D)1.85 percent
Q2) Which of these markets trade currencies for immediate or for some future stated delivery?
A)Money markets
B)Primary markets
C)Foreign exchange markets
D)Over-the-counter stocks
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Chapter 7: Valuing Bonds
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) A 6.5 percent coupon bond with 12 years left to maturity can be called in four years. The call premium is one year of coupon payments. It is offered for sale at $1,190.25. What is the yield to call of the bond? (Assume interest payments are paid semi-annually and par value is $1,000.)
A)1.48 percent
B)2.96 percent
C)6.5 percent
D)7.23 percent
Q2) Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 8.5 percent. (Assume annual compounding and a par value of $1,000.)
A)$90.29
B)$195.62
C)$1,195.62
D)$995.62
Q3) Under what conditions is a bond likely to be called?
A)The firm is in financial duress.
B)The firm is planning a massive expansion and needs to raise a lot of capital.
C)Interest rates have significantly declined.
D)The firm wants to increase its debt ratio.
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Page 9
Chapter 8: Valuing Stocks
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) Which of the following statements is incorrect?
A)Trading at the New York Stock Exchange and the American Stock Exchange are done by open outcry.
B)Dealers create market liquidity in the Nasdaq's electronic market.
C)The Dow Jones Industrial Average includes 35 of the largest companies in the United States.
D)The Nasdaq contains many very large technology firms.
Q2) Suppose that a firm's recent earnings per share and dividends per share are $3.00 and $1.50, respectively. Both are expected to grow at 10 percent. However, the firm's current P/E ratio of 20 seems high for this growth rate. The P/E ratio is expected to fall to 16 within five years. Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years. Then discount these cash flows using a 14 percent required rate.
A)$31.68
B)$40.15
C)$46.89
D)$60.00
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Page 10
Chapter 9: Characterizing Risk and Return
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) Which of the following is incorrect?
A)It is possible to combine assets that all move in the exact same fashion over time and gain the benefits of diversification.
B)Adding long-term Treasury bonds to a stock portfolio will reduce the risk of the portfolio.
C)The optimal portfolio is the one with the lowest amount of risk.
D)All of these statements are correct.
Q2) Which of the following statements is correct?
A)The dollar return is a more useful measure to compare performance because it more accurately reflects the change in wealth of the investor.
B)A dominant portfolio is one that has the highest risk and highest return within a set of portfolios.
C)By adding stocks to your portfolio, it is possible to effectively eliminate nearly all of the market risk.
D)None of these statements are correct.
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11
Chapter 10: Estimating Risk and Return
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Which of the following is typically considered the return on U.S. government bonds and bills and equals the real interest plus the expected inflation premium?
A)Required return
B)Risk-free rate
C)Risk premium
D)Market risk premium
Q2) Which of the following is incorrect?
A)Technical analysis is expected to work if markets are weak-form efficient.
B)If markets are strong-form efficient then they must also be weak-form efficient.
C)It is not likely that the market is strong-form efficient.
D)None of these statements are incorrect.
Q3) A company has a beta of 3.25. If the market return is expected to be 14 percent and the risk-free rate is 5.5 percent, what is the company's required return?
A)22.750 percent
B)33.125 percent
C)45.500 percent
D)51.000 percent
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Chapter 11: Calculating the Cost of Capital
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) OMG Inc. has 4 million shares of common stock outstanding, 3 million shares of preferred stock outstanding, and 5 thousand bonds. If the common shares sell for $17 per share, the preferred shares sell for $126 per share, and the bonds sell for 117 percent of par ($1,000), what weight should you use for preferred stock in the computation of OMG's WACC?
A)28.91 percent
B)31.58 percent
C)47.91 percent
D)83.66 percent
Q2) Suppose that TNT, Inc. has a capital structure of 43 percent equity, 23 percent preferred stock, and 34 percent debt. If the before-tax component costs of equity, preferred stock and debt are 15.4 percent, 10 percent and 7 percent, respectively, what is TNT's WACC if the firm faces an average tax rate of 28 percent?
A)9.45 percent
B)10.64 percent
C)10.80 percent
D)11.30 percent
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Chapter 12: Estimating Cash Flows on Capital Budgeting Projects
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110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/58509
Sample Questions
Q1) As new capital budgeting projects arise, we must estimate:
A)the float costs for financing the project.
B)when such projects will require cash flows.
C)the cost of the loan for the specific project.
D)the cost of the stock being sold for the specific project.
Q2) Your company is considering a project that will cost $175. The project will generate after-tax cash flows of $37.50 per year for five years. The WACC is 10 percent and the firm's D/A ratio is 0.62. The flotation cost for equity is 5 percent, the flotation cost for debt is 3 percent, and your firm does not plan on issuing any preferred stock within its capital structure. If your firm follows the practice of incorporating flotation costs into the project's initial investment, what is the firm's flotation-adjusted cash flow in year 0?
A)-$90.26
B)-$88.14
C)-$196.25
D)-$181.84
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Page 14
Chapter 13: Weighing Net Present Value and Other Capital
Budgeting Criteria
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Projects A and B are mutually exclusive. Project A costs $10,000 and is expected to generate cash inflows of $4,000 for four years. Project B costs $10,000 and is expected to generate a single cash flow in year 4 of $20,000. The cost of capital is 12 percent. Which project would you accept and why?
A)Project B because it has the higher NPV.
B)Project B because it has the higher IRR.
C)Project A because it has the higher NPV.
D)Project A because it has the higher IRR.
Q2) Compute the IRR statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. \[\begin{array} { l l l l l l l }
\text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \\
\text { Cash flow: } & - 75 & - 75 & 0 & 100 & 75 & 50
\end{array}\]
A)10 percent, accept
B)10 percent, reject
C)13.26 percent, accept
D)13.26 percent, reject
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Chapter 14: Working Capital Management and Policies
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) If a firm has a cash cycle of 10 days and an operating cycle of 43 days, what is its payables turnover?
A)11.06
B)36.5
C)8.48
D)33
Q2) KJ Enterprises estimates that it takes, on average, three days for their customers' payments to reach them, one day for the payments to be processed and deposited by their bookkeeping department, and two more days for the checks to clear once they're deposited. What is their collection float?
A)one day
B)two days
C)three days
D)six days
Q3) Which of the following is NOT an example of an inventory loan?
A)Blanket inventory liens
B)Trust receipts
C)Field warehousing financing
D)Inventory factor
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Page 16