Introduction to Finance Exam Review
Course Introduction
Introduction to Finance provides students with a foundational understanding of financial principles and their practical applications in both personal and business contexts. Topics covered include the time value of money, risk and return, financial markets and institutions, basic valuation of stocks and bonds, and an overview of financial statements. Through real-world examples and problem-solving exercises, students develop essential analytical skills needed to make informed financial decisions and to comprehend the role of finance in the broader economy.
Recommended Textbook Fundamentals of Financial Management 15th Edition by Eugene F. Brigham
Available Study Resources on Quizplus
21 Chapters
1827 Verified Questions
1827 Flashcards
Source URL: https://quizplus.com/study-set/3546 Page 2
Chapter 1: An Overview of Financial Management
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/131698
Sample Questions
Q1) A hostile takeover is said to occur when another corporation or group of investors gains voting control over a firm and replaces the old managers.If the old managers were managing the firm inefficiently,then hostile takeovers can improve the economy.However,hostile takeovers are controversial,and legislative actions have been taken to make them more difficult to undertake.
A)True
B)False
Answer: True
Q2) Which of the following statements is CORRECT?
A) One of the disadvantages of incorporating your business is that you could become subject to the firm's liabilities in the event of bankruptcy.
B) Proprietorships are subject to more regulations than corporations.
C) In any partnership,every partner has the same rights,privileges,and liability exposure as every other partner.
D) Corporations of all types are subject to the corporate income tax.
E) Proprietorships and partnerships generally have a tax advantage over corporations. Answer: E
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Financial Markets and Institutions
Available Study Resources on Quizplus for this Chatper
33 Verified Questions
33 Flashcards
Source URL: https://quizplus.com/quiz/131699
Sample Questions
Q1) Which of the following is a primary market transaction?
A) You sell 200 shares of IBM stock on the NYSE through your broker.
B) You buy 200 shares of IBM stock from your brother.The trade is not made through a broker;you just give him cash and he gives you the stock.
C) IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker.
D) One financial institution buys 200,000 shares of IBM stock from another institution.An investment banker arranges the transaction.
E) IBM sells 2,000,000 shares of treasury stock to its employees when they exercise options that were granted in prior years.
Answer: C
Q2) The annual rate of return on any given stock can be found as the stock's dividend for the year plus the change in the stock's price during the year,divided by its beginning-of-year price.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Financial Statements,cash Flow and Taxes
Available Study Resources on Quizplus for this Chatper
138 Verified Questions
138 Flashcards
Source URL: https://quizplus.com/quiz/131700
Sample Questions
Q1) The annual report contains four basic financial statements: the income statement,the balance sheet,the cash flow statement,and the statement of stockholders' equity.
A)True
B)False
Answer: True
Q2) West Corporation has $50,000 that it plans to invest in marketable securities.The corporation is choosing between the following three equally risky securities: Alachua County tax-free municipal bonds yielding 8.50%;Exxon Mobil bonds yielding 10.50%;and GM preferred stock with a dividend yield of 9.25%.West's corporate tax rate is 32.00%.What is the after-tax return on the best investment alternative? Assume a 70.00% dividend exclusion for tax on dividends.(Assume the company chooses on the basis of after-tax returns.Round your final answer to 3 decimal places. )
A) 9.690%
B) 7.820%
C) 8.585%
D) 8.500%
E) 10.625%
Answer: D
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Analysis of Financial Statements
Available Study Resources on Quizplus for this Chatper
133 Verified Questions
133 Flashcards
Source URL: https://quizplus.com/quiz/131701
Sample Questions
Q1) A firm's new president wants to strengthen the company's financial position.Which of the following actions would make the company financially stronger?
A) Increase accounts receivable while holding sales constant.
B) Increase EBIT while holding sales and assets constant.
C) Increase accounts payable while holding sales constant.
D) Increase notes payable while holding sales constant.
E) Increase inventories while holding sales constant.
Q2) Suppose Firms A and B have the same amount of assets,total assets are equal to total invested capital,pay the same interest rate on their debt,have the same basic earning power (BEP),finance with only debt and common equity,and have the same tax rate.However,Firm A has a higher debt to capital ratio.If BEP is greater than the interest rate on debt,Firm A will have a higher ROE as a result of its higher debt ratio.
A)True
B)False
Q3) Other things held constant,the more debt a firm uses,the lower the firm's profit margin will be.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Time Value of Money
Available Study Resources on Quizplus for this Chatper
163 Verified Questions
163 Flashcards
Source URL: https://quizplus.com/quiz/131702
Sample Questions
Q1) Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
A)True
B)False
Q2) You are considering an investment in a Third World bank account that pays a nominal annual rate of 18%,compounded monthly.If you invest $5,000 at the beginning of each month,how many months would it take for your account to grow to $450,000? Round fractional months up.
