Managerial Finance
Chapter Exam Questions
Course Introduction
Managerial Finance explores the principles and practices of corporate financial management, focusing on the tools and techniques used by managers to make informed financial decisions. The course covers key concepts such as financial analysis, planning and control, time value of money, risk and return, capital budgeting, cost of capital, and working capital management. Emphasis is placed on understanding how financial data is used to evaluate a companys performance, allocate resources, and develop strategies that enhance shareholder value. Students also examine case studies and real-world scenarios to apply financial theories and support decision-making in a managerial context.
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NEW Corporate Finance Online 1st Edition by Stanley Eakins
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Chapter 1: Overview of Finance
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Q1) What is the purpose of the capital market?
A) To match people with money to entrepreneurs with great business ideas or concepts
B) To more easily regulate the flow of money between parties
C) To make money without trying
D) To allow people to buy stocks for retirement
Answer: A
Q2) Agency costs are fees paid by the management of a corporation to compensate any investor that feels it has suffered a loss due to the agency problem.
A)True
B)False
Answer: False
Q3) Finance is:
A) The study of investment management
B) The study of the stock exchange
C) The study of the capital market and its many players
D) The study of money management for personal use
Answer: C
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Chapter 2: Financial Statements and Ratio Analysis
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Q1) Find accounts receivable turnover if a firm has an accounts receivable of $80,000,a total asset turnover of .75,and total assets of $230,000.
A) 2.15
B) 3.8
C) 2.9
D) 1.5
E) 0.65
Answer: A
Q2) In common-size financial statements,
A) all balance sheet items are divided by total liabilities.
B) total sales are divided by total assets.
C) depreciation expense is divided by total sales.
D) accrued taxes are divided by total sales.
E) net income is divided by total assets.
Answer: C
Q3) All else held constant,an increase in leverage should increase the ROE.
A)True
B)False
Answer: True
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Chapter 3: Time Value of Money - Introduction
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Q1) You have just borrowed $20,000 to buy a new car.The loan agreement calls for 60 monthly payments of $444.89 each to begin one month from today.If the interest is compounded monthly,then what is the effective annual rate on this loan?
A) 12.68%
B) 14.12%
C) 12.00%
D) 13.25%
E) 15.08%
Answer: A
Q2) How much will you need in 30 years to have the same purchasing power that $150 has today,if inflation averages 4% per year?
A) $486.51
B) $180.00
C) $120.00
D) $169.08
E) $330
Answer: A
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Chapter 4: Time Value of Money - Streams and Valuations
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Q1) Three years from now you will begin receiving annual payments of $7,200.This will continue for 14 years.At a discount rate of 5.8%,what is the present value of this stream of cash flows?
A) $60,534.84
B) $57,216.29
C) $64,045.86
D) $54,523.00
E) $51,253.11
Q2) In three years you will begin receiving an annual payment of $600 that will be made for two years.If the annual interest rate is 12%,what will be the balance in your account at the end of the fourth year?
A) $2,025
B) $1,344
C) $1,272
D) $1,200
E) $1,260
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Chapter 5: Risk and Return - Introduction
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Q1) Bond prices rise when interest rates fall.These two variables (bond prices and interest rates)are:
A) Not correlated
B) Positively correlated
C) Negatively correlated
D) Positively skewed
Q2) You pay $1,000 to flip a two-sided,fair coin at the local fair.If you flip heads,you walk away with $3,000,a return of 200%.However,if you flip tails,you walk away with $250,a return of -75%.What is the standard deviation of the returns?
A) 0.1375%
B) 1.375%
C) 13.75%
D) 137.5%
E) 1,375%
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Chapter 6: Portfolio Theory
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Q1) Which of the following is not a widely-recognized problem with CAPM?
A) The model is complex and poorly understood by many finance professionals.
B) The model does not accurately explain stock returns over time.
C) Other factors besides market risk may influence security returns.
D) Beta values for any stock often change over time.
E) The model is difficult to test.
