Managerial Finance Question Bank
Course Introduction
Managerial Finance is a course that explores the principles and practices of financial management within organizations. It focuses on the analysis, planning, and control of financial resources to achieve corporate objectives. Topics include time value of money, capital budgeting, risk and return analysis, financial statement analysis, cost of capital, and strategies for financing and investment decisions. Through case studies and practical applications, students develop skills to make informed financial decisions, maximize shareholder value, and understand the strategic role of finance in business operations.
Recommended Textbook
Principles of Managerial Finance Brief 6th Edition by Lawrence J. Gitman
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15 Chapters
2750 Verified Questions
2750 Flashcards
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Page 2
Chapter 1: The Role of Managerial Finance
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133 Verified Questions
133 Flashcards
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Sample Questions
Q1) Agents of corporate owners are themselves owners of the firm and have been elected by all the corporate owners to represent them in decision-making and management of the firm.
A)True
B)False
Answer: False
Q2) The controller is commonly responsible for
A) managing cash.
B) financial accounting.
C) managing credit activities.
D) financial planning.
Answer: B
Q3) Wealth maximization as the goal of the firm implies enhancing the wealth of A) the Board of Directors.
B) the firm's employees.
C) the federal government.
D) the firm's stockholders.
Answer: D
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3
Chapter 2: The Financial Market Environment
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91 Verified Questions
91 Flashcards
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Sample Questions
Q1) When home prices are falling we would expect
A) high mortgage default rates.
B) low mortgage default rates.
C) unchanged mortgage default rates.
D) a higher percentage of owner home equity.
Answer: A
Q2) In efficient market is one where
A) prices of stocks move up and down widely without apparent reason.
B) prices of stocks remain steady for long periods of time.
C) prices of stocks are unaffected by market news.
D) prices of stocks incorporate new information quickly and adjust appropriately to their true value.
Answer: D
Q3) The ________ is created by a financial relationship between suppliers and demanders of short-term funds.
A) stock market
B) capital market
C) financial market
D) money market
Answer: D
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Chapter 3: Financial Statements and Ratio Analysis
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209 Verified Questions
209 Flashcards
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Sample Questions
Q1) Earnings per share represent the dollar amount earned and distributed to shareholders.
A)True
B)False
Answer: False
Q2) ________ is a term used to describe the magnification of risk and return introduced through the use of fixed cost financing such as preferred stock and long-term debt.
A) Financial leverage
B) Operating leverage
C) Fixed-payment coverage
D) The acid-test
Answer: A
Q3) ________ ratios are a measure of the speed with which various accounts are converted into sales or cash.
A) Activity
B) Liquidity
C) Debt
D) Profitability
Answer: A
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Chapter 4: Cash Flow and Financial Planning
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185 Verified Questions
185 Flashcards
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Sample Questions
Q1) The weakness of the judgmental approach to preparing a pro forma balance sheet is
A) the assumption that the values of certain accounts can be forced to take on desired levels.
B) the assumption that the firm faces linear total revenue and total operating cost functions.
C) the assumption that the firm's past financial condition is an accurate predictor of its future.
D) ease of calculation and preparation.
Q2) Under the judgmental approach for developing a pro forma balance sheet, the "plug" figure required to bring the statement into balance may be called the A) cash balance.
B) retained earnings.
C) external financing required.
D) accounts receivable.
Q3) Net operating profit after taxes (NOPAT) represents the firm's earnings before interest and after taxes.
A)True
B)False
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Page 6
Chapter 5: Time Value of Money
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173 Verified Questions
173 Flashcards
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Sample Questions
Q1) When computing the number of deposits needed to accumulate to a future sum, it will take longer the higher the interest rate, holding the future value and deposit size constant.
A)True
B)False
Q2) Calculate the future value of $6,490 received today and deposited for five years in an account which pays interest of 14 percent compounded semiannually.
Q3) Suzy wants to buy a house but does not want to get a loan. The average price of her dream house is $500,000 and its price is growing at 5 percent per year. How much should Suzy invest in a project at the end of each year for the next 5 years in order to accumulate enough money to buy her dream house with cash at the end of the fifth year? Assume the project pays 12 percent rate of return.