A) 47
B) 57
C) 67
D) 51
E) 70
Q3) If we are given a periodic interest rate,say a monthly rate,we can find the nominal annual rate by multiplying the periodic rate by the number of periods per year.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Interest Rates
Available Study Resources on Quizplus for this Chatper
82 Verified Questions
82 Flashcards
Source URL: https://quizplus.com/quiz/131703
Sample Questions
Q1) The four most fundamental factors that affect the cost of money are (1)production opportunities, (2)time preferences for consumption, (3)risk,and (4)the skill level of the economy's labor force.
A)True
B)False
Q2) Kop Corporation's 5-year bonds yield 6.50%,and T-bonds with the same maturity yield 5.90%.The default risk premium for Kop's bonds is DRP = 0.40%,the liquidity premium on Kop's bonds is LP = 0.20% versus zero on T-bonds,the inflation premium (IP)is 1.50%,and the maturity risk premium (MRP)on 5-year bonds is 0.40%.What is the real risk-free rate,r*?
A) 3.64%
B) 3.48%
C) 3.00%
D) 4.96%
E) 4.00%
Q3) The "yield curve" shows the relationship between bonds' maturities and their yields.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Bonds and Their Valuation
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/131705
Sample Questions
Q1) A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity.Which of the following statements is CORRECT?
A) The bond sells at a price below par.
B) The bond has a current yield greater than 8%.
C) The bond sells at a discount.
D) The bond's required rate of return is less than 7.5%.
E) If the yield to maturity remains constant,the price of the bond will decline over time.
Q2) Floating-rate debt is advantageous to investors because the interest rate moves up if market rates rise.Since floating-rate debt shifts price risk to companies,it offers no advantages to corporate issuers.
A)True
B)False
Q3) The market value of any real or financial asset,including stocks,bonds,or art work purchased in hope of selling it at a profit,may be estimated by determining future cash flows and then discounting them back to the present.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 9
Chapter 8: Risk and Rates of Return
Available Study Resources on Quizplus for this Chatper
147 Verified Questions
147 Flashcards
Source URL: https://quizplus.com/quiz/131706
Sample Questions
Q1) Assume that investors have recently become more risk averse,so the market risk premium has increased.Also,assume that the risk-free rate and expected inflation have not changed.Which of the following is most likely to occur?
A) The required rate of return for an average stock will increase by an amount equal to the increase in the market risk premium.
B) The required rate of return will decline for stocks whose betas are less than 1.0.
C) The required rate of return on the market,r<sub>M</sub>,will not change as a result of these changes.
D) The required rate of return for each individual stock in the market will increase by an amount equal to the increase in the market risk premium.
E) The required rate of return on a riskless bond will decline.
Q2) The slope of the SML is determined by the value of beta.
A)True
B)False
Q3) Diversification will normally reduce the riskiness of a portfolio of stocks.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Stocks and Their Valuation
Available Study Resources on Quizplus for this Chatper
89 Verified Questions
89 Flashcards
Source URL: https://quizplus.com/quiz/131709
Sample Questions
Q1) The preemptive right gives current stockholders the right to purchase,on a pro rata basis,any new shares issued by the firm.This right helps protect current stockholders against both dilution of control and dilution of value.
A)True
B)False
Q2) From an investor's perspective,a firm's preferred stock is generally considered to be less risky than its common stock but more risky than its bonds.However,from a corporate issuer's standpoint,these risk relationships are reversed: bonds are the most risky for the firm,preferred is next,and common is least risky.
A)True
B)False
Q3) If D<sub>1</sub> = $1.25,g (which is constant)= 4.7%,and P<sub>0</sub> = $22.00,then what is the stock's expected dividend yield for the coming year?
A) 5.40%
B) 6.25%
C) 5.68%
D) 6.08%
E) 4.26%
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: The Cost of Capital
Available Study Resources on Quizplus for this Chatper
94 Verified Questions
94 Flashcards
Source URL: https://quizplus.com/quiz/131710
Sample Questions
Q1) Refer to Exhibit 10.1.Which of the following is the best estimate for the weight of debt for use in calculating the WACC? Do not round your intermediate calculations.
A) 16.56%
B) 17.23%
C) 17.57%
D) 17.92%
E) 18.64%
Q2) The cost of preferred stock to a firm must be adjusted to an after-tax figure because 70% of dividends received by a corporation may be excluded from the receiving corporation's taxable income.
A)True
B)False
Q3) The cost of debt,r<sub>d</sub>,is normally less than r<sub>s</sub>,so r<sub>d</sub>(1 - T)will normally be much less than r<sub>s</sub>.Therefore,as long as the firm is not completely debt financed,the weighted average cost of capital (WACC)will normally be greater than r<sub>d</sub>(1 - T).
