Course Introduction
Managerial Finance
Exam Materials
Managerial Finance explores the principles and techniques essential for effective financial decision-making within organizations. The course covers topics such as financial statement analysis, budgeting, capital structure, working capital management, risk assessment, and valuation. Students learn how managers utilize financial data to plan, control, and evaluate business operations and investments, integrating theoretical knowledge with real-world case studies. By the end of the course, students will be equipped to support strategic objectives, optimize resource allocation, and enhance organizational value through sound financial management practices.
Recommended Textbook
Contemporary Financial Management 13th Edition by R. Charles Moyer
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27 Chapters
2109 Verified Questions
2109 Flashcards
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Page 2
Chapter 1: The Role and Objective of Financial Management
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Sample Questions
Q1) The type of corporate security that pays periodic interest as well as the eventual return of principal is:
A)Preferred stock
B)Debt Securities
C)Equity Securities
D)Fixed asset loans
Answer: B
Q2) The financial manager uses when determining the firm's most appropriate capital structure.
A)accounting data
B)employment benefit data
C)federal regulations
D)computer software design
Answer: A
Q3) Shareholder wealth is measured by the .
A)book value of the shareholders' common stock holdings
B)market value of the shareholders' common stock holdings
C)book value of the company's assets
D)market value of the company's assets
Answer: B
Page 3
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Chapter 2: The Domestic and International Financial Marketplace
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Sample Questions
Q1) In an efficient capital market
A)required returns equal expected returns
B)investors will have holding period returns equal to zero
C)purchase of any security yields zero profit
D)purchasing stocks is no better than gambling
Answer: A
Q2) What is the purpose and importance of the stock market indexes?
Answer: Stock market indexes give a broad indication of how the stock market or a segment of it performed during a particular day.The most known index is the Dow Jones Industrial Average (DJIA), which is composed of 30 stocks.The index gives an overview of how well stocks are doing, the overall health of the economy, and the anticipated marketability of securities.
Q3) finance seeks to identify why some investors react irrationally when confronted with unexpected ups and downs in the market
A)Systematic
B)Weak-form
C)Asset Evaluation
D)Behavioral
Answer: D
4
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Chapter 3: Evaluation of Financial Performance
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Sample Questions
Q1) Common stock prices are dependent on the amount and stability of a firm's cash flows so common stockholders are especially interested in:
A)profitability measurements
B)accounting profits
C)earnings after tax
D)NOPAT
Answer: A
Q2) If a firm has interest expenses of $10,000 per year, sales of $700,000, a tax rate of 40%, and a net profit margin of 7%, what is the firm's times interest earned ratio?
A)8.17
B)4.90
C)13.25
D)9.17
Answer: D
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Chapter 4: Financial Planning and Forecasting
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Sample Questions
Q1) In the percent-of-sales forecasting method, which of the following is (are) assumed to increase proportionately with sales?
A)cash
B)accounts receivable
C)accounts payable
D)all of the answers are correct
Q2) In developing a firm's financial plan, the firm develops a strategic plan and an operational plan.What is the difference between a strategic plan and an operational plan?
Q3) financial planning models seek to maximize (or minimize) the value of some objective function, such as profits (or costs).
A)Deterministic
B)Optimization
C)Probabilistic
D)none of the answers is correct
Q4) Financial planning models have two classifications.What are they and how do they differ from each other?
Q5) Explain the cash flow generation process:
Q6) What information does a long-term financial plan offer?
6
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Chapter 5: The Time Value of Money
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Sample Questions
Q1) What is the future value of a $10,000 college tuition fund if the nominal rate of interest is 12 percent compounded monthly for five years?
A)$17,623.42
B)$18,170
C)$16,105.10
D)$16,122.26
Q2) The earnings of Omega Supply Company have grown from $2.00 per share to $4.00 per share over a nine year time period.Determine the compound annual growth rate.
