Introduction to Finance
Mock Exam
Course Introduction
Introduction to Finance provides students with a foundational understanding of the principles and practices that underpin financial management in businesses and personal contexts. The course explores key concepts such as the time value of money, risk and return, financial markets and institutions, asset valuation, budgeting, and basic investment analysis. Through real-world examples and practical exercises, students learn how financial decisions are made, the impact of those decisions on organizational and personal well-being, and the role of finance in the broader economic system. This course lays the groundwork for more advanced finance studies and equips students with essential skills for making informed financial choices.
Recommended Textbook
Corporate Finance Core Principles and Applications 5th Edition by Stephen Ross
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21 Chapters
1630 Verified Questions
1630 Flashcards
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Chapter 1: Introduction to Corporate Finance
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57 Verified Questions
57 Flashcards
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Sample Questions
Q1) Who ultimately controls a corporation?
A)Stakeholders
B)Chairman of the board
C)Stockholders
D)Chief executive officer
E)Board of directors
Answer: C
Q2) Current assets include
A)inventory and cash.
B)cash and buildings.
C)inventory and machinery.
D)equipment and cash.
E)buildings and inventory.
Answer: A
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3
Chapter 2: Financial Statements AMCQ Cash Flow
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85 Flashcards
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Sample Questions
Q1) Whistler's sales for this past year were $21,381.The interest expense was $248,costs of goods sold were $9,784,selling and general expenses were $1,208,depreciation was $811,and the addition to retained earnings was $325.The firm sold $500 of new stock shares and repurchased $125 of outstanding shares. What was the cash flow to stockholders if the tax rate was 34 percent?
A)$725.50
B)$670.25
C)$202.72
D)$208.28
E)$235.55
Answer: D
Q2) A firm has beginning retained earnings of $4,200 and ending retained earnings of $4,150.What is the amount of dividends paid if the firm earned a net income of $1,950?
A)$1,500
B)$1,950
C)$1,900
D)$2,000
E)$2,100
Answer: D
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Chapter 3: Financial Statements Analysis Amcq Financial
Models
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88 Verified Questions
88 Flashcards
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Sample Questions
Q1) For a dividend paying firm,how is the projected addition to retained earnings calculated using the percentage of sales approach?
A)Net income × (1 - Retention ratio)
B)Net income × (1 - Dividend payout ratio)
C)(Cash dividends / Net income)× (New sales / Old sales)
D)(Retained earnings / Sales)× (New Sales / Old Sales)
E)Net income × (New Sales / Old Sales)
Answer: B
Q2) Tree Top Furniture has current sales of $287,600 and fixed assets of $314,000.The firm is currently operating at 96 percent of capacity.What is the maximum percentage increase the firm can have in sales without investing in additional fixed assets?
A)4)17%
B)4)00%
C)6)72%
D)3)92%
E)6)33%
Answer: A
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5
Chapter 4: Discounted Cash Flow Valuation
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101 Flashcards
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Sample Questions
Q1) A 5-year loan in the amount of $48,000 is to be repaid in equal annual payments.What is the remaining principal balance after the third payment if the interest rate is 5 percent,compounded annually?
A)$22,173.58
B)$18,294.24
C)$22,998.30
D)$18,677.70
E)$20,614.89
Q2) Angela expects to save $500 a year and earn an average annual return of 5.2 percent.How much will her savings be worth 35 years from now?
A)$51,317.82
B)$57,702.57
C)$47,076.06
D)$44,868.92
E)$56,063.66
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6
Chapter 5: Interest Rates AMCQ Bomcq Valuation
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Sample Questions
Q1) All else constant,a bond will sell at ________ when the yield to maturity is ________ the coupon rate.
A)par;less than
B)a premium;equal to C)par;higher than D)a discount;higher than E)a premium;higher than
Q2) Assume a discount bond has a few years until maturity and a positive yield.All else constant,the bond's yield to maturity is
A)directly related to the time to maturity.
B)equal to the coupon rate.
C)inversely related to the bond's market price.
D)unrelated to the time to maturity.
E)less than its coupon rate.
Q3) What does the spread between the bid and asked bond prices represent?
