Introduction to Financial Management Exam
Bank
Course Introduction
Introduction to Financial Management explores the fundamental concepts and principles of managing the financial resources of a business or organization. This course covers topics such as financial statement analysis, time value of money, risk and return, capital budgeting, cost of capital, and working capital management. Students will learn how financial managers make decisions to maximize the value of the firm, allocate resources efficiently, and balance the interests of stakeholders. Through a combination of theoretical frameworks and practical applications, this course provides a solid foundation for understanding the role of finance in strategic business planning and day-to-day management.
Recommended Textbook
Foundations of Finance 8th Edition by Arthur J. Keown
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17 Chapters
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Chapter 1: An Introduction to the Foundations of Financial Management
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Sample Questions
Q1) The chief financial officer (CFO)is responsible for overseeing financial planning,corporate strategic planning,and controlling the firm's cash flow.
A)True
B)False
Answer: True
Q2) The owners of a corporation enjoy limited liability.
A)True
B)False
Answer: True
Q3) Short-term United States Treasury Bills are widely used as proxies for risk-free assets,yet the returns on these T-bills are consistently greater than zero.Is this consistent with the concept of a risk-return tradeoff?
Answer: Yes.Investors also require a return for delaying consumption as well as a return for taking on risk.
Q4) The sole proprietorship has no legal business structure separate from its owner.
A)True
B)False
Answer: True
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Chapter 2: The Financial Markets and Interest Rates
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Sample Questions
Q1) Organized stock exchanges provide the benefits of a continuous market,fair security pricing,and helping businesses raise new capital.
A)True
B)False
Answer: True
Q2) The one-year interest rate is 4%.The interest rate for a two-year security is 6%.According to the unbiased expectations theory,the one-year interest rate one year from now must be equal to A)5.00%.
B)8.00%.
C)8.04%.
D)10.00%.
Answer: C
Q3) In response to the banking crisis and economic collapse of 2007 and 2008,the U.S.government moved to increase interest rates in order to attract foreign capital seeking high returns in U.S.banks.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Understanding Financial Statements and Cash Flows
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Sample Questions
Q1) Universal Financial,Inc.has total current assets of $1,200,000; long-term debt of $600,000; total current liabilities of $500,000; and long-term assets of $800,000.How much is the firm's net working capital?
A)$1,000,000
B)$900,000
C)$600,000
D)$700,000
Answer: D
Q2) Intangible assets such as copyrights and goodwill are not included on the balance sheet because they are impossible to value objectively.
A)True
B)False
Answer: False
Q3) Fixed assets are assets whose balances will remain the same throughout the year.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Evaluating a Firms Financial Performance
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Sample Questions
Q1) Bill's BikeShop has a return on assets of 12%.Anton's assets = $100 while Anton's owner's equity = $40 and its debt equals $60.What is Bill's return on equity?
A)18%
B)20%
C)30%
D)12%
Q2) Financial ratios are often reported by industry or line of business because differences in the type of business can make ratio comparisons uninformative or even misleading.
A)True
B)False
Q3) The acid-test ratio of a firm would be unaffected by which of the following?
A)Accounts payable are reduced by obtaining a short-term loan.
B)Common stock is sold and the money is invested in marketable securities.
C)Inventories are sold for cash.
D)Inventories are sold on a short-term credit basis.
Q4) Discuss five limitations to ratio analysis.
Q5) How could an analyst determine whether a company's ratio is good or bad?
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Chapter 5: The Time Value of Money
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Sample Questions
Q1) You want $20,000 in 5 years to take your spouse on a second honeymoon.Your investment account earns 7% compounded semiannually.How much money must you put in the investment account today? (round to the nearest $1).
A)$14,178
B)$12,367
C)$15,985
D)$13,349
Q2) If you want to have $3,575 in 29 months,how much money must you put in a savings account today? Assume that the savings account pays 12% and it is compounded monthly (round to nearest $1).
A)$3,147
B)$3,008
C)$2,679
D)$2,438
Q3) The future value of an annuity will increase if the interest rate goes up,but the present value of the same annuity will decrease as the interest rate goes up.
A)True
B)False
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Chapter 6: The Meaning and Measurement of Risk and Return
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Sample Questions
Q1) The realized rate of return,or holding period return,is equal to the holding period dollar gain divided by the price at the beginning of the period.
A)True
B)False
Q2) If we are able to fully diversify,what is the appropriate measure of risk to use?
A)expected return
B)standard deviation
C)beta
D)risk-free rate of return
Q3) Assume that an investment is forecasted to produce the following returns: a 10% probability of a $1,400 return; a 50% probability of a $6,600 return; and a 40% probability of a $1,500 return.What is the expected amount of return this investment will produce?