A)11.1%
B)8%
C)22.2%
D)100%
Q3) Which of the following statements is/are correct?
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements I and II are correct.
D)Neither statement I nor II is correct.
Q4) Explain a perpetuity and list some investment vehicles that can be perpetuities.
Q5) What is/are the difference(s) between simple interest and compound interest?
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Chapter 5: A: The Time Value of Money
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Sample Questions
Q1) In the continuous compounding equation, "e" is the
A)natural log to the base 10.
B)base number in natural logarithms
C)natural log to the base 1.
D)none of the above are correct
Q2) Friendly Bank offers you a loan at an annual interest rate of 10% compounded monthly.What is the effective rate the bank is charging you?
A)12.68%
B)10.00%
C)10.47%
D)10.83%
Q3) What is the effective interest rate on 12% if interest is compounded continuously?
A)15.11%
B)16.25%
C)14.11%
D)12.75%
Q4) With continuous compounding, why is the effective rate higher than the nominal rate?
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8
Chapter 6: Fixed-Income Securities: Characteristics and Valuation
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Sample Questions
Q1) What is the yield to maturity of a TVA bond that has a 9 1/2 percent coupon, pays interest semi-annually, has 12 years to maturity, and sells for $871.50?
A)11.3%
B)11.5%
C)11.8%
D)12.1%
Q2) An Exxon bond carries an 8 percent coupon, pays interest semiannually, and has 10 years to maturity.If this bond is currently selling for $925, what is the exact yield to maturity (to the nearest tenth of 1 percent)?
A)9.2%
B)8.8%
C)9.8%
D)10.2%
Q3) When an investor is trying to find the market value of an asset, he/she is trying to determine:
A)the exchange rate
B)the par value
C)the interest payment
D)the market price
Page 9
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Chapter 7: Common Stock: Characteristics, Valuation, and Issuance
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Sample Questions
Q1) One of the assumptions of the constant growth dividend valuation model is that
A)the investor's required rate of return is equal to the expected dividend yield.
B)the required rate of return is greater than the dividend growth rate
C)the required rate of return increases at a constant rate
D)the dividend rate (in dollars) will remain constant
Q2) List the various rights of common stockholders.
Q3) In a liquidation of a firm due to bankruptcy, which of the following usually gets paid last?
A)bondholders
B)preferred stockholders
C)common stockholders
D)employees wages
Q4) From an accounting standpoint, stock dividends involve a transfer from the A)common stock account
B)cash account
C)retained earnings account
D)capital surplus account
Q5) Why do closely held firms need to have an outside appraiser to determine their value? What are the reasons for valuation?
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Chapter 8: Analysis of Risk and Return
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Sample Questions
Q1) The is the ratio of to the .
A)standard deviation, covariance, expected value
B)covariance, expected value, standard deviation
C)coefficient of variation, standard deviation, expected value
D)coefficient of variation, systematic risk, expected value
Q2) HDTV has planned on diversifying into the dual-VCR field.As a result, HDTV's beta would rise to 1.6 from 1.2 and the expected future long-term growth rate in the firm's earnings would increase from 12% to 16%.The expected market return, km, is 14%;the risk free rate, rf, is 7%;and the current dividend, Do, is $0.50.Should HDTV go into the dual-VCR field?
A)No-stock price decrease
$7.82
B)Yes-stock price increase $9.89
C)Yes-stock price increase $3.81
D)No-stock price decrease $3.78
Q3) An increase in uncertainty regarding the future economic outlook has the effect of .
A)increasing the slope of the security market line
B)shifting the security market line upward
C)reducing risk
D)none of the above
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Chapter 9: Capital Budgeting and Cash Flow Analysis
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Sample Questions
Q1) Determine if this project is profitable under the following circumstances:
A company is undertaking a new project.The specialized equipment that needs to be bought has an expense of $28,000.In addition, permits and licenses are required which will cost $1500.Employee training will be an additional $46,000 expenditure.To produce the merchandise, raw materials are required that will cost $48,000 and this project will generate cash flows of $25,000 per year for 10 years.The cost of capital for this project is 12%.
