Managerial Finance
Exam Materials
Course Introduction
Managerial Finance focuses on the financial decision-making processes within organizations, emphasizing the roles and responsibilities of managers in planning, analyzing, and controlling financial activities. The course covers fundamental concepts such as time value of money, capital budgeting, risk and return analysis, cost of capital, and financial statement analysis. Students learn to apply financial tools and techniques to real-world scenarios, enabling them to assess investment opportunities, forecast financial needs, manage working capital, and formulate strategies to maximize shareholder value while considering ethical and global perspectives.
Recommended Textbook M Finance 3rd Edition by Marcia Millon Cornett
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14 Chapters
1604 Verified Questions
1604 Flashcards
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Page 2
Chapter 1: Introduction to Financial Management
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66 Verified Questions
66 Flashcards
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Sample Questions
Q1) Which of these are NOT basic approaches to minimizing the agency problem?
A)Ignore the conflict of interest.
B)Monitor managers' actions.
C)Align managers' personal interest with those of the owners by making the managers owners.
D)All of these are basic approaches to minimizing the agency problem.
Answer: D
Q2) The most common type of business in the United States is the:
A)corporation.
B)partnership.
C)sole proprietorship.
D)hybrid organization such as a limited liability company.
Answer: C
Q3) Which of the following is the firm's highest-level financial manager?
A)Chief executive officer
B)Chief financial officer
C)Board of directors
D)Corporate governance
Answer: B
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Page 3
Chapter 2: Reviewing Financial Statements
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) The 2013 income statement for John's Gym shows that depreciation expense is $20 million, EBIT is $80 million, and taxes are $24 million. At the end of the year, the balance of gross fixed assets was $102 million. The increase in net operating working capital during the year was $18 million. John's free cash flow for the year was $41 million. What was the beginning of year balance for gross fixed assets?
A)$43 million
B)$85 million
C)$84 million
D)$163 million
Answer: B
Q2) Reed's Birdie Shot, Inc.'s 2013 income statement lists the following income and expenses: EBIT = $555,000, interest expense = $178,000, and taxes = $148,000. Reed's has no preferred stock outstanding and 100,000 shares of common stock outstanding.
Calculate the 2013 earnings per share.
A)$3.49
B)$2.29
C)$3.14
D)$2.79
Answer: B
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Page 4
Chapter 3: Analyzing Financial Statements
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124 Verified Questions
124 Flashcards
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Sample Questions
Q1) Which ratio measures a firm's ability to pay short-term obligations with its available cash and market securities?
A)Cash
B)Current
C)Internal-growth
D)Quick or acid test
Answer: A
Q2) Which of the following ratios measure how efficiently a firm uses its assets, as well as how efficiently the firm manages its accounts payable?
A)Asset management
B)Cash
C)Internal-growth
D)Quick or acid test
Answer: A
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Page 5
Chapter 4: Time Value of Money 1: Analyzing Single Cash Flows
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) Five years ago, Jane invested $5,000 and locked in an 8 percent annual interest rate for 25 years (end 20 years from now). James can make a 20-year investment today and lock in a 10 percent interest rate. How much money should he invest now in order to have the same amount of money in 20 years as Jane?
A)$3,160.43
B)$3,464.11
C)$5,089.91
D)$7,346.64
Q2) A $5,000 investment has doubled to $10,000 in ten years. How much longer will it take for the investment to reach $15,000 if it continues to earn the same rate?
A)5.00 years
B)5.85 years
C)6.86 years
D)7.20 years
Q3) How long will it take $100 to reach $500 when it grows at 10 percent per year?
A)7.20 years
B)16.89 years
C)17.46 years
D)40.00 years
Page 6
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Chapter 5: Time Value of Money 2: Analyzing Annuity Cash Flows
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147 Verified Questions
147 Flashcards
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Sample Questions
Q1) You wish to buy a $30,000 car. The dealer offers you a 5-year loan with a 9 percent APR. What are the monthly payments? What is the monthly payment if you paid interest only?
