Managerial Finance Exam Solutions
Course
Introduction
Managerial Finance is a comprehensive course that focuses on the financial principles and analytical tools necessary for effective decision-making in business organizations. Students learn how to evaluate financial statements, assess risk and return, analyze investment opportunities, determine optimal capital structures, and manage working capital. The course covers essential topics such as time value of money, budgeting, cost of capital, and financial forecasting, enabling future managers to understand the financial implications of strategic business choices and to make informed, value-adding decisions for their organizations.
Recommended Textbook Finance Applications and Theory 4th Edition by Marcia Cornett
Available Study Resources on Quizplus
20 Chapters
2227 Verified Questions
2227 Flashcards
Source URL: https://quizplus.com/study-set/2860
Page 2
Chapter 1: Introduction to Financial Management
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/57017
Sample Questions
Q1) Which of the following will help you make better personal financial decisions?
A)knowing finance theory
B)applying financial tools
C)auditors
D)knowing finance theory and applying financial tools.
Answer: D
Q2) Which of the following statements is correct?
A)Accountants are focused on what happened in the past.
B)Financial managers are focused on what happened in the past.
C)Both accountants and financial managers use total quality management systems to standardize data.
D)Financial managers double-check the accountant's statements.
Answer: A
Q3) A metaphor used to illustrate how an individual pursuing his own interests also tends to promote the good of the community.
A)agency theory
B)angel investor
C)invisible hand
D)perks or perquisites
Answer: C
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Reviewing Financial Statements
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/57016
Sample Questions
Q1) Nickolas's Nut Farms, Inc. has net cash flows from operating activities for the last year of $25 million. The income statement shows that net income is $15 million and depreciation expense is $6 million. During the year, the change in inventory on the balance sheet was a decrease of $4 million, change in accrued wages and taxes was a decrease of $1 million and change in accounts payable was a decrease of $1 million. At the beginning of the year the balance of accounts receivable was $5 million. What was the end of year balance for accounts receivable?
A)$2 million
B)$3 million
C)$7 million
D)$9 million
Answer: B
Q2) Which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period?
A)balance sheet
B)income statement
C)statement of retained earnings
D)statement of cash flows
Answer: D
To view all questions and flashcards with answers, click on the resource link above.
4
Chapter 3: Analyzing Financial Statements
Available Study Resources on Quizplus for this Chatper
130 Verified Questions
130 Flashcards
Source URL: https://quizplus.com/quiz/57015
Sample Questions
Q1) Which of these ratios measure the extent to which the firm uses debt (or financial leverage) versus equity to finance its assets?
A)debt management ratios
B)equity ratios
C)financial ratios
D)liquidity ratios
Answer: A
Q2) Which of the following statements is correct?
A)A low average payment period and a high accounts payable turnover are a sign of good management.
B)A high average payment period and a low accounts payable turnover are a sign of good management.
C)A high average payment period and a high accounts payable turnover are a sign of good management.
D)A low average payment period and a low accounts payable turnover are a sign of good management.
Answer: B
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Time Value of Money 1: Analyzing Single Cash Flows
Available Study Resources on Quizplus for this Chatper
149 Verified Questions
149 Flashcards
Source URL: https://quizplus.com/quiz/57018
Sample Questions
Q1) We call the process of earning interest on both the original deposit and on the earlier interest payments
A) discounting.
B) multiplying.
C) compounding.
D) computing.
Q2) You have $100,000 in your account. Assuming no additional deposits are made and your account earns 15 percent per year, how long will it take for the account to have a balance of $500,000?
A) 10.28 years
B) 11.09 years
C) 11.52 years
D) 12.64 years
Q3) When your investment compounds, your money will grow in a(n) __________ fashion.
A) linear
B) exponential
C) static
D) implied
6
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Time Value of Money 2: Analyzing Annuity Cash
Flows
Available Study Resources on Quizplus for this Chatper
152 Verified Questions
152 Flashcards
Source URL: https://quizplus.com/quiz/57014
Sample Questions
Q1) A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $1,500 per month for the next 3 years and then $500 per month for three years after that. If the bank is charging customers 10 percent APR, how much would it be willing to lend the business owner?
A)$32,019.95
B)$57,980.57
C)$61,982.47
D)$192,119.70
Q2) Given a 5 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,400, $1,400, and $1,500.
A)$4,360.32
B)$4,665.65
C)$5,047.62
D)$5,305.00
Q3) The present value of annuity payments made far into the future is A)worth very little today.
B)worth much more today.
C)valued as having no time value of money.
D)valued as worthless as their value is not determinable.