A)$4,040
B)$7,640
C)$12140
D)$1,540
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8
Chapter 7: The Valuation and Characteristics of Bonds
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Sample Questions
Q1) A mortgage bond is secured by a lien on real property.
A)True
B)False
Q2) If markets were entirely efficient (perfect),which of the following would we conclude?
A)There would be no inflation.
B)Book value would be the same as market value.
C)No firms would ever default on their bonds.
D)Market value and intrinsic value would be the same.
Q3) What is the yield to maturity of a corporate bond with 13 years to maturity,a coupon rate of 8% per year,a $1,000 par value,and a current market price of $1,250? Assume semiannual coupon payments.
A)4.2%
B)4.7%
C)6.0%
D)5.3%
Q4) A zero coupon bond is selling for $476.The bond has a face value of $1,000 and matures in 8 years.Your friend asks you if he should buy the bond.He tells you his required return is 9 percent.Would you recommend he buy the bond or not? Explain your answer.
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Chapter 8: The Valuation and Characteristics of Stock
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Sample Questions
Q1) Distant Thunder,Inc.paid a dividend of $5.00 per share on its common stock yesterday.Dividends are expected to grow at a constant rate of 10% for the next two years,at which point the dividends will begin to grow at a constant rate indefinitely.If the stock is selling for $50 today and the required return is 15%,what it the expected annual dividend growth rate after year two?
A)3.365%
B)3.878%
C)4.556%
D)5.000%
Q2) Whistle Corp.has a preferred stock that pays a dividend of $2.40.If you are willing to purchase the stock at $11,what is your required rate of return (round your answer to the nearest .1% and assume that there are no transaction costs)?
A)21.8%
B)11.0%
C)9.1%
D)20.1%
Q3) Common stock does not mature.
A)True
B)False
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Page 10
Chapter 9: The Cost of Capital
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Sample Questions
Q1) An increase in a corporation's marginal tax rate will cause the corporation's after tax cost of debt to increase,other things remaining the same.
A)True B)False
Q2) A corporation's cost of common equity may be estimated using either a dividend valuation model or the capital asset pricing model.
A)True B)False
Q3) A firm's weighted average cost of capital is determined using all of the following inputs EXCEPT
A)the firm's capital structure.
B)the amount of capital necessary to make the investment.
C)the firm's after tax cost of debt.
D)the probability distribution of expected returns.
Q4) Alarm Systems Corporation's preferred stock pays a dividend of $3.60 and sells for $28.00.Alarm Systems Corporation has a marginal tax rate of 35%.What is the cost of preferred financing?
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11
Chapter 10: Capital-Budgeting Techniques and Practice
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Sample Questions
Q1) The most critical aspect in determining the acceptability of a capital budgeting project is the impact the project will have on the company's net income over the projects entire useful life.
A)True
B)False
Q2) DYI Construction Co.is considering a new inventory system that will cost $750,000.The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one,$325,000 in year two,$150,000 in year three,and $180,000 in year four.DYI's required rate of return is 8%.What is the modified internal rate of return of this project?
A)10.87%
B)11.57%
C)13.68%
D)15.13%
Q3) Advantages of the payback period include that it is easy to calculate,easy to understand,and that it is based on cash flows rather than on accounting profits.
A)True
B)False
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Chapter 11: Cash Flows and Other Topics in Capital Budgeting
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Sample Questions
Q1) If a project uses an asset the corporation already owns,the cost of that asset for capital budgeting purposes is zero to reflect the advantage the project has over projects that require the purchase of new assets.
A)True
B)False
Q2) Hershey's expects to sell $2 million of its new candy bar,although $200,000 of this amount would have been spent on its existing candy bar.The $2 million is the appropriate cash inflow for the new candy bar project,while the $200,000 will be counted against the return on the old candy bar.
A)True
B)False
Q3) A project's standing alone risk allows for diversification within a sole firm.
A)True
B)False
Q4) Additional investment in working capital,even if it may be recovered at the end of a project,must be included in capital budgeting analysis because of the time value of money.
A)True
B)False
Page 13
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Chapter 12: Determining the Financing Mix
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Sample Questions
Q1) In break-even analysis,semivariable costs are segregated into their fixed and variable components over the relevant range of output.
A)True
B)False
Q2) JKE,Inc.has a break even sales level of $10,000,000 and has fixed costs of $4,000,000 per year.The selling price per unit is $200.What is the variable cost per unit?
Q3) Stan's Cans,Inc.expects to earn $150,000 next year after taxes on sales of $2,200,000.Stan's manufactures only one size of garbage can.Stan sells his cans for $8 apiece and they have a variable cost of $2.40 apiece.Stan's tax rate is currently 34%.
a.What are the firm's expected fixed costs for next year?
b.What is the break-even point in units?