Q2) Assume that the risk-free rate is 5.5% and the market risk premium is 6%.A portfolio manager has $10 million invested in a two-asset portfolio that has an (equilibrium)expected return of 12%.The manager plans to sell $3 million of Stock A with a beta of 1.6.She plans to reinvest this $3 million into Stock B that has a weight of 0.70.What is the (equilibrium)expected return of her new portfolio?
A) 8.28%
B) 10.38%
C) 10.52%
D) 10.90%
E) 11.31%
Q3) Beta is the slope of the security market line.
A)True
B)False
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Chapter 7: Interest Rates and Bond Valuation
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Q1) Universal Exports Inc.just issued $1,000 face bonds for $1,211.The bonds have a maturity of ten years and a coupon rate of 10%.What is the bonds' yield to maturity?
A) 7%
B) 8%
C) 10%
D) 11%
E) 12%
Q2) Assume that Microsoft bonds have just left the printer and have a stated coupon of $100 (a coupon rate of 10%)and a yield-to-maturity of 15%.The bonds mature in three years and the next coupon is due in one year.What is the fair price for the bond today?
A) $956.52
B) $885.84
C) $832.39
D) $1,000
E) $918.71
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Chapter 8: Stock Valuation and Market Efficiency
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Q1) The last dividend of SPirex Corporation's common stock was $4.00,and the expected growth is 10 percent.If you require a rate of return of 20%,what is the highest price you should be willing to pay for this stock?
A) $44.00
B) $38.50
C) $40.00
D) $45.69
E) $50.00
Q2) Motor Homes Inc.(MHI)is presently in a stage of abnormally high growth because of a surge in the demand for motor homes.The company expects earnings and dividends to grow at a rate of 20% for the next 4 years,after which time there will be no growth (g=0)in earnings and dividends.The company's last dividend was $1.50.MHI has a beta of 1.6,the return on the market is currently 12.75%,and the risk-free rate is 4%.What should be the current price per share of common stock?
A) $15.17
B) $17.28
C) $22.21
D) $19.10
E) $16.20
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Chapter 9: Capital Budgeting Techniques
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Q1) If only one capital budgeting technique could be used to evaluate a project,which of the following would be the most preferred?
A) Payback
B) IRR
C) MIRR
D) Profitability index
E) NPV
Q2) An NPV profile is most helpful in dealing with what type of problem?
A) Difficulty in forecasting cash flows
B) The technical sophistication required to interpret NPV results
C) The fact that some projects may have multiple NPVs
D) Problems in estimating a firm's cost of capital
E) Making a decision about a project when recommendations from the payback and NPV calculations conflict
Q3) All of the following are steps in the capital budgeting process EXCEPT:
A) identifying opportunities.
B) the pre-audit.
C) evaluating opportunities.
D) the post audit.
E) implementing the project.
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Chapter 10: Capital Budgeting - Cash Flows
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Q1) Meals on Wings Inc.,which supplies prepared meals for corporate aircraft,needs to purchase new broilers.The new broilers would replace broilers purchased 10 years ago for $105,000,which are being depreciated on a straight-line basis to a zero salvage value (15-year depreciable life).The old broilers can be sold today for $63,000.The new broilers will cost $202,000,installed (not counting funds already spent),and will be depreciated using straight-line depreciation over their 5-year life.They will be sold at their book value at the end of the 5th year.The firm expects to increase its revenues by $27,000 per year if the new broilers are purchased,but cash expenses will also increase by $3,000 per year.Annual interest expense will be $2,000,and net working capital will increase by $5,000.The new broilers will occupy space currently leased to another firm for $530 per month,and $5,000 has already been spent preparing the building for new broilers.The firm's tax rate is 40%.What are the terminal year cash flows? Round your answers to the nearest dollar.
A) $22,744
B) $23,944
C) $27,442
D) $28,944
E) $32,442
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Chapter 11: Cost of Capital
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Q1) The market risk premium:
A) varies over time as both the risk-free rate of return and the market rate of return vary.
B) plus the risk-free rate of return equals the cost of capital for any firm with a beta of zero.
C) is equal to one percent for a risk-free asset.
D) is equal to the risk-free rate of return multiplied by the beta of a firm.
E) is modified by the standard deviation when computing the cost of equity.