Page 7
To view all questions and flashcards with answers, click on the resource link above.
Chapter 6: Understanding Financial Markets and Institutions
Available Study Resources on Quizplus for this Chatper
101 Verified Questions
101 Flashcards
Source URL: https://quizplus.com/quiz/57013
Sample Questions
Q1) Assume the current interest rate on a one-year Treasury bond (<sub>1</sub>R<sub>1</sub>) is 5.50 percent, the current rate on a two-year Treasury bond (<sub>1</sub>R<sub>2</sub>) is 5.95 percent, and the current rate on a three-year Treasury bond (<sub>1</sub>R<sub>3</sub>) is 8.50 percent. If the unbiased expectations theory of the term structure of interest rates is correct, what is the one-year interest rate expected on Treasury bills during year 3, <sub>3</sub>f<sub>1</sub>?
A)13.79 percent
B)12.29 percent
C)11.69 percent
D)10.29 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
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Valuing Bonds
Available Study Resources on Quizplus for this Chatper
123 Verified Questions
123 Flashcards
Source URL: https://quizplus.com/quiz/57012
Sample Questions
Q1) Under what conditions is a bond likely to be called?
A)The firm is in financial duress.
B)The firm is planning a massive expansion and needs to raise a lot of capital.
C)Interest rates have significantly declined.
D)The firm wants to increase its debt ratio.
Q2) A corporate bond with a 5.75 percent coupon has 15 years left to maturity. It has had a credit rating of BB and a yield to maturity of 6.25 percent. The firm has recently gotten more financially stable and the rating agency is upgrading the bonds to BBB. The new appropriate discount rate will be 6.00 percent. What will be the change in the bond's price in dollars? (Assume interest payments are paid semiannually and a par value of $1,000.)
A)decrease $22.25
B)increase $22.25
C)decrease $23.72
D)increase $23.72
Q3) Which of the following was the catalyst for the recent financial crisis?
A)corruption in the investment banking industry
B)widespread layoffs due to illegal alien hiring
C)defaults on subprime mortgages
D)All of these choices are correct.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Valuing Stocks
Available Study Resources on Quizplus for this Chatper
117 Verified Questions
117 Flashcards
Source URL: https://quizplus.com/quiz/57011
Sample Questions
Q1) Which of the following indices best reflects the ten sectors of the economy?
A)Nasdaq Composite
B)Dow Jones Industrial Average
C)Standard & Poor's 500
D)None of the options
Q2) A firm recently paid a $0.50 annual dividend. The dividend is expected to increase by 10 percent in each of the next three years. In the third year, the stock price is expected to be $110. If the required return is 15 percent, what is its value?
A)$62.53
B)$68.95
C)$73.71
D)$78.67
Q3) A firm does not pay a dividend. It is expected to pay its first dividend of $1.00 per share in two years. This dividend will grow at 5 percent indefinitely. Using a 12 percent discount rate, compute the value of this stock.
A)$12.76
B)$12.19
C)$11.96
D)$11.39
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Characterizing Risk and Return
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/57010
Sample Questions
Q1) Rank the following three stocks by their total risk level, highest to lowest. Night Ryder has an average return of 14 percent and standard deviation of 30 percent. The average return and standard deviation of WholeMart are 12 percent and 25 percent; and of Fruit Fly are 25 percent and 40 percent.
A)Fruit Fly, Night Ryder, WholeMart
B)Night Ryder, WholeMart, Fruit Fly
C)WholeMart, Fruit Fly, Night Ryder
D)WholeMart, Night Ryder, Fruit Fly
Q2) JoJo's portfolio's return is 12 percent. She is invested in Cisco and IBM which had returns of 15 percent and 9 percent respectively. What percentage of JoJo's assets are invested in each firm?
A)40 percent in Cisco and 60 percent in IBM
B)50 percent in Cisco and 50 percent in IBM
C)30 percent in Cisco and 70 percent in IBM
D)unable to determine with the data provided
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: Estimating Risk and Return
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/57009
Sample Questions
Q1) Stock A has a required return of 19 percent. Stock B has a required return of 11 percent. Assume a risk-free rate of 4.75 percent. Which of the following is a correct statement about the two stocks?
A)Stock A is riskier.
B)Stock B is riskier.
C)The stocks have the same risk.
D)We would need to know if the markets are efficient to answer this question.
Q2) Shares of stock issued to employees that have limitations on when they can be sold are known as
A)executive stock options.
B)privately held information.
C)restricted stock.
D)stock market bubble.
Q3) Which of these is the set of probabilities for all possible occurrences?
