Managerial Finance Exam Bank
Course Introduction
Managerial Finance explores the principles and techniques used by managers to make informed financial decisions within organizations. The course covers topics such as financial analysis, planning and control, capital budgeting, risk assessment, cost of capital, and working capital management. Students will learn how to interpret financial statements, evaluate investment opportunities, and develop strategies to maximize organizational value while considering risk and resource constraints. Emphasis is placed on the practical application of financial tools to real-world business scenarios, preparing students for decision-making roles in both corporate and non-corporate settings.
Recommended Textbook
Financial Management Core Concepts 4th Edition by Raymond Brooks
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Page 2
Chapter 1: Financial Management
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Q1) The common objective of borrowing and lending is to ________.
A)make all parties better off
B)gain a profit at the other's expense
C)make a firm or individual appear more liquid than is really the case
D)thwart regulatory authority
Answer: A
Q2) Perhaps the most important thing this course will help you develop is ________.
A)your skill set as a contract negotiator
B)your ability to manipulate a calculator
C)your set of analytical skills
D)your ability to distinguish among different types of financial statements
Answer: C
Q3) ________ is the area of finance concerned with activities such as borrowing funds to finance long-term projects; For example,plant expansions or new product launches.
A)Working capital management
B)International finance
C)Investments
D)Corporate finance
Answer: D
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Page 3
Chapter 2: Financial Statements
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Sample Questions
Q1) Cash flow from assets is derived from ________.
A)cash flow from operating activities and cash flow from investing activities
B)cash flow from operating activities and cash flow from financing activities
C)cash flow from creditors and cash flow from investing activities
D)cash flow from financing activities and cash flow from investing activities
Answer: A
Q2) Which of the following items may be included on all income statements at finance.yahoo.com,even though they may not be part of an individual company's income statement for that year?
A)Cost of Revenue and Extraordinary Items
B)Goodwill and Effect of Accounting Changes
C)Effect of Accounting Changes and Deferred Long-Term Asset Charges
D)Cost of Revenue and Treasury Stock
Answer: A
Q3) The 10-K is a quarterly report that must be filed within 60 days after the end of the company's fiscal year.
A)True
B)False
Answer: False
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Chapter 3: The Time Value of Money Part 1
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Sample Questions
Q1) The school district needs to pass a bond levy for funding to remodel existing schools and to build new schools.Expenditures for the new and remodeled buildings will begin two years after passage of the bond.If the school district receives all funding immediately after the passage of the bond and can invest the funds at a rate of 2.75% per year,how large must the bond be for the district to have $48,000,000 at the start of construction?
A)$48,000,000
B)$47,554,834
C)$46,556,397
D)$45,465,040
Answer: D
Q2) When solving for a present value,the interest rate is commonly referred to as the compound rate,but when solving for the future value,the interest rate is called the discount rate.
A)True
B)False
Answer: False
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Chapter 4: The Time Value of Money Part 2
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Sample Questions
Q1) Given positive equal annual cash flows and a positive interest rate,the present value of an annuity will be greater than the sum of the cash flows.
A)True
B)False
Q2) Your company just sold a product with the following payment plan: $40,000 today,$35,000 next year,and $30,000 the following year.If your firm places the payments into an account earning 6% per year,how much money will be in the account after collecting the last payment?
A)$118,767
B)$112,044
C)$94,074
D)$85,000
Q3) You currently have $67,000 in an interest-earning account.From this account,you wish to make 10 year-end payments of $8,500 each.What annual rate of return must you make on this account to meet your objective?
A)4.16%
B)4.58%
C)6.42%
D)7.32%
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Page 6
Chapter 5: Interest Rates
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Q1) The historically low Treasury bill rates between 2008 and 2013 reflect the Federal Reserve's action to stimulate the economy following the 2008 financial meltdown.
A)True
B)False
Q2) The ________ compensates the investor for the additional risk that the loan will not be repaid in full.
A)default premium
B)inflation premium
C)real rate
D)interest rate
Q3) An abbreviated amortization schedule illustrates that each month more and more of the payment is applied to interest and more and more of the payment is applied to the principal.
A)True
B)False
Q4) The EAR is about 6.09% if the APR is 6.01% and compounding is monthly.
A)True
B)False
Q5) Why are there different interest rates on loans and securities?
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Chapter 6: Bonds and Bond Valuation
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Sample Questions
Q1) Callable and putable bonds add options to an ordinary bond.These options may be exercised at the discretion of the bondholder in one type,or the bond issuer in the other.Describe callable and putable bonds.In your description,be sure to include which party has the option to exercise,and the impact of the option on the price of the bond.
Q2) The ________ is the face value of the bond.
A)coupon rate
B)maturity date
C)par value
D)coupon
Q3) A bond is a ________ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates in the future.
A)long-term equity
B)long-term debt
C)short-term debt
D)short-term equity
Q4) Describe the relationship between the yield to maturity and the coupon rate of a bond.
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Chapter 7: Stocks and Stock Valuation
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Q1) Bonds are different from stocks because ________.