A)$622.75; $225.00
B)$659.41; $291.23
C)$701.23; $291.23
D)$712.03; $271.19
Q2) A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $2,500 per month for the next two years and then $3,000 per month for another two years after that. If the bank is charging customers 6.5 percent APR, how much would it be willing to lend the business owner?
A)$111,712.39
B)$114,009.21
C)$115,278.17
D)$117,809.63
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Chapter 6: Understanding Financial Markets and Institutions
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104 Verified Questions
104 Flashcards
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Sample
Questions
Q1) A two-year Treasury security currently earns 5.13 percent. Over the next two years, the real interest rate is expected to be 2.15 percent per year and the inflation premium is expected to be 1.75 percent per year. Calculate the maturity risk premium on the two-year Treasury security.
A)5.13 percent
B)3.38 percent
C)2.98 percent
D)1.23 percent
Q2) One-year Treasury bills currently earn 5.50 percent. You expect that one year from now, one-year Treasury bill rates will increase to 5.75 percent. The liquidity premium on two-year securities is 0.075 percent. If the liquidity theory is correct, what should the current rate be on two-year Treasury securities?
A)3.775 percent
B)5.625 percent
C)5.662 percent
D)11.325 percent
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8
Chapter 7: Valuing Bonds
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) Calculate the price of a zero coupon bond that matures in 10 years if the market interest rate is 6 percent. (Assume semi-annual compounding and $1,000 par value.)
A)$553.68
B)$558.66
C)$940.00
D)$1,000.00
Q2) Which of the following terms is a comparison of market yields on securities, assuming all characteristics except maturity are the same?
A)Credit quality risk
B)Interest rate risk
C)Liquidity of interest rate risk
D)Term structure of interest rates
Q3) Which of the following is an important advantage to the issuer of a bond with a call provision?
A)They are able to avoid interest rate risk.
B)They are able to avoid reinvestment rate risk.
C)They are able to reduce their credit risk.
D)They allow for refinancing opportunities.
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Chapter 8: Valuing Stocks
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) A fast growing firm recently paid a dividend of $0.80 per share. The dividend is expected to increase at a rate of 30 percent rate for the next four years. Afterwards, a more stable 7 percent growth rate can be assumed. If a 10 percent discount rate is appropriate for this stock, what is its value?
A)$60.48
B)$60.18
C)$61.34
D)$73.86
Q2) Which of the following is incorrect with respect to limit orders?
A)They can be used only to buy stock.
B)If the current quote does not meet the price cited in the limit order, the trade is not executed.
C)The advantage of the limit order is that the investor makes the trade at the desired price.
D)The disadvantage of the limit order is that the trade might not be executed at all.
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10
Chapter 9: Characterizing Risk and Return
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) Which of the following is correct?
A)Total risk is measured by the standard deviation.
B)There is a positive relationship between risk and return.
C)If you observe a high variability in a stock's returns you can infer that the stock is very risky.
D)All of these statements are correct.
Q2) You have $45,050 to invest. You want to purchase shares of Company Air at $10.25, Company B at $15.10, and Company F at $9.05. How many shares of each company should you purchase so that your portfolio consists of 30 percent Company A, 50 percent Company B, and 20 percent Company F? Report only whole stock shares.
A)Company A = 30 shares, Company B = 50 shares, Company F = 20 shares
B)Company A = 44 shares, Company B = 30 shares, Company F = 50 shares
C)Company A = 308 shares, Company B = 755 shares, Company F = 181 shares
D)Company A = 1,323 shares, Company B = 1,490 shares, Company F = 993 shares
Q3) Which of the following statements is correct?
A)Stocks and long-term Treasury bonds is highly positively correlated.
B)Stocks and Treasury bills is highly positively correlated.
C)Stocks, long-term Treasury bonds, and Treasury bills is all highly correlated.
D)None of these statements are correct.
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Page 11
Chapter 10: Estimating Risk and Return
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Which of the following statements is correct?