A)probability
B)probability distribution
C)stock market bubble
D)market probabilities
To view all questions and flashcards with answers, click on the resource link above.
12
Chapter 11: Calculating the Cost of Capital
Available Study Resources on Quizplus for this Chatper
122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/57008
Sample Questions
Q1) Rose has preferred stock selling for 99 percent of par that pays a 9 percent annual coupon. What would be Rose's component cost of preferred stock?
A)4.55 percent
B)8.91 percent
C)9.00 percent
D)9.09 percent
Q2) JackITs has 5 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 20 thousand bonds. If the common shares are selling for $28 per share, the preferred shares are selling for $13.50 per share, and the bonds are selling for 98 percent of par, what would be the weight used for equity in the computation of JackITs' WACC?
A)33.33 percent
B)80.88 percent
C)83.08 percent
D)91.19 percent
To view all questions and flashcards with answers, click on the resource link above.
13
Chapter 12: Estimating Cash Flows on Capital Budgeting Projects
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/57007
Sample Questions
Q1) Your firm needs a machine which costs $50,000, and requires $2,000 in maintenance for each year of its three-year life. After three years, this machine will be replaced. The machine falls into the MACRS three-year class life category. Assume a tax rate of 35 percent and a discount rate of 10 percent. What is the depreciation tax shield for this project in year 3?
A)$2,591.75
B)$3,291.75
C)$4,813.25
D)$5,833.33
Q2) You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $20,000 initially, and then $4,000 per year in maintenance costs. Machine B costs $25,000 initially, has a life of three years, and requires $3,500 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. Which is the better machine for the firm? The discount rate is 14 percent and the tax rate is zero.
A)Machine A
B)Machine B
C)Both machines A and B
D)Neither machine A nor B
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Weighing Net Present Value and Other Capital
Budgeting Criteria
Available Study Resources on Quizplus for this Chatper
113 Verified Questions
113 Flashcards
Source URL: https://quizplus.com/quiz/57006
Sample Questions
Q1) A financial asset will pay you $10,000 at the end of 10 years if you pay premiums of $175 per year at the end of each year for 10 years. What is the IRR of this financial asset?
A)33.26 percent
B)34.98 percent
C)35.93 percent
D)36.72 percent
Q2) Compute the NPV statistic for Project U given the following cash flows if the appropriate cost of capital is 9 percent. \[\begin{array} { l c c c c c c }
\text { Time } & 0 & 1 & 2 & 3 & 4 & 5 \\
\text { Cash Flow } & - \$ 1,000 & \$ 350 & \$ 1,480 & - \$ 520 & \$
\end{array}\]
A) $201.69
B) $273.82
C) $383.63
D) $397.21
& \$
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Working Capital Management and Policies
Available Study Resources on Quizplus for this Chatper
137 Verified Questions
137 Flashcards
Source URL: https://quizplus.com/quiz/57005
Sample Questions
Q1) Would it be worth it to incur a compensating balance of $10,000 in order to get a 1-percent-lower interest rate on a 1-year, pure discount loan of $500,000?
A)Yes
B)No
C)Not enough information is given to know
Q2) What is the difference between a lockbox system and concentration banking?
A)In concentration banking, both physical collection and processing take place close to the customer but in a lockbox system, neither the collections nor processing take place close to the customer.
B)In a lockbox system, customers' payments are physically collected close to them and much of the processing takes place close to the bank, but in concentration banking both physical collection and processing take place close to the bank.
C)Concentration banking involves using several banks to fund a large loan and lockbox systems deal with the ability to speed up collections.
D)None of the options.
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Financial Planning and Forecasting
Available Study Resources on Quizplus for this Chatper
70 Verified Questions
70 Flashcards
Source URL: https://quizplus.com/quiz/57004
Sample Questions
Q1) ABC Inc. has total assets of $550,000 and a debt ratio of 60 percent. If last year's sales were $950,000 and sales are expected to grow 10 percent in the future, what is ABC Inc. capital intensity ratio?
A)1.72
B)0.52
C)1.90
D)0.58
Q2) What is computed by dividing the amount of assets tied directly to sales (A*) by the amount of current sales (S0)?
A)Capital intensity ratio
B)Current ratio
C)Quick ratio
D)Spontaneous assets
Q3) Which of the following is likely to increase the firm's additional funds needed?
A)The firm cuts its dividend by 50 percent.
B)The firm reduces its usage of trade credit.
C)The firm has unused fixed assets.