Q4) The rate of interest actually paid or earned, also called the annual percentage rate (APR), is the ________ interest rate.
A) effective
B) nominal
C) discounted
D) continuous
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Page 7
Chapter 6: Interest Rates and Bond Valuation
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224 Verified Questions
224 Flashcards
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Sample Questions
Q1) ________ is issued with a very low coupon and sells significantly below its par value.
A) An income bond
B) A zero or no coupon bond
C) A mortgage bond
D) A subordinated debenture
Q2) Bonds are
A) a series of short-term debt instruments.
B) a form of equity financing that pays interest.
C) long-term debt instruments.
D) a hybrid form of financing used to raise large sums of money from a diverse group of lenders.
Q3) The real rate of interest is the actual rate of interest charged by the suppliers of funds and paid by the demanders.
A)True
B)False
Q4) To finance a new line of product, the Tangshan Toys has issued $1,000,000 bond with a par value of $1,000, coupon rate of 8 percent, and maturity of 30 years. Compute the price of the bond if the opportunity cost is 11 percent.
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Chapter 7: Stock Valuation
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188 Verified Questions
188 Flashcards
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Sample Questions
Q1) A firm issued 5,000 shares of $1 par-value common stock, receiving proceeds of $20 per share. The accounting entry for the paid-in capital in excess of par account is
A) $5,000.
B) $ 95,000.
C) $100,000.
D) $0.
Q2) Karina's Caribbean Foods had total assets as recorded on its balance sheet are $1,500,000. What is the value of the Karina's common stock if it has $950,000 in liabilities, and 7,500 shares of common stock outstanding?
Q3) In response to the stock market's reaction to its dividend policy, the Nico's Toy Company has decided to increase its dividend payment at a rate of 4 percent per year. The firm's most recent dividend is $3.25 and the required rate of interest is 9 percent. What is the maximum you would be willing to pay for a share of the stock?
Q4) The par value on common stock has all of the following characteristics EXCEPT A) a generally low value.
B) some states tax according to the par value.
C) indicates the market value at which the stock was originally sold. D) stated in the corporate charter.
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Page 9
Chapter 8: Risk and Return
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190 Verified Questions
190 Flashcards
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Sample Questions
Q1) The higher an asset's beta,
A) the more responsive it is to changing market returns.
B) the less responsive it is to changing market returns.
C) the higher the expected return will be in a down market.
D) the lower the expected return will be in an up market.
Q2) In no case will creating portfolios of assets result in greater risk than that of the riskiest asset included in the portfolio.
A)True
B)False
Q3) Market risk is the chance that a totally unexpected event will have a significant effect on the value of the firm or a specific investment.
A)True
B)False
Q4) As risk aversion increases
A) a firm's beta will increase.
B) investors' required rate of return will increase.
C) a firm's beta will decrease.
D) investors' required rate of return will decrease.
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Chapter 9: The Cost of Capital
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137 Flashcards
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Sample Questions
Q1) Since retained earnings are viewed as a fully subscribed issue of additional common stock, the cost of retained earnings is
A) less than the cost of new common stock equity.
B) equal to the cost of new common stock equity.
C) greater than the cost of new common stock equity.
D) not related to the cost of new common stock equity.
Q2) A firm has issued 10 percent preferred stock, which sold for $100 per share par value. The cost of issuing and selling the stock was $2 per share. The firm's marginal tax rate is 40 percent. The cost of the preferred stock is
A) 3.9 percent.
B) 6.1 percent.
C) 9.8 percent.
D) 10.2 percent.
Q3) One major expense associated with issuing new shares of common stock is A) underwriting fees.
B) legal fees.
C) registration fees.
D) underpricing.
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11
Chapter 10: Capital Budgeting Techniques
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167 Flashcards
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Sample Questions
Q1) The payback period of a project that costs $1,000 initially and promises after-tax cash inflows of $300 for the next three years is 3.33 years.
A)True
B)False
Q2) Should Tangshan Mining company accept a new project if its maximum payback is 3.25 years and its initial after tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $700,000 in year 3 and $1,800,000 in year 4?
A) Yes.
B) No.