Q4) The implicit cost of debt takes into consideration the change in the cost of common equity brought on by using additional debt.
A)True
B)False
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Chapter 13: Dividend Policy and Internal Financing
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Sample Questions
Q1) Low dividends may increase stock value due to the advantage of tax deferral that comes with capital gains.
A)True
B)False
Q2) The correct order of dividend process dates is
A)date of record,declaration date,ex-dividend date,payment date.
B)declaration date,date of record,ex-dividend date,payment date.
C)ex-dividend date,date of record,declaration date,payment date.
D)declaration date,ex-dividend date,date of record,payment date.
Q3) The information effect hypothesis implies that increasing dividends provides a more credible signal of higher future earnings than does management's assertion that future earnings will be higher.
A)True
B)False
Q4) All of the following are rationales given for a stock dividend or split EXCEPT
A)the price will not fall proportionately to the share increase.
B)an optimum price range does not exist.
C)there is positive informational content associated with the announcement.
D)conservation of corporate cash.
Q5) What is the information effect associated with dividends? Why does it occur?
Page 15
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Chapter 14: Short-Term Financial Planning
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Sample Questions
Q1) A sales forecast for the coming year would reflect
A)any past trend which is expected to continue.
B)the influence of any events that might materially affect that trend.
C)both A and B.
D)neither A nor B.
Q2) Gerentology Associates,a highly profitable company,is considering two growth strategies,one that will achieve sales growth of 20% in one year,and the other that will achieve 20% growth in sales,but over a 4-year time frame.Assuming Gerentology Associates uses the percent of sales method,which of the following statements is true?
A)Discretionary financing needed will be much greater for the 4-year growth strategy.
B)Discretionary financing needed could be much less for the 4-year growth strategy due to retained earnings.
C)The asset balances at the end of 4 years for strategy two will be much greater than the asset balances required at the end of year one for strategy one.
D)Discretionary financing needed could be much greater for the slow growth strategy because interest charges will accumulate on the company's debt.
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Chapter 15: Working-Capital Management
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Sample Questions
Q1) Two advantages of financing with current liabilities are flexibility and lower interest cost.
A)True
B)False
Q2) Working capital management involves managing a firm's liquidity.
A)True
B)False
Q3) A company that increases its liquidity by holding more cash and marketable securities is
A)likely to achieve a higher return on equity because of higher interest income.
B)likely to achieve a lower return on equity because of the smaller rates of return earned on cash and marketable securities compared to the firm's other investments.
C)going to maximize firm value because risk is decreased.
D)going to have to sell common stock to raise the cash to become more liquid.
Q4) The primary sources of collateral for secured loans are accounts receivable and inventory.
A)True
B)False
Q5) Discuss the risk-return tradeoff experienced in working-capital management.
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Chapter 16: International Business Finance
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Sample Questions
Q1) A major source of long-term capital overseas is in the Eurocurrency market.
A)True
B)False
Q2) A forward exchange contract
A)gives the owner the right,but not the obligation,to buy a foreign currency at a fixed exchange rate for a fixed period of time.
B)gives the owner the right to purchase a foreign currency at some point in the future and any gains or losses are credited/debited to the account at the close of business each day.
C)requires delivery,at a specified future date,of one currency for a specified amount of another currency.
D)requires delivery,within two working days,of one currency for a specified amount of another currency.
Q3) Forward contracts are usually quoted for periods greater than 1 year.
A)True
B)False
Q4) The Eurodollar market is larger than any financial market in the United States.
A)True
B)False
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Chapter 17: Cash,receivables,and Inventory Management
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Sample Questions
Q1) U.S.Treasury Bills are exempt from federal,state,and local income taxes.
A)True
B)False
Q2) A local lamp store expects to sell 2000 lamps in the coming year.It costs the store $1.00 in carrying costs for each lamp and $10.00 for each order placed.
a.What is the economic order quantity for the lamps?
b.How many orders will be placed each year?
c.If the store wants a one-week safety stock and it takes one week to receive an order after it has been placed,what should the inventory level be when a new order is placed?
Assume a 50-week year.
Q3) You have a choice between investing in a corporate bond or a municipal bond.The corporate bond has an annual yield of 10 percent,while the municipal bond has an annual yield of 7 percent.At what tax rate would you be indifferent between buying the corporate bond or the municipal bond?
Q4) Which of the following is used to manage a firm's cash disbursements?
A)lockbox system
B)bankers' acceptances
C)repurchase agreements
D)zero balance accounts
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