Managerial Finance
Final Test Solutions
Course Introduction
Managerial Finance explores the principles and techniques used by managers to make financial decisions that maximize firm value. The course covers essential topics such as financial statement analysis, budgeting, working capital management, capital structure, time value of money, risk and return, and investment appraisal. Students learn to interpret financial information, assess the financial health of businesses, and apply quantitative tools to support strategic planning and resource allocation. Emphasis is placed on real-world case studies and decision-making under uncertainty, equipping students with the practical skills necessary to guide financial policy in corporate settings.
Recommended Textbook
Financial Management Concepts and Applications 1st Edition by Stephen Foerster
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14 Chapters
1072 Verified Questions
1072 Flashcards
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Chapter 1: Overview of Financial Management
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) Raising new capital through the sale of common equity is an example of which cash-related activity in the cash flow cycle?
A)Operating activity
B)Profitability activity
C)Investing activity
D)Financing activity
Answer: D
Q2) Financial statement analysis is one of the fundamental concepts that a nonfinancial manager should understand in order to:
A)better assess the current environment in which the firm operates.
B)better assess the future financing requirements.
C)better understand the role of capital markets in raising long-term funds.
D)better measure and create value for the shareholders.
Answer: A
Q3) Limited partners may actively manage the business.
A)True
B)False
Answer: False
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Chapter 2: Sizing up a Business: a Non-Financial Perspective
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Sample Questions
Q1) Gross domestic product product (GDP)is a measure of:
A)the total amount of goods and services sold over a particular period of time.
B)the total amount of goods and services produced over a particular period of time.
C)the projected amount of goods and services to be produced over a particular period of time.
D)None of the above.
Answer: B
Q2) Which of the following is NOT a component of GDP?
A)Consumer sector
B)Business investment sector
C)Government sector
D)Healthcare sector
Answer: D
Q3) Generally in the short run,a county's actual output of goods and services increases the same rate as the country's capacity.
A)True
B)False
Answer: False
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Chapter 3: Understanding Financial Statements
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Sample Questions
Q1) Which of the following describes a balance sheet?
A)Reports the amount and composition of assets and liabilities at a specified point in time?
B)Reports cash receipts and cash disbursements for a specific accounting period.
C)Reports the amount and composition of assets and liabilities at a specific accounting period.
D)Reports revenues and expenses for a specific accounting period.
Answer: A
Q2) Which of the following is NOT a use of cash from investing activities?
A)Proceeds from the sale of a business
B)Investment in fixed assets
C)Payment for business acquired
D)Investment in land
Answer: A
Q3) Which of the following is NOT included in the calculation of free cash flows?
A)Operating income
B)Interest expense
C)Depreciation
D)Net operating working capital
Answer: B
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Chapter 4: Measuring Financial Performance
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65 Flashcards
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Sample Questions
Q1) If a firm has any long-term debt then its ROE will exceed its ROA.
A)True
B)False
Q2) In an annual report,who writes the letter to shareholders and what purpose is served by the letter?
Q3) Common-size statements allow us to level the playing field by examining trends across time or among competitors by focusing on percentages.
A)True
B)False
Q4) The firm's ________ indicates how much the firm's profits contribute to ROE.
A)asset turnover
B)financial leverage
C)profit margin
D)return on assets
Q5) The author chooses to focus on four sections of a firm's 10K report,the firm description,risk factors,current legal proceedings,and analysis of financial conditions.What important information can be obtained by looking at each of these sections?
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Chapter 5: Managing Day-To-Day Cash Flow
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72 Verified Questions
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Sample Questions
Q1) Banker's Acceptances are closely affiliated with international transaction rather than domestic ones.Describe and provide an example of how this market works and why there is a need for the instrument.
Q2) Your firm issues 20-year bonds.This type of financing would be most appropriate for which of the following activities?
A)The support of accounts receivable
B)The construction of a new warehouse
C)The support of accounts payable
D)The financing of inventory
Q3) Commercial paper would be considered appropriate for funding which types of corporate needs?