A)Difference between the coupon rate and the current yield
B)Difference between the current yield and the yield to maturity
C)Accrued interest
D)Dealer's profit
E)Bondholder's profit
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Chapter 6: Stock Valuation
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86 Flashcards
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Sample Questions
Q1) What is the primary business of the NYSE?
A)Set market prices
B)Provide a face-to-face trading floor
C)Attract and process order flow
D)Provide a primary market
E)Regulate securities trading
Q2) According to finance professionals,which one of these factors has the biggest impact on a firm's PE ratio?
A)Accounting practices of the firm
B)Risk-level of the firm
C)Size of the firm
D)Growth opportunities
E)Age of the firm
Q3) Corporate dividends
A)are a source of tax-free income for individual investors.
B)reduce the taxable income of the payer.
C)are only 70 percent taxable to corporate shareholders.
D)are paid out of pretax income and thus are taxed at the personal level.
E)are taxed at the personal level even though they are paid from after-tax income.
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Chapter 7: Net Present Value AMCQ Other Investment Rules
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80 Flashcards
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Sample Questions
Q1) A project has an initial cost of $48,900 and cash flows of $31,300,-$11,600,and $40,300 for Years 1 to 3,respectively.The discount rate is 14 percent.What is the modified IRR?
A)11.68%
B)15.59%
C)10.59%
D)12.67%
E)14.92%
Q2) A project has an initial cash outflow of $22,400 and cash inflows of $13,400 a year for Years 1 and 2 and a final cash inflow in Year 6 of $7,500.The required return is 15.5 percent.What is the net present value?
A)$2,405.66
B)$1,608.14
C)$1,919.08
D)$2,134.85
E)$2,671.02
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Chapter 8: Making Capital Investment Decisions
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81 Flashcards
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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) Sun Lee's Furniture just purchased $387,269 of fixed assets classified as 5-year property for MACRS.The MACRS table values are 0.2000,0.3200,0.1920,0.1152,0.1152,and 0.0576 for Years 1 to 6,respectively.What is the amount of the depreciation expense for the third year?
A)$40,449.47
B)$54,019.09
C)$123,926.08
D)$102,004.20
E)$74,355.65
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Chapter 9: Risk Analysis, Real Options, AMCQ Capital
Budgeting
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80 Verified Questions
80 Flashcards
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Sample Questions
Q1) Conducting scenario analysis helps managers see the A)impact an individual variable has on the outcome of a project.
B)possible range of market prices for a firm's stock over the life of a project.
C)potential changes in long-term debt over the course of a proposed project.
D)potential range of outcomes from a proposed project.
E)distribution of funds to various independent capital projects.
Q2) Nu-Tek is analyzing a proposed project with expected sales of 5,800 units,±6 percent.The expected variable cost per unit is $11 and the expected fixed costs are $15,600.Cost estimates are considered accurate within a range of ±4 percent.The depreciation expense is $5,700.The sale price is estimated at $21 a unit,±1 percent.What is the sales revenue under the pessimistic case scenario?
A)$120,582.00
B)$116,120.21
C)$113,347.08
D)$108,110.00
E)$114,492.00
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Page 11
Chapter 10: Risk Amcq Return: Lessons From Market History
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80 Flashcards
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Sample Questions
Q1) The arithmetic average return on your portfolio for the past 5 years is 9.3 percent.You earned 7.4 percent,17.1 percent,6.3 percent,and 11.8 percent for 4 of those 5 years.What rate of return did you earn in the fifth year?
A)18.7%
B)16.0%
C)13.2%
D)19.6%
E)17.5%
Q2) For the period 1926 to 2015,small-company stocks had an average return of 16.5 percent,U.S.Treasury bills returned 3.5 percent,and inflation averaged 3.0 percent.What was the risk premium on small-company stocks during this period?
A)12.5 percent
B)20.0 percent
C)13.0 percent
D)13.5 percent
E)10.0 percent
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Chapter 11: Return Amcq Risk: the Capital Asset Pricing
Model Capm
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89 Verified Questions
89 Flashcards
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Sample Questions
Q1) The probabilities of an economic boom,normal economy,and a recession are 2 percent,93 percent,and 5 percent,respectively.For these economic states,Stock A has deviations from its expected returns of 0.04,0.07,and 0.11 for the three economic states respectively.Stock B has deviations from its expected returns of 0.14,0.08,and 0.22 for the three economic states,respectively.What is the covariance of the two stocks?