C) It depends.
D) None of the above
Q3) The IRR method assumes the cash flows are reinvested at the internal rate of return rather than the required rate of return
A)True
B)False
Q4) If the NPV is greater than the cost of capital, a project should be accepted.
A)True
B)False
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Chapter 11: Capital Budgeting Cash Flows and Risk
Refinements
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195 Verified Questions
195 Flashcards
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Sample Questions
Q1) A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset originally cost $30,000 and was being depreciated under MACRS using a five-year recovery period. The existing asset can be sold for $25,000. The new asset will cost $75,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on ordinary income and capital gains, the initial investment is ________.
A) $42,000
B) $52,440
C) $54,240
D) $50,000
Q2) When unequal-lived projects are independent, the length of the projects' lives is not critical.
A)True
B)False
Q3) A machine was purchased two years ago for $120,000 and can be sold for $50,000 today. The machine has been depreciated using the MACRS 5-year recovery period and the firm pays 40 percent taxes on both ordinary income and capital gains.
(a) Compute recaptured depreciation and capital gain (loss), if any.
(b) Find the firm's tax liability.
Page 13
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Chapter 12: Leverage and Capital Structure
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217 Flashcards
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Sample Questions
Q1) Earnings before interest and taxes (EBIT) is a descriptive label for A) operating profits.
B) net profits before taxes.
C) earnings per share.
D) gross profits.
Q2) The steeper the slope of the EBIT-EPS capital structure line, the lower the financial risk.
A)True
B)False
Q3) A firm's operating breakeven point is sensitive to all of the following variables EXCEPT A) fixed operating costs.
B) sales price per unit.
C) interest expense.
D) variable operating cost per unit.
Q4) The cost of equity is greater than the cost of debt and increases with increasing financial leverage, but generally less rapidly than the cost of debt.
A)True
B)False
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Page 14
Chapter 13: Payout Policy
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130 Flashcards
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Sample Questions
Q1) The most commonly used dividend policies are all of the following EXCEPT
A) the constant-payout-ratio policy.
B) the regular dividend policy.
C) the variable dividend policy.
D) the low-regular-and-extra dividend policy.
Q2) Tangshan Mining has 100,000 shares outstanding and just declared a 2-for-1 stock split. Before the announcement, the firm's shares were trading at $50.00 per share. After the stock dividend, the firm's shares should trade at ________ per share.
A) $100.00
B) $25.00
C) $50.00
D) none of the above
Q3) According to Modigliani and Miller, a firm's value is determined solely by the earning power and risk of its assets and that the manner in which it splits its earnings stream between dividends and internally retained funds does not affect this value.
A)True
B)False
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Page 15
Chapter 14: Working Capital and Current Assets Management
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340 Verified Questions
340 Flashcards
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Sample Questions
Q1) Certain financing plans are termed conservative when
A) short-term financing is used frequently.
B) working capital is relatively high.
C) working capital is relatively low.
D) risk is increased.
Q2) The firm's financing requirements can be separated into
A) current liabilities and long-term funds.
B) current assets and fixed assets.
C) current liabilities and long-term debt.
D) seasonal and permanent.
Q3) ________ are obligations of the U.S. Treasury with common maturities of one to seven years and that are generally issued in minimum denominations of $5,000.
A) Treasury notes
B) Treasury bills
C) Federal agency issues
D) Banker's acceptances
Q4) The reorder point is the point at which the firm receives orders.
A)True
B)False
16
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Chapter 15: Current Liabilities Management
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171 Flashcards
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Sample Questions
Q1) ________ are the major source of unsecured short-term financing for business firms.
A) Accounts receivable
B) Accruals
C) Notes payable
D) Accounts payable
Q2) Lenders require collateral to
A) reduce the risk of default.
B) control the borrowing firm.
C) reduce the losses if the borrower defaults.
D) extend to the borrower an unsecured loan.
Q3) Factoring accounts receivable is a relatively expensive source of secured short-term funds that allows firms to turn accounts receivable immediately into cash.
A)True
B)False
Q4) Secured short-term financing has specific assets pledged as collateral and appears on the balance sheet as current liabilities.
A)True
B)False
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