Q2) What is the weighted average cost of capital after taxes for Moss Diet Centers if the target weights are 25% equity and 75% debt,and the costs of equity and after-tax debt are 15% and 12%,respectively? Assume the relevant tax rate is 20%.
A) 12.5%
B) 11.0%
C) 12.8%
D) 14.0%
E) 13.5%
Q3) A firm can raise its value without earning at least the WACC.
A)True
B)False
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Chapter 12: Capital Structure
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Q1) In the year just past (Year 1)Kaos Corp.had no debt.Today is January 1 of Year 2.Kaos is considering a plan to sell bonds worth $25B and use the proceeds to repurchase 2.5B shares (on the open market at $10/share).If Kaos maintains this new level of debt in perpetuity,then what is the present value of the resulting interest tax shields? Assume that the debt is sold immediately,that the bonds are a perpetuity,and that interest is paid at the end of each year.Assume that the coupon rate on the bonds is 6% and that the tax rate is 15%.
A) $0.23B
B) $3.75B
C) $6.0B
D) $21.25B
E) $25B
Q2) When Modigliani and Miller revised their original model to include taxes,they concluded that
A) firms should reduce their degree of financial leverage.
B) tax avoidance does not alter a firm's value.
C) tax increases lower a firm's value.
D) firms should use only debt in their capital structure.
E) taxes also have no bearing on the capital structure decision.
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Chapter 13: Dividends, repurchases, and Splits
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Q1) Cash-2-Day currently trades for $13.Analysts regard it as fairly valued at its current price.The company has announced that it intends to spend $180 million on an open market repurchase.Management claims that the company's shares are occasionally undervalued and that buying shares at undervalued prices represents a good investment.Assume that the company is able to repurchase shares at a price of $12.There are 275 million shares outstanding prior to the repurchase.What stock price prevails after the repurchase?
A) $9.00
B) $10.77
C) $12.06
D) $13.06
E) $15.60
Q2) On Friday,January 4,Oceanic Airlines declared a $0.75 per share dividend to be paid on Monday,March 11; the date of record will be Friday,February 15.What is Oceanic's ex-dividend date?
A) Monday
B) Tuesday
C) Wednesday
D) Thursday
E) Friday
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Chapter 14: Financial Planning
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Q1) What are Gerald's purchases expected to be in February?
A) $2,500
B) $5,000
C) $7,500
D) $10,000
E) $15,000
Q2) Referring to Gerald's Produce,what is Gerald's ending cash balance expected to be in March?
A) $15,400
B) $16,700
C) $17,000
D) $17,700
E) $18,200
Q3) Referring to Gerald's Produce,what are Gerald's total cash outflows (disbursements)in February?
A) $2,500
B) $3,100
C) $7,500
D) $8,100
E) $10,600
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Chapter 15: The Management of Working Capital
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Q1) Why might a bank put a hold on a small personal check?
A) Not wanting to disburse funds they have not yet received
B) Requested by the payee
C) Uncertain the check is good
D) Prevent fraud
Q2) What is a usual default rate when looking at bad debt losses?
A) 2%
B) 3%
C) 4%
D) 5%
E) 6%
Q3) All of the following are costs of credit EXCEPT
A) bad debt losses.
B) credit analysis expenses.
C) lost revenues when customers do not take advantage of trade discounts.
D) the increased investment in accounts receivable.
Q4) Shortage costs can be enormous.
A)True
B)False
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Chapter 16: International Finance
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Q1) Two homogeneous products from Germany and Brazil are being purchased by an American trader.The product from Germany is cheaper than the product from Brazil.According to ________,the trader will purchase the products from Germany until the increased demand for the German product equalizes the price.
A) Arbitrage
B) Purchasing power parity
C) Law of one price
D) Exchange rate arbitrage
Q2) The amount of foreign currency that one U.S.dollar will buy is called the A) base rate.
B) counter rate.
C) indirect rate.
D) direct rate.
E) forward rate.
Q3) The interest rate on Eurodollar loans tends to be based on A) Eurobonds
B) Forward rates
C) Spot rates
D) LIBOR
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