A)0)00653
B)-0.00743
C)-0.00589
D)0)00974
E)0)00802
Q2) The market price of ABC stock is most apt to be affected by which one of these events?
A)Twenty-five percent increase in interest rates,just as expected
B)The sudden passing of ABC's CEO
C)An increase in ABC's annual dividend by the same percentage as last year's increase
D)The completion of ABC's new distribution center,right on schedule
E)An increase in ABC's payroll costs,in line with current inflation
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Page 13
Chapter 12: Risk, cost of Capital, AMCQ Valuation
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83 Verified Questions
83 Flashcards
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Sample Questions
Q1) A levered firm has a target capital structure of 30 percent debt and 70 percent equity.The aftertax cost of debt is 5.1 percent,the tax rate is 35 percent,and the cost of equity is 13.1 percent.The firm is considering a project that is equally as risky as the overall firm.The project has an initial cash outflow of $1.2 million and annual cash inflows of $516,000 at the end of each year for 3 years.What is the NPV of the project?
A)$60,174.68
B)$69,856.82
C)$67,565.33
D)$64,001.03
E)$93,322.15
Q2) Which of these are determinants of beta? I.Financial leverage
II)Cyclicality of revenues
III)State of the economy
IV)Operating leverage
A)I and IV only
B)II and III only
C)I,III,and IV only
D)I,II,and IV only
E)II,III,and IV only
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Page 14
Chapter 13: Efficient Capital Markets Amcq Behavioral Challenges
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) Serial correlation
A)indicates a reversal in the direction of returns when the coefficient is positive.
B)involves the relationship of one stock's returns over various time periods.
C)indicates a tendency toward reversal when its coefficient is positive.
D)measures the cumulative difference between the returns on two similar securities.
E)measures the current relationship between the returns on two securities.
Q2) The research done by Ikenberry,Lakonishok,and Vermaelen supports the argument that mangers:
A)effectively time IPOs but not SEOs.
B)cannot effectively time IPOs.
C)cannot effectively time either stock sales or repurchases.
D)effectively time stock repurchases.
E)can effectively time stock sales but not repurchases.
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15
Chapter 14: Capital Structure: Basic Concepts
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Sample Questions
Q1) Which one of these represents the difference between the value of a levered and an unlevered firm?
A)R<sub>0</sub> - R<sub>S</sub>
B)R<sub>S</sub> × t<sub>c</sub>B
C)V<sub>U</sub> + R × t<sub>c</sub>B
D)(B / S)(1 - t<sub>c</sub>)( R<sub>0</sub> - R<sub>S</sub>)
E)t<sub>c</sub>B
Q2) MM Proposition I,without taxes,illustrates that
A)the value of an unlevered firm is greater than that of a levered firm.
B)any one capital structure is just as valuable as any other capital structure for a given firm.
C)corporate use of homemade leverage affects the value of the firm to its shareholders.
D)the value of a firm is directly related to the use of debt.
E)firm valuation is dependent upon shareholders aversion to homemade leverage.
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Chapter 15: Capital Structure: Limits to the Use of Debt
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Sample Questions
Q1) The legal proceeding for liquidating or reorganizing a firm operating in default is called a
A)tender offer.
B)bankruptcy.
C)merger.
D)takeover.
E)proxy fight.
Q2) Which one of these is a payment of a nonmarketed claim on a firm's cash flows?
A)Dividend payment
B)Principal repayment of a bond
C)Repurchase of stock
D)Payment of a customer's liability claim
E)Payment of interest due on a bond
Q3) The complete termination of a firm as a going business concern is called a A)merger.
B)repurchase program.
C)liquidation.
D)divestiture.
E)reorganization.
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Page 17
Chapter 16: Dividemcqs AMCQ Other Payouts
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Sample Questions
Q1) A ________ is an alternative method to cash dividends that is used to distribute a firm's earnings to shareholders.