A)Yes, the project is acceptable with a net present value equaling about $17,756.
B)Yes, the project is acceptable with a net present value equaling about $48,257.
C)No, the project is not acceptable with a net present value equaling about -$15,275.
D)No, the project is not acceptable with a net present value equaling about -$18,000.
Q2) If a firm sells an asset for less than its book value,
A)there are no tax consequences
B)the loss is treated as lost depreciation
C)the loss reduces depreciation expenses
D)the loss may be used to offset operating income
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Chapter 10: Capital Budgeting: Decision Criteria and Real
Option Considerations
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Sample Questions
Q1) Why is the net present value method of evaluating projects better than the internal rate of return method?
Q2) Zimmer, a manufacturer of modular rooms, plans to expand its operation in Landshut, Germany.The expansion will cost $14.5 million and is expected to generate annual net cash flows of DM4.5 million for a period of 12 years and then the operation will be sold for DM2 million.The cost of capital for the project is 14%.Using the spot exchange rate of $0.60 per DM, compute the NPV of this expansion project.
A)$0.78 million
B)$1.03 million
C)$2.58 million
D)$11.39 million
Q3) In considering the payback method,
A)It is a method of determining the financial exposure of a firm for a project.
B)It is a complicated but accurate capital budgeting method.
C)Both a and b are correct.
D)Neither a nor b is correct.
Q4) Explain why the internal rate of return method is more popular than the net present value method.What are some potential problems with relying on the IRR method?
Page 13
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Chapter 10: A: Capital Budgeting: Decision Criteria and Real Option Considerations
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Sample Questions
Q1) How does the equivalent annual annuity approach solve the time discrepancy problem?
Q2) Using the equivalent annual annuity method, which project should be chosen?
A)Project B, NPV is approximately $823 higher
B)Project A, NPV is negative
C)Project B, NPV is $10,473 approximately higher
D)Project B, NPV is $90.56 approximately higher
Q3) The importance of time discrepancies depends on several items when making capital budgeting decisions.State those items:
Q4) Quorex is evaluating two mutually exclusive projects.Project A has a net investment of $48,000 and net cash flows over a six year period of $12,500 per year.Project B also has a net investment of $48,000 but its net cash flows of $8,640 per year will occur over a 12 year period.If Quorex has a cost of capital of 14% for these projects, which project, if either, should be chosen and what is its NPV?
A)A, $862
B)A, $1,800
C)B, $2,475
D)B, $902
Page 14
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Chapter 11: Capital Budgeting and Risk
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Sample Questions
Q1) The basic capital budgeting decision models, that is, NPV and IRR, handle risk by
A)ignoring it
B)assuming all cash flows are known with certainty
C)assuming all projects are of average risk and evaluating them based on expected values
D)using risk-adjusted discount rates to evaluate projects
Q2) A major disadvantage of the risk-adjusted discount rate approach is that it
A)can lead to selecting only above-average risk projects
B)provides the decision maker with a range of numbers
C)can lead to selecting only below-average risk projects
D)is difficult to estimate the appropriate risk premium for a project
Q3) When analyzing a sensitivity curve, the the slope, the more sensitive the net present value is to a change in the computed variable.
A)more negative
B)steeper
C)more general
D)smaller
Q4) What are the weaknesses of the net present value/payback approach?
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Page 15
Chapter 12: The Cost of Capital, Capital Structure, and Dividend Policy
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Sample Questions
Q1) Break points can be determined by dividing the amount of funds available from each financing source at a fixed cost by the proportion for that financing source.