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: The Basics of Capital Budgeting
Available Study Resources on Quizplus for this Chatper
107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/131711
Sample Questions
Q1) Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows,with one outflow followed by a series of inflows.
A) A project's regular IRR is found by compounding the initial cost at the WACC to find the terminal value (TV),then discounting the TV at the WACC.
B) A project's regular IRR is found by compounding the cash inflows at the WACC to find the present value (PV),then discounting the TV to find the IRR.
C) If a project's IRR is smaller than the WACC,then its NPV will be positive.
D) A project's IRR is the discount rate that causes the PV of the inflows to equal the project's cost.
E) If a project's IRR is positive,then its NPV must also be positive.
Q2) Because "present value" refers to the value of cash flows that occur at different points in time,a series of present values of cash flows should not be summed to determine the value of a capital budgeting project.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
13
Chapter 12: Cash Flow Estimation and Risk Analysis
Available Study Resources on Quizplus for this Chatper
80 Verified Questions
80 Flashcards
Source URL: https://quizplus.com/quiz/131712
Sample Questions
Q1) Your company,RMU Inc. ,is considering a new project whose data are shown below.What is the project's Year 1 cash flow? \[\begin{array} { l r }
\text { Sales revenues } & \$ 23,250 \\
\text { Depreciation } & \$ 8,000 \\
\text { Other operating costs } & \$ 12,000 \\
\text { Tax rate } & 35.0 \% \end{array}\]
?
A) $8,798
B) $11,933
C) $10,416
D) $10,113
E) $11,225
Q2) Because of improvements in forecasting techniques,estimating the cash flows associated with a project has become the easiest step in the capital budgeting process.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
14
Chapter 13: Real Options and Other Topics in Capital
Budgeting
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/131713
Sample Questions
Q1) Real options are options to buy real assets,especially stocks,rather than interest-bearing assets,like bonds.
A)True
B)False
Q2) Refer to Exhibit 13.1.What is the project's expected NPV,in thousands of dollars? ?
A) 0$1,033.81
B) 0$719.18
C) 0$854.02
D) 0$898.97
E) 0$943.92
Q3) Real options are most valuable when the underlying source of risk--such as uncertainty about unit sales,or the sales price,or input costs--is very low.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Capital Structure and Leverage
Available Study Resources on Quizplus for this Chatper
88 Verified Questions
88 Flashcards
Source URL: https://quizplus.com/quiz/131714
Sample Questions
Q1) Which of the following statements is CORRECT? As a firm increases the operating leverage used to produce a given quantity of output,this
A) normally leads to an increase in its fixed assets turnover ratio.
B) normally leads to a decrease in its business risk.
C) normally leads to a decrease in the standard deviation of its expected EBIT.
D) normally leads to a decrease in the variability of its expected EPS.
E) normally leads to a reduction in its fixed assets turnover ratio.
Q2) An increase in the debt ratio will generally have no effect on which of these items?
A) Business risk.
B) Total risk.
C) Financial risk.
D) Market risk.
E) The firm's beta.
Q3) Other things held constant,firms with more stable and predictable sales tend to use more debt than firms with less stable sales.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
16
Chapter 15: Distributions to Shareholders: Dividends and Share Repurchases
Available Study Resources on Quizplus for this Chatper
75 Verified Questions
75 Flashcards
Source URL: https://quizplus.com/quiz/131715
Sample Questions
Q1) Which of the following actions will best enable a company to raise additional equity capital,other things held constant?
A) Refund long-term debt with lower cost short-term debt.
B) Declare a stock split.
C) Begin an open-market purchase dividend reinvestment plan.
D) Initiate a stock repurchase program.
E) Begin a new-stock dividend reinvestment plan.
Q2) D.Paul Inc.forecasts a capital budget of $700,000.The CFO wants to maintain a target capital structure of 45% debt and 55% equity,and she also wants to pay a dividend of $350,000.If the company follows the residual dividend model,how much income must it earn,and what will its dividend payout ratio be?
A) $742,350;47.15%
B) $639,450;54.73%
C) $801,150;43.69%
D) $735,000;47.62%
E) $911,400;38.40%
Q3) A "reverse split" reduces the number of shares outstanding.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Working Capital Management
Available Study Resources on Quizplus for this Chatper
127 Verified Questions
127 Flashcards
Source URL: https://quizplus.com/quiz/131716
Sample Questions
Q1) Edwards Enterprises follows a moderate current asset investment policy,but it is now considering a change,perhaps to a restricted or maybe to a relaxed policy.The firm's annual sales are $400,000;its fixed assets are $100,000;its target capital structure calls for 50% debt and 50% equity;its EBIT is $39,000;the interest rate on its debt is 10%;and its tax rate is 40%.With a restricted policy,current assets will be 15% of sales,while under a relaxed policy they will be 25% of sales.What is the difference in the projected ROEs between the restricted and relaxed policies? Do not round intermediate calculations.