A)the purchase of capital equipment with lives of 5 years or longer
B)seasonal needs for a retail firm
C)financing long-term property purchases
D)all of the above
Q4) An interesting fact about commerce in America is that we tend to see very few differences in the age of accounts receivable across industries.
A)True
B)False
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Chapter 6: Projecting Financial Requirements and Managing Growth
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Sample Questions
Q1) Consider the four components identified by the author in the sustainable growth equation.Which if nay of these components are heavily influenced by executive management?
Q2) Which of the following choices would NOT be found on a pro forma balance sheet?
A)forecasted sales
B)total liabilities
C)fixed assets
D)current assets
Q3) Gremlin Media Inc.has realized tremendous growth in recent years.Last year the firm realized an ROE of 41.16%.If the firm was in a 40% marginal tax bracket,had an asset turnover ratio of 2.1,a profit margin of 14%,and a leverage ratio of 2,what was the firm's retention ratio?
A)0.70
B)1.00
C)0.50
D)There is not enough information to answer this question.
Q4) A pro forma balance sheet typically begins with liabilities and then we estimate the assets.
A)True
B)False
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Chapter 7: Time Value of Money Basics and Applications
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77 Flashcards
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Sample Questions
Q1) You plan to purchase a new car with a retail price of $26,499 after your trade-in and astute negotiations with the dealership sales manager.You have agreed to make 5 ANNUAL payments with an annual interest rate of 3.90%.How large are your equal annual end-of-the-year payments for your new car?
A)$5299.80
B)$5,462.21
C)$5,841.89
D)$5,935.68
Q2) Which of the following is NOT an example of an annuity cash flow?
A)Your pay check which is the same every month.
B)Your tuition payments which are the same every term.
C)The identical payment you make every two years for your share of a lake cabin that you own with other family members.
D)These are all annuity cash flows.
Q3) Just as a yield to maturity can change on a day-to-day basis,so can a preferred stock share's dividend yield.
A)True
B)False
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Chapter 8: Making Investment Decisions
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Sample Questions
Q1) If a project has a ________ NPV,it should also have an IRR ________ the hurdle rate.
A)positive; greater than B)positive; less than C)negative; greater than D)negative; equal to
Q2) There are no adequate methods for comparing projects of unequal lives.
A)True
B)False
Q3) Capital budgeting decisions are more complex when:
A)projects are mutually exclusive.
B)comparison projects are not of equal length.
C)capital is rationed.
D)All of the above are true.
Q4) The appropriate hurdle rate for a particular project reflects the perceived riskiness of the project.
A)True
B)False
Q5) Identify at least two major problems with the internal rate of return method of capital budgeting.
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Chapter 9: Overview of Capital Markets: Long-Term
Financing Instruments
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Sample Questions
Q1) Core Concepts Inc,.has experienced stock returns of 8.4%,6.3%,and 14.2% over the last three years.Over this time period,what has been the firm's arithmetic average annual rate of return?
A)9.58%
B)9.63%
C)9.88%
D)9.92%
Q2) $1.00 (one dollar)invested in a portfolio of "small " U.S.stocks in 1925 would have grown to a value in excess of ________ by 2011 assuming that all dividends had been reinvested in the portfolio.(Choose the answer closest to the research provided dollar amount.)
A)$100
B)$1,000
C)$10,000
D)$100,000
Q3) Common shares are perpetual instruments,lasting as long as the firm itself lasts.
A)True
B)False
Q4) List and describe the three methods used to distribute shares in an IPO.
Page 11
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Chapter 10: Assessing the Cost of Capital: What Return
Investors Require
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Sample Questions
Q1) The market risk premium represents the expected difference between:
A)the return on AAA bonds and Treasury bonds.
B)the prime rate and the 3-month Treasury bill rate.
C)the return on the stock market and the return on preferred shares.
D)the return on the stock market investment and the risk-free return.