A)merger
B)reverse stock split
C)payment-in-kind
D)share repurchase
E)stock split
Q2) A stock currently sells for $65.70 a share.What type of stock split would be best if the stock's proper trading range centers on $22 a share?
A)two-for-five reverse stock split
B)one-for-three reverse stock split
C)two-for-three reverse stock split
D)five-for-two stock split
E)three-for-one stock split
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18
Chapter 17: Options Amcq Corporate Finance
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Sample Questions
Q1) High Mountain has a stock price of $31 a share.The 6-month options have a strike price of $30.The risk-free rate is 3.1 percent and the standard deviation of returns is 26 percent.The value of d<sub>1</sub> is 0.35459.What is the value of d<sub>2</sub> as it is used in the Black-Scholes option pricing model?
A)0)19091
B)0)23048
C)0)17176
D)0)19323
E)0)17074
Q2) The 3-month options on XYZ stock have a strike price of $35 while the stock price is $43.The risk-free rate is 3.15 percent,the standard deviation is 27 percent,N(d<sub>1</sub>)is 0.95060 and N(d<sub>2</sub>)is 0.93520.What is the call price?
A)$4.14
B)$4.72
C)$8.40
D)$6.56
E)$5.64
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Chapter 18: Short-Term Finance Amcq Planning
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Sample Questions
Q1) Blackwell Co.has credit sales of $317,428,costs of goods sold of $151,217,and average accounts receivable of $28,744.How long on average does it take the firm's credit customers to pay for their purchases?
A)27.99 days
B)33.05 days
C)38.23 days
D)31.37 days
E)29.95 days
Q2) On April 1<sup>st</sup>,a firm had a beginning cash balance of $239.March sales were $474 and April sales were $463.During April,the firm had cash expenses of $135 and payments on accounts payable of $212.The accounts receivable period is 30 days.What is the firm's beginning cash balance on May 1<sup>st</sup>? Assume a 360-day year.
A)$397
B)$366
C)$419
D)$382
E)$355
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Page 20
Chapter 19: Raising Capital
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Sample Questions
Q1) Spring Aire is attempting to sell 600 shares of stock via a Dutch auction.The bids received were Bidder A,200 shares at $47;Bidder B,300 shares at $46;Bidder C,600 shares at $45;and Bidder D,500 shares at $43.How many shares will Bidder A be able to purchase?
A)0 shares
B)50 shares
C)140 shares
D)109 shares
E)200 shares
Q2) What is the length of the SEC registration waiting period?
A)10 days
B)45 days
C)20 days
D)90 days
E)180 days
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Chapter 20: International Corporate Finance
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Sample Questions
Q1) You want to import $62,000 worth of rugs from India.How many rupees will you need to pay for this purchase if one rupee is worth $.01606?
A)3,860,523RS
B)2,803,006RS
C)821,048RS
D)996RS
E)909RS
Q2) How many euros can you get for $864 if the direct quote is 1.2452?
A) 728.72
B) 693.86
C) 847.06
D) 1,092.96
E) 1,075.85
Q3) Interest rate parity
A)eliminates exchange rate fluctuations.
B)exists when spot rates are equal for multiple countries.
C)exists when the spot rate is equal to the forward rate.
D)means that the nominal risk-free rate of return must be the same across countries.
E)eliminates covered interest arbitrage opportunities.
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Page 22
Chapter 21: Mergers Amcq Acquisitions Web Only
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Sample Questions
Q1) Western Farms just paid $185,000 cash to acquire Northern Foods.Prior to the acquisition Western Farms had 12,000 shares of stock outstanding at a price per share of $17.Northern Foods had 7,500 shares outstanding at a price per share of $23.The acquisition created $4,500 of synergy.What is the value of Northern Foods to Western Farms?
A)$185,000
B)$181,500
C)$229,500
D)$220,500
E)$177,000
Q2) Which of these may be a source of synergy? I.Unused debt capacity
II.Economies of scale
III.Increase in overall revenue
IV.Unused net operating losses
A)I and IV only
B)II and III only
C)II,III,and IV only
D)I,II,and III only
E)I,II,III,and IV
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