A)weighted capital structure
B)target capital structure
C)economic capital structure
D)divisional capital structure
Q2) Columbia Gas Company's (CG) current capital structure is 35% debt and 65% equity.This year CG has earnings after tax of $5.31 million and is paying $1.6 million in dividends.To finance a transmission pipe line, CG can borrow $2 million at a cost of 10%, the same rate that CG is currently paying on a total of $15 million long-term debt.CG has 1,000,000 shares outstanding and its current market price is $31.If CG's long-term growth rate of dividends is expected to be 8%, what is the weighted cost of capital for the firm? Assume a marginal tax rate of 40%.
A)10.9%
B)13.6%
C)19.6%
D)16.9%
Q3) What is the investment opportunity curve and how is it accomplished?
Q4) How is the marginal cost of the various component capital sources determined?
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Chapter 13: Capital Structure Concepts
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Q1) The managerial implications of capital structure theory include all of the following except:
A)capital structure changes transmit important information to investors
B)changes in capital structure result in changes in the market value of the firm's equity
C)optimal capital structure is influenced heavily by the business risk facing the firm
D)tax shield benefits from equity lead to increased firm value
Q2) Investors' required returns and the cost of equity capital as the relative amount of debt used to finance the firm .
A)increase, increases
B)increase, decreases
C)remain constant, increases
D)remain constant, decreases
Q3) Financial leverage benefits shareholders when the
A)return on assets is greater than the cost of debt
B)return on equity is greater than the cost of debt
C)return on investments is less than the weighted cost of capital
D)return on equity is less than the cost of debt
Q4) There are many factors that influence a firm's business risk.List them.
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Chapter 14: Capital Structure Management in Practice
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Q1) Some companies use debt or preferred stock financing instead of common stock financing.The purpose is:
A)to retain control
B)to facilitate record-keeping
C)to maintain privacy
D)to prevent audit problems
Q2) In EBIT-EPS analysis, the indifference point is found at the point where for the two alternative financing plans are equal.
A)EBIT
B)EPS
C)stock prices
D)DOL
Q3) A negative DOL indicates the percentage in operating losses that occurs as the result of a 1% increase in output.
A)increase
B)reduction
C)change
D)none of these
Q4) What are the effects of leverage on shareholder wealth and the cost of capital?
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Chapter 14: A: Capital Structure Management in Practice
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Q1) The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted weather patterns, severe storm safety tips and a tracking chart.The finished product sells for $35 with a variable cost per unit of $21.The company has operating costs of $1,050,000.Using 100,000 units as a base, what is the degree of operating leverage?
A)6.2
B)5.7
C)7.9
D)4.0
Q2) An example of a noncash outlay is:
A)property
B)marketing costs
C)advertising
D)depreciation
Q3) The contribution margin per unit is the difference between:
A)the selling price per unit and fixed costs
B)the fixed costs and the variable costs
C)the variable cost per unit and the selling price per unit
D)the variable costs and the number of units sold
Q4) What are the possible uses for breakeven analysis?
Page 19
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Chapter 15: Dividend Policy
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Q1) Saturn Corporation has just declared a 25 percent stock dividend.The stock was selling for $18 before the stock dividend.The stock will pay a quarterly cash dividend of 8 cents per share after the stock dividend.If the 8-cent dividend is maintained over the next year what is the post-stock dividend yield?
A)2.13%
B)2.22%
C)0.56%
D)1.44%
Q2) What is a DRIP and how does it work?
Q3) Sadaplast has just declared a 25 percent stock dividend.The annual dividend, before the stock dividend was declared, was $1.00.Sadaplast intends to pay a dividend of $1.05 per share after the stock dividend is paid.What is the percentage increase in the cash dividend that will accompany the stock dividend?
A)6.25%
B)26.25%
C)31.25%
D)5.00%
Q4) What are the procedures for repurchasing stock?
Q5) What are the factors that determine the dividend policy of a firm?