Q2) Market values for equity are calculated as:
A)the sum of the value of equity and accumulated retained earnings as found on the balance sheet.
B)the price per share multiplied by the number of shares outstanding.
C)the price per share multiplied by the number of shares outstanding plus the accumulated retained earnings.
D)the price per share multiplied by the number of shares outstanding minus the accumulated retained earnings.
Q3) Another name for market risk is:
A)systematic risk.
B)standard deviation.
C)unsystematic risk.
D)total risk.
Q4) Identify methods that firms use to establish hurdle rates for capital projects.
Page 12
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Chapter 11: Understanding Financing and Payout Decisions
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Sample Questions
Q1) Under conditions of perfect capital markets,M&M insist that the value of the levered firm is greater than the value of the unlevered firm.
A)True
B)False
Q2) A firm's capital structure combines all forms of financing on which the firm relies including:
A)preferred shares.
B)common equity.
C)long-term debt.
D)All of the above.
Q3) Dividend policy can be interpreted as either (1)the cash amount of dividends a firm decides to pay to its shareholders or (2)the percentage of earnings the firm decides to pay as dividends,also known as the dividend payout ratio.
A)True
B)False
Q4) The major real-world benefit of debt is that interest payments are a tax-deductible expense.
A)True
B)False
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Chapter 12: Designing an Optimal Capital Structure
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Sample Questions
Q1) Vegan Foods Inc.has a current capital structure of 30% debt,70% equity,and are in a 40% tax bracket.However,after speaking with their investment bankers they have decided to increase their debt to 40% of total capital.Some of the firm's managers are concerned that there may an increase in risk for stockholders due to the increased financial obligations resulting from the increased debt load.Currently,the levered beta for the firm is 1.20.
Use your knowledge of levered and unlevered betas to estimate the new levered beta for existing shareholders.
Q2) Managers need to take into account a number of perspectives when assessing the "first" criteria.The ________ focuses on comparing the firms capital structure with those of industry competitors.
A)competitive perspective
B)internal perspective
C)investor perspective
D)creditor perspective
Q3) Define moral hazard in a financial sense.What must be present for moral hazard to arise? Describe the moral hazard that occurred with the Great Recession of 20072009.How could this type of behavior be avoided in the future?
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Page 14
Chapter 13: Measuring and Creating Value
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Sample Questions
Q1) Which of the following would NOT be classified as value added by the buyer in a merger?
A)The present value of estimated synergies due to the merger.
B)The current value of the target firm as a stand-alone entity.
C)New value-adding strategies initiated post-merger by the purchasing firm.
D)Enhanced credit ratings that develop as a result of the merger.
Q2) ________ are common forms of non-cash expenses for a firm.
A)Depreciation and amortization
B)Depreciation and interest
C)Depreciation and dividends
D)All of the above
Q3) Use the information from Figure 13-2 and complete the missing information.
Q4) MegaToy Inc.is considering acquiring Action Figures Inc.,both publicly traded firms in the toy industry.Action Figures is currently trading at $18 per share and has 15 million shares outstanding.The executive team at MegaToy believes that the present value of potential synergies is $70 million if the firms combine.What is the highest bid price per share that MegaToy should consider paying for Action Figure shares? What is the largest percentage premium over the current share price MegaToy would be willing to pay?
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Page 15
Chapter 14: Comprehensive Case Study: Wal-Mart
Stores,inc
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Sample Questions
Q1) Walmart has a significant sales presence in:
A)discount retail sales.
B)Internet sales.
C)grocery stores.
D)All of the above.
Q2) The long-run overall outlook for growth in the retail segment of the economy is ________ the economy as a whole.
A)equal to B)less than C)greater than
D)this question was not addressed by the author.
Q3) The author present information that suggests that there is little threat of new entrants in the retail industry.
A)True
B)False
Q4) An acceptable project must exceed the firm's cost of debt but not necessarily it's cost of capital.
A)True
B)False
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