A)If the market is strong-form efficient it must also be weak-form efficient and semi-strong efficient.
B)There is evidence to suggest that the market is strong-form efficient because corporate insiders have made extraordinary profits by trading on inside information.
C)The Efficient Market Hypothesis states that security prices will be based on their expected return.
D)None of these statements are correct.
Q2) You have a portfolio with a beta of 0.9. What will be the new portfolio beta if you keep 40 percent of your money in the old portfolio and 60 percent in a stock with a beta of 1.5?
A)1.00
B)1.20
C)1.26
D)2.40
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Chapter 11: Calculating the Cost of Capital
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) Which of the following will increase the cost of equity?
A)The firm's share price falls 10 percent.
B)The firm is expected to reduce its dividend.
C)The firm's corporate tax rate increases.
D)None of these answers is correct.
Q2) Rings N Things Industries has 40 million shares of common stock outstanding, 20 million shares of preferred stock outstanding, and 50 thousand bonds. If the common shares are selling for $25 per share, the preferred shares are selling for $15 per share, and the bonds are selling for 100 percent of par ($1,000), what would be the weights used in the calculation of Rings' WACC for common stock, preferred stock, and bonds, respectively?
A)33.33 percent, 33.33 percent, 33.33 percent
B)74.07 percent, 22.22 percent, 3.71 percent
C)66.61 percent, 33.31 percent, 0.08 percent
D)17.86 percent, 10.71 percent, 71.43 percent
Q3) When we adjust the WACC to reflect flotation costs, this approach:
A)raises each capital source's effective cost.
B)raises only the cost of external equity.
C)reduces the cost of debt.
D)reduces each capital source's effective cost.
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Chapter 12: Estimating Cash Flows on Capital Budgeting Projects
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) All of the following are incremental cash flows attributable to the project EXCEPT:
A)opportunity costs.
B)financing costs.
C)substitutionary effects.
D)complementary effects.
Q2) If a firm has already paid an expense or is obligated to pay one in the future, regardless of whether a particular project is undertaken, that expense is a(n):
A)incremental cash outflow.
B)opportunity cost.
C)sunk cost.
D)expensible item.
Q3) Which of the following is NOT included when calculating the depreciable basis for real property?
A)Freight charges for item
B)Sales tax paid for item
C)Financing fees
D)Installation and testing fees
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Page 14
Chapter 13: Weighing Net Present Value and Other Capital
Budgeting
Criteria
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown as follows. The required rate of return on projects of both of their risk class is 10 percent, and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three and a half years, respectively.
\[\begin{array} { l l l l l }
\text { Time } & 0 & 1 & 2 & 3 \\
\text { Project A Cash Flow } & - 1,000 & 300 & 400 & 700 \\
\text { Project B Cash Flow } & - 500 & 200 & 400 & 300
\end{array}\] Use the MIRR decision rule to evaluate these projects; which one(s) should be accepted or rejected?
A)Accept both A and B
B)Accept neither A nor B
C)Accept A, reject B
D)Reject A, accept B
Q2) All of the following are strengths of payback EXCEPT:
A)its benchmark is not determined by a relevant external constraint.
B)it incorporates the time value of money.
C)it uses a conservative reinvestment rate.
D)none of these.
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Chapter 14: Working Capital Management and Policies
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) All of the following will result in an increase in net working capital EXCEPT:
A)an increase in inventory.
B)a decrease in accounts payable.
C)an increase in cash.
D)an increase in accruals.
Q2) Choosing the optimal level of investment in each current asset type involves a trade-off between carry costs and:
A)opportunity costs.
B)financing costs.
C)safety costs.
D)shortage costs.
Q3) Which of the following is NOT one of the Baumol Model's unrealistic assumptions?
A)The firm has a constant, perfectly predictable distribution rate for cash.
B)No cash will come in during the period in question.
C)No allowance for any safety stock of extra cash to buffer the firm against unexpectedly high demand for cash.
D)No assumption to start from a replenishment level of cash then decline smoothly to a value of zero.
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