A) 4.91%
B) 4.50%
C) 5.85%
D) 4.45%
E) 4.68%
Q2) When deciding whether or not to take a trade discount,the cost of borrowing from a bank or other source should be compared to the cost of trade credit to determine if the cash discount should be taken.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 17: Financial Planning and Forecasting
Available Study Resources on Quizplus for this Chatper
39 Verified Questions
39 Flashcards
Source URL: https://quizplus.com/quiz/131717
Sample Questions
Q1) The term "additional funds needed (AFN)" is generally defined as follows:
A) Funds that are obtained automatically from routine business transactions.
B) Funds that a firm must raise externally from non-spontaneous sources,i.e. ,by borrowing or by selling new stock,to support operations.
C) The amount of assets required per dollar of sales.
D) The amount of internally generated cash in a given year minus the amount of cash needed to acquire the new assets needed to support growth.
E) A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant.
Q2) To determine the amount of additional funds needed (AFN),you may subtract the expected increase in liabilities,which represents a source of funds,from the sum of the expected increases in retained earnings and assets,both of which are uses of funds.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 18: Derivatives and Risk Management
Available Study Resources on Quizplus for this Chatper
35 Verified Questions
35 Flashcards
Source URL: https://quizplus.com/quiz/131718
Sample Questions
Q1) A 6-month put option on Makler Corp.'s stock has a strike price of $50.00 and sells in the market for $8.50.Makler's current stock price is $39.00.What is the exercise value of the option? Do not round your intermediate calculations.
A) $8.36
B) $8.25
C) $12.32
D) $12.98
E) $11.00
Q2) Which of the following is NOT an example of a derivative security?
A) Futures.
B) Options.
C) Swaps.
D) Forward contracts.
E) Preferred stock.
Q3) One objective of risk management can be to reduce the volatility of a firm's cash flows.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 19: Multinational Financial Management
Available Study Resources on Quizplus for this Chatper
100 Verified Questions
100 Flashcards
Source URL: https://quizplus.com/quiz/131719
Sample Questions
Q1) Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base.
A)True
B)False
Q2) Exchange rate quotations consist solely of direct quotations.
A)True
B)False
Q3) A product sells for $750 in the United States.The spot exchange rate is $1 to 1.56 Swiss francs.If purchasing power parity (PPP)holds,what is the price of the product in Switzerland?
A) 1,462.50
B) 1,392.30
C) 1,228.50
D) 1,170.00
E) 947.70
Q4) Because political risk is seldom negotiable,it cannot be explicitly addressed in multinational corporate financial analysis.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 20: Hybrid Financing: Preferred Stock,leasing,warrants,and Convertibles
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/131720
Sample Questions
Q1) Emerson Electrical Engineering Inc.is issuing new 20-year bonds that have warrants attached.If not for the attached warrants,the bonds would carry a 12.0% interest rate.However,with the warrants attached the bonds will pay a 10.0% annual coupon.There are 22 warrants attached to each bond,which have a par value of $1,000.The exercise price of the warrants is $23.00,and the expected stock price 10 years from now (when the warrants may be exercised)is $47.87.What is the investor's expected overall pre-tax rate of return for this bond-with-warrants issue? Do not round your intermediate calculations.
A) 14.19%
B) 9.26%
C) 12.34%
D) 9.87%
E) 11.11%
Q2) Preferred stockholders have priority over common stockholders with respect to dividends,because dividends must be paid on preferred stock before they can be paid on common stock.However,preferred and common stockholders normally have equal priority with respect to liquidating proceeds in the event of bankruptcy.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Mergers and Acquisitions
Available Study Resources on Quizplus for this Chatper
39 Verified Questions
39 Flashcards
Source URL: https://quizplus.com/quiz/131721
Sample Questions
Q1) In a financial merger,the relevant post-merger cash flows are simply the sum of the expected cash flows of the two companies,measured as if they were operated independently.
A)True
B)False
Q2) Since a manager's central goal is to maximize the firm's stock price,any merger offer that provides stockholders with significant gains over the current stock price will be approved by the current management team.
A)True
B)False
Q3) Borrowing funds on terms that would require immediate repayment of all loans if the firm is acquired,selling off at bargain prices the assets that originally made the firm a desirable target,and granting huge "golden parachutes" that open if the firm is acquired are 3 procedures used to defend against hostile takeovers.These strategies are known as "poison pills."
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.