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Chapter 16: Working Capital Management
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Sample Questions
Q1) Fluctuating current assets are those assets that are affected by:
A)the consumer's demand for the product
B)the seasonal nature of the company
C)management preferences
D)IRS regulations
Q2) Cryo-vac expects sales to increase 20% next year from the current level of $5,000,000.The firm has current assets of $1,000,000 and fixed assets of $1,500,000.Cryo-vac has current liabilities of $750,000 of which $300,000 are in notes payable.What additional financing will Cryo-vac need to support the expected sales increase if its profit margin is 8% and the firm expects to pay out $200,000 in dividends? An increase in net fixed assets of $300,000 will be required.
A)$130,000
B)$70,000
C)Surplus of $70,000
D)$270,000
Q3) Why is working capital so important to a firm's continued profitability?
Q4) Explain trade credit.
Q5) What is financial forecasting?
Q6) Name some factors that affect the firm's investment decision to invest in current assets.
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Chapter 17: The Management of Cash and Marketable Securities
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Q1) The primary components or sources of float include all the following except
A)check clearing float
B)collection float
C)processing float
D)mail float
Q2) Which of the following is/are considered an intangible banking service?
A)Only statement I is correct
B)Only statement II is correct
C)Both statements I and II are correct
D)Neither statement I nor II is correct
Q3) Explain how companies can slow disbursements in order to keep funds in the bank for longer periods of time.
Q4) All of the following portfolio criteria used in determining which securities to include in a portfolio are concerned with risk except:
A)rate of return
B)default risk
C)marketability
D)maturity date
Q5) Why do firms hold liquid asset balances?
Page 22
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Chapter 18: The Management of Accounts Receivable and Inventories
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Q1) What are seasonal datings as it applies to credit terms?
Q2) RCMP has annual credit sales of $37 million.The credit terms are "net 30" and the current average collection period is 45 days.RCMP is considering changing its terms to 1/10, net 30 in an effort to reduce the average collection period.RCMP believes that 35% of its customers will take the discount, reducing the average collection period to 33 days.Should RCMP offer the discount? Assume the firm's required rate of return on its receivables investment is 14%.
A)No, pretax profits decrease $88,700
B)Yes, pretax profits increase $53,600
C)Yes, pretax profits increase $40,801
D)No, pretax profits decrease $40,801
Q3) All of the following are reliable sources of the creditworthiness of a customer EXCEPT:
A)Credit reporting organizations
B)Company's experience
C)Banks
D)General credit application
Q4) In trying to collect on past-due accounts, the firm may use several methods.List them.
Q5) How can a company use its credit period to affect sales and inventory?
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Chapter 19: Lease and Intermediate-Term Financing
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Q1) In the net advantage to leasing calculation, all cash flows (except salvage value) are discounted at the firm's
A)weighted (marginal) cost of capital
B)cost of internal equity capital
C)pretax marginal cost of borrowing
D)after-tax marginal cost of borrowing
Q2) In a direct lease, the user-lessee first determines all of the following EXCEPT:
A)which manufacturer will supply the equipment
B)what equipment will be leased
C)the terms of the lease
D)what price will be paid for the asset
Q3) Lessees with are most likely to use leveraged leases for large transactions.
A)low profit levels
B)large amounts of tax exempt income
C)low profits and high amounts of tax-exempt income
D)outlays of less than $300,000
Q4) Explain a leveraged lease.
Q5) What are the disadvantages of leasing?
Q6) What are the advantages of leasing?
Q7) What is a term loan?
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Chapter 20: Financing with Derivatives
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Q1) All of the following are reasons why companies issue convertible securities except:
A)cheaper total cost than nonconvertible securities
B)lower interest payments than nonconvertible securities
C)sell common stock at a price above current market price
D)deferred issuance of common stock
Q2) Craig Supermarkets, Inc.has convertible debentures ($1,000 par value) that are callable at 108 percent of par value.The conversion price of the debenture is $40 per share, and the Craig common stock currently is selling at $55 a share.The company
A)could not get the convertible holders to convert if it called the debt
B)has no intention of calling the convertibles
C)could force conversion by calling the issue
D)could realize a gain of $15 a share if it called the convertibles
Q3) A(n) is a call option issued by a company on its securities, usually common stock.