A)bonds promise fixed payments for the length of their maturity
B)bonds give payments only after other owners are paid
C)bonds do not have maturity dates
D)bonds promise growth in earnings
Q2) Rogue Motors Inc.has a 11% required rate of return.The firm does not expect to initiate dividends for 10 years,at which time it will pay $2.00 per share in dividends.At that time,the firm expects its dividends to grow at 6% forever.What is an estimate of the firms' price in 10 years (P<sub>10</sub>)if its dividend at the end of year 10 is $2.00?
A)$42.40
B)$33.40
C)$31.20
D)$42.80
Q3) The holder of preferred stock is entitled to a constant dividend ________.
A)every period
B)only when earnings are positive
C)only when the stock price increases
D)only when earnings are positive and only when the stock price increases
Q4) Describe two basic rights that stock ownership gives.
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Chapter 8: Risk and Return
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Sample Questions
Q1) Stock A,has returns of 10%,20%,30%,and 40%,over the last four years.What is the stock's standard deviation?
A)166.67%
B)12.91%
C)4.08%
D)2.15%
Q2) When considering expected returns,the states of the world must sum to 1 (or 100%).
A)True
B)False
Q3) ________ may be defined as a measure of uncertainty in a set of potential outcomes for an event in which there is a chance for some loss.
A)Diversification
B)Risk
C)Uncertainty
D)Collaboration
Q4) Finance functions in a two-parameter world of risk and return.Define risk and return in a financial sense and discuss how these two concepts are "joined at the hip."
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10
Chapter 9: Capital Budgeting Decision Models
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Q1) Consider the following three-year project.The initial after-tax outlay or after-tax cost is $1,500,000.The future after-tax cash inflows for years 1,2,3 and 4 are: $800,000,$800,000,$300,000 and $100,000,respectively.What is the payback period without discounting cash flows?
A)1.875 years
B)2.0 years
C)3.5 years
D)4.125 years
Q2) Pandora,Inc.is considering a five-year project that has an initial outlay or cost of $70,000.The cash inflows from its project for years 1,2,3,4 and 5 are all the same at $14,000.The borrowing costs are 10%.What is the IRR? Should Pandora use the IRR method to evaluate this project? Explain.
Q3) Because money is often limited,companies must be careful to choose projects that are feasible and profitable.
A)True
B)False
Q4) Identify and describe the shortcomings of the payback period model or method (without discounting).
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Chapter 10: Cash Flow Estimation
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Sample Questions
Q1) Consider the case of a business that has had a very profitable year and earned a million dollars in profits.Can it distribute a million dollars to its owners (via dividends)?
A)Yes,definitely
B)Maybe,maybe not
C)Definitely not
D)It can certainly distribute over a million dollars.
Q2) MACRS allocates the same amount of cost each period as determined by the total initial cost divided by the number of years of useful life of the machines.
A)True
B)False
Q3) Book value is the original cost of an asset plus the accumulated depreciation. A)True
B)False
Q4) Southwest Co.purchases an asset for $60,000.This asset qualifies as a seven-year recovery asset under MACRS.Winston has a tax rate of 30%.The seven-year fixed depreciation percentages for years 1,2,3,4,5,and 6 are 14.29%,24.49%,17.49%,12.49%,8.93%,and 8.93%,respectively.If the asset is sold at the end of six years for $10,000,what is the cash flow from disposal?
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Page 12
Chapter 11: The Cost of Capital
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Sample Questions
Q1) Which of the items below is sometimes termed hybrid equity financing?
A)Retained earnings
B)Preferred stock
C)Callable bonds
D)Variable rate bonds
Q2) Under which of the following circumstances is the pure play method of estimating a project's beta particularly useful?
A)The firm is looking to expand its current business operations,doing essentially the same work.
B)The firm is looking to expand its current business operations into a brand new area unlike any of its internal projects.
C)The firm is looking to expand its current business operations.The work will be essentially the same as current operations but there is no obvious outside provider of the same service or product.
D)The pure play method works equally effectively under each and all of these scenarios.
Q3) Define flotation costs and explain how they are used when estimating a firm's yield-to-maturity.
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Chapter 12: Forecasting and Short-Term Financial Planning
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Q1) Which of the below is a SOURCE of cash?
A)Cash Sales
B)Wages and Salaries
C)Rent or Lease payments
D)Dividend payments
Q2) Which of the statements below is FALSE?
A)A simple monthly cash flow estimate allows managers to anticipate periods when the company may need to borrow and periods when the company will have excess cash for investing.
B)There is a problem in managing cash if sales are low for several months,causing a negative balance and delaying payments to suppliers or employees.
C)There are four basic ways to handle cash surpluses: Savings; Unsecured Loans (Commercial Paper,Trade Credit,or Banker's Acceptance); Secured Loans (Using Accounts Receivable or Inventories); and Other Sources (Letters of Credit).
D)By far the simplest way to cover a cash deficit is to take money out of one's savings account-provided,of course,that one has sufficient savings to cover the necessary transfer.