D)All of the options would increase the firm's additional funds needed.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 16: Assessing Long-Term Debt, Equity, and Capital Structure
Available Study Resources on Quizplus for this Chatper
107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/57003
Sample Questions
Q1) Suppose that a company's equity is currently selling for $19 per share and that there are 3 million shares outstanding and 10 thousand bonds outstanding, which are selling at 100 percent of par ($1,000). If the firm was considering an active change to their capital structure so that the firm would have a D/E of 0.5, which type of security (stocks or bonds) would they need to sell to accomplish this, and how much would they have to sell?
A)$12,333,333 in new debt
B)$1,755,400 in new debt
C)$12,328,000 in new equity
D)$1,755,400 in new equity
Q2) In M&M's perfect world, their theorem's two main propositions are referred to as which of the following?
A)Active capital structure management
B)Passive capital structure management
C)Capital structure irrelevance assertion
D)Capital structure relevance assertion
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Sharing Firm Wealth: Dividends, Share
Repurchases, and Other Payouts
Available Study Resources on Quizplus for this Chatper
77 Verified Questions
77 Flashcards
Source URL: https://quizplus.com/quiz/57002
Sample Questions
Q1) Balloons, Inc. normally pays a quarterly dividend. The last such dividend paid was $0.80, all future quarterly dividends are expected to grow at 8 percent, and the firm faces a required rate of return on equity of 13 percent. If the firm just announced that the next dividend will be an extraordinary dividend of $2.00 per share that is not expected to affect any other future dividends, what should the stock price be?
A)$16.00
B)$17.01
C)$17.28
D)$18.29
Q2) PQR Corp. is expected to pay a dividend of $1.50 per year indefinitely. If the appropriate rate of return on this stock is 8 percent per year, and the stock consistently goes ex-dividend 25 days before the dividend payment date, what will be the expected minimum price in light of the dividend payment logistics?
A)$12.84
B)$18.61
C)$18.75
D)$20.09
To view all questions and flashcards with answers, click on the resource link above.
Page 19
Chapter 18: Issuing Capital and the Investment Banking Process
Available Study Resources on Quizplus for this Chatper
122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/57001
Sample Questions
Q1) Most business loans today are:
A)pre-negotiated lines of credit.
B)spot loans.
C)collateralized lines of credit.
D)None of the options.
Q2) Which of the following is a security issue in which the underwriter does not guarantee a firm price to the issuer and acts more as a placing or distribution agent for a fee?
A)Best efforts underwriting
B)Firm commitment underwriting
C)Underwriter's spread
D)Venture capital
Q3) Which of these is the fee charged by a bank for making funds available through a loan commitment?
A)Back-end (or commitment) fee
B)Simple interest expense
C)Discounted interest
D)Up-front (or facility) fees
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: International Corporate Finance
Available Study Resources on Quizplus for this Chatper
116 Verified Questions
116 Flashcards
Source URL: https://quizplus.com/quiz/57000
Sample Questions
Q1) Arbitrage profit can be made by:
A)selling assets in future markets and buying them in the spot markets.
B)buying assets in markets with high interest rates and selling them in a local market.
C)buying assets in a "cheap" market and selling them in another market where the price is higher.
D)none of the options.
Q2) Given these two exchange rates, $1 = 1.32 Australian dollars and $1 = £0.56, compute the cross-rate between the Australian dollar and the pound. State this exchange rate in Australian dollars.
A)A$2.49
B)A$2.36
C)A$2.91
D)A$2.17
Q3) Convert the following indirect quote to a dollar direct quote: $1 = 7.2501 South African rand
A)$0.1379
B)$0.72501
C)$1.00
D)$1.1379
To view all questions and flashcards with answers, click on the resource link above.
Page 21
Chapter 20: Mergers and Acquisitions and Financial
Distress
Available Study Resources on Quizplus for this Chatper
82 Verified Questions
82 Flashcards
Source URL: https://quizplus.com/quiz/56999
Sample Questions
Q1) Jan's Bakery is considering a merger with Tina's Cookies. Jan's total operating costs of producing services are $100,000 for a sales volume of $250,000. Tina's total operating costs of producing services are $75,000 for a sales volume of $300,000. If the two firms merge, calculate the total average cost for the merged firm assuming no synergies.
A)25.0 percent
B)31.8 percent
C)32.5 percent
D)40.0 percent
Q2) All of the following are an advantage of prepackaged bankruptcy EXCEPT:
A)there is less disruption to the firm's business and less damage to its goodwill.
B)reduced legal expenses and other fees, which leave more funds available for the creditors.
C)it is a shorter and simpler bankruptcy process.
D)All of the options are advantages.
To view all questions and flashcards with answers, click on the resource link above.