A)debenture
B)warrant
C)futures contract
D)extendible note
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Chapter 20: A: Financing with Derivatives
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Q1) Wood River Power Company is considering refunding a $100 million 12% coupon debenture issue with a 9% coupon, 20-year debenture.The 12% issue also matures in 20 years and is now callable at 109% of par.The unamortized flotation cost on the old issue is $360,000 and the flotation cost of the new issue is 0.775%.Wood River estimated that there would be a 4 week period where both bonds would be outstanding.The company has a weighted cost of capital of 11% and a 40% marginal tax rate.Should Wood River sell the refunding issue? (Note: PVIFA0.054,20 = 12.050)
A)yes, NPV is approximately $15.21 million
B)yes, NPV is approximately $9.86
C)yes, NPV is approximately 6.485 million
D)No, NPV is negative $0.554 million
Q2) Waste Deep Disposal Services are considering refunding a $525,000,000 bond issue.The old bonds have a 7.25% coupon rate.The new bonds will have a 6% coupon rate.Both issues will be outstanding for about four weeks.What is the overlapping interest if the company is in the 38% tax bracket (rounded)?
A)$1,517,465
B)$1,815,288
C)$1,357,642
D)$1,225,427
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Chapter 21: Risk Management
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Q1) When a lack of information can result in business risk, management can do all of the following to acquire additional information EXCEPT:
A)Refer to the annual reports of competitors for needed information.
B)Purchase information from those that possess the knowledge needed.
C)Form a panel to evaluate the product
D)Test market a product
Q2) What options does the buyer of a futures contract have at the time the futures contract matures?
Q3) Which of the following statements about risk is/are correct?
A)Only statement I is correct
B)Only statement II is correct
C)Both statements I and II are correct
D)Neither statement I nor II is correct
Q4) The most important reason to hedge business risk is to:
A)reduce the chance of a business takeover.
B)reduce employee theft.
C)reduce management inaccuracies.
D)reduce the chance of financial distress
Q5) List several reasons why a firm may choose to employ risk management techniques.
Page 27
Q6) List some nonhedging risk management strategies.
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Chapter 22: International Financial Management
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Q1) Motorola has a contract to deliver cellular telephones in Japan in 6 months from now and the payment for these telephones will be in Japanese yen.What type of foreign exchange risk does Motorola face?
A)economic exposure
B)operating exposure
C)transaction exposure
D)translation exposure
Q2) If the 182-day interest rate is 1.75 percent in the U.S.and 2.625 percent in Germany, and the current spot exchange rate between dollars and euros is $0.583, what will the 180-day forward rate be if IRP holds?
A)$0.578
B)$0.588
C)$0.573
D)$0.581
Q3) There are two methods used to forecast future exchange rates.What are they and how do companies use them to protect against risk?
Q4) What are two hedging techniques that a U.S.company might use to protect itself against foreign exchange risk with regard to transaction exposure?
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Page 28
Chapter 23: Corporate Restructuring
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Source URL: https://quizplus.com/quiz/22897
Sample Questions
Q1) When the market value of a company's common stock is below the replacement value of the firm's net assets, this company is frequently referred to as a possible .
A)white knight
B)leveraged buyout
C)takeover candidate
D)conglomerate
Q2) Legal insolvency occurs when
A)the firm is unable to meet its current obligations as they come due, even though the value of its assets exceeds its liabilities
B)the recorded value of the firm's assets is less than the recorded value of its liabilities
C)the firm files a bankruptcy petition in accordance with the Federal bankruptcy laws
D)the owners of the businesses lack experience
Q3) A reorganization plan is reviewed by the for fairness and feasibility.
A)bankruptcy court
B)Securities and Exchange Commission
C)Federal Trade Commission
D)bankruptcy court and the SEC
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