Q3) Name three things that a pro forma income statement can tell us.
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Page 14
Chapter 13: Working Capital Management
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Q1) ACME Inc.,a music publishing firm located in Tennessee,bills its clients on the first of the month.For example,any sale made in the month of July is billed August 1 and is due September 1.Clients traditionally pay as follows: 50% by the end of the first month (August),40% by the end of the second month (September),7% by the end of the third month (October),and 3% default on their bills.What is the total dollar value of first-quarter actual sales that will NOT be collected? \[\begin{array} { | l | l | l | l | l | l | }
\hline & { \text { First-Quarter Actual Sales } } & && { \text { Second-Quarter Anticipated Sales } } \\
\hline \text { January } & \text { February } & \text { March } & \text { April } & \text { May } & \text { June } \\
\hline \$ 88,000 & \$ 74,000 & \$ 96,000 & \$ 99,000 & \$ 82,000 & \$ 63,000 \\ \hline \end{array}\]
A)$2,900
B)$3,760
C)$5,160
D)$7,740
Q2) Explain why working capital is "recaptured" when a project draws to a close.
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Chapter 14: Financial Ratios and Firm Performance
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Sample Questions
Q1) Benchmarking compares a company's current performance against its own previous performance whereas bookmarking compares a company's current performance against that of its competitors.
A)True
B)False
Q2) The Balance Sheet is the recording of the business activities over the past business cycle.
A)True
B)False
Q3) Which of the statements below is FALSE?
A)The acid ratio test equals current assets minus inventories divided by current liabilities.
B)Examples of liquidity ratios include the current ratio,the cash coverage ratio,and the quick ratio.
C)The current ratio is current assets divided by current liabilities.
D)Inventory turnover equals cost of goods sold divided by inventory.
Q4) Describe the three components of the DuPont ratio.
Q5) Briefly describe the major problem that arises when benchmarking against your competitors.Describe how we can overcome this problem.
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Chapter 15: Raising Capital
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Sample Questions
Q1) You have agreed to a $90,000 fixed-rate loan from Wells Fargo Bank today and promise to repay the loan with 60 equal monthly payments at an APR of 7.00%.What is the EAR of this loan?
A)6.71%
B)7.00%
C)7.17%
D)7.23%
Q2) The bond indenture contains ALL BUT WHICH of the following?
A)The coupon rate
B)The yield-to-maturity
C)The maturity date
D)The par value
Q3) The 7(a)Loan Guaranty Program of the Small Business Administration (SBA)delivers loans through ________ that are guaranteed by ________.
A)the SBA; commercial lenders
B)banks; the Federal Reserve System
C)commercial lenders; state government
D)commercial lenders; the SBA
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17
Chapter 16: Capital Structure
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Q1) The highest return to the investor is the lowest cost for the seller and vice versa.
A)True
B)False
Q2) A rising WACC ________ the values of the firm's future cash flows.
A)increases
B)reduces
C)keeps constant
D)has no effect on
Q3) Capital structure refers to how the firm finances its operations and growth through a combination of ________.
A)equity types
B)security types
C)types of earnings
D)types of debt
Q4) The indirect costs of bankruptcy can include which of the following?
A)Setting aside projects with good NPVs
B)Lost sales
C)Loss of confidence in the firm's products and services
D)All of the above
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Chapter 17: Dividends, Dividend Policy, and Stock Splits
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Q1) The decision to pay a cash dividend is within the jurisdiction of the shareholders.
A)True
B)False
Q2) Which of the following is NOT a reason for a high-dividend-payout policy?
A)Convenient and direct deposit of cash dividend
B)Avoidance of transaction costs for selling shares
C)Higher potential future returns for shareholders
D)Cash payments today versus uncertain cash payments tomorrow
Q3) When a firm pays out dividends from leftover funds,it is called a residual dividend policy.
A)True
B)False
Q4) Compare and contrast a sticky dividend policy with a residual dividend policy.Which policy is more widely used by large corporations? What advantages does that policy have over the other?
Q5) Identify and explain two reasons for reverse stock splits.
Q6) DRIP is an acronym for Dividend Renewal or Initiation Plan.
A)True
B)False
Page 19
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Chapter 18: International Financial Management
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Q1) Which of the statements below is FALSE?
A)Political risk involves changes in a foreign government.At one extreme is the case in which a local government "takes over" the assets of the company and nationalizes it.
B)Political risk involves changes in a foreign government.An extreme example is the case in which a government encourages foreign investment and gives breaks to companies willing to move operations locally.
C)There are three basic defensive mechanisms that can guard against the extreme case of nationalized assets.These include keeping critical operations private,financing operations and assets with local money,and receiving primary inputs outside the local economy.
D)One way that a multinational firm can minimize the potential of nationalization of assets by a foreign government is to share key elements of operations with the government.
Q2) One way to hedge the future conversion of known sales is to enter into a forward currency contract at the time of the sale and lock in the anticipated conversion rate of the foreign currency to the home currency.
A)True
B)False
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Page 20