Managerial Finance Review Questions
Course Introduction
Managerial Finance provides students with a comprehensive understanding of financial decision-making processes within organizations. The course explores key concepts such as capital budgeting, financial analysis, risk assessment, and working capital management. Emphasis is placed on applying financial tools and techniques to real-world business scenarios, enabling students to analyze financial statements, evaluate investment opportunities, and make informed decisions that contribute to organizational value. Through case studies and practical exercises, students develop the skills necessary to address financial challenges and support strategic objectives in various managerial roles.
Recommended Textbook
Foundations of Finance 7th Edition by Arthur J. Keown
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17 Chapters
2496 Verified Questions
2496 Flashcards
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Page 2
Chapter 1: An Introduction to the Foundations of Financial Management
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127 Verified Questions
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Sample Questions
Q1) A limited liability company (LLC)is taxed like a partnership but provides limited liability for its owners similar to a corporation.
A)True
B)False
Answer: True
Q2) The financial manager most directly responsible for producing the company's financial statements and directing its cost accounting functions is the
A) chief financial officer.
B) controller.
C) treasurer.
D) vice president - financer.
Answer: B
Q3) The root cause of agency problems is conflicts of interest.
A)True
B)False
Answer: True
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Chapter 2: The Financial Markets and Interest Rates
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148 Flashcards
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Sample Questions
Q1) Saving surplus units include individuals and governments,but not corporations.
A)True
B)False
Answer: False
Q2) The real rate of return is the return earned above the
A) default risk premium.
B) risk-adjusted return.
C) inflation risk premium.
D) variability of returns measured by standard deviation.
Answer: C
Q3) The difference between the price the corporation gets and the public offering price is called the broker-dealer spread.
A)True
B)False
Answer: False
Q4) Transactions in common stock occur in the money market,due to the large amount of money involved in such transactions.
A)True
B)False
Answer: False
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Chapter 3: Understanding Financial Statements and Cash Flows
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110 Flashcards
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Sample Questions
Q1) The profit and loss (income)statement is compiled on a cash basis.
A)True
B)False Answer: False
Q2) What financial statement explains the changes that took place in the firm's cash balance over a period?
A) statement of cash flow
B) balance sheet
C) income statement
D) reconciliation of free cash flow
Answer: A
Q3) Net working capital is equal to gross working capital minus depreciation. A)True
B)False Answer: False
Q4) Finished goods held for sale are inventory,but raw materials to be used in the production process are considered other assets.
A)True
B)False Answer: False
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Chapter 4: Evaluating a Firms Financial Performance
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Sample Questions
Q1) In addition to the information contained in Table 4-4,you know that the current ratio for 2010 is 4 and that the corporation paid $11,600 in dividends in 2010.What is Wes Donnell's retained earnings balance for 2010?
A) $10,000
B) $8,000
C) $19,600
D) $2,600
Q2) Based on the information in Table 4-3,the operating return on total assets is
A) 55.62%.
B) 10.06%.
C) 44.74%.
D) 33.33%.
Q3) Which of the following transactions will increase a corporation's operating return on assets?
A) sell stock and use the money to pay off some long-term debt
B) sell 10-year bonds and use the money to pay off current liabilities
C) negotiate a new contract that lowers raw material costs by 10%
D) increase sales by 10%
Q4) How could an analyst determine whether a company's ratio is good or bad?
Q5) Discuss five limitations to ratio analysis.
Page 6
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Chapter 5: The Time Value of Money
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Sample Questions
Q1) $10,000 invested at 10% per year for 5 years earns interest equal to $6,105.10; therefore,$10,000 invested at 10% per year for 10 years will earn interest equal to $12,210.20 (2 times $6,105.10).
A)True
B)False
Q2) At 6 percent compounded monthly,how long will it take to triple your money?
A) 221 months
B) 175 months
C) 102 months
D) 48 months
Q3) A retirement home in Florida costs $200,000 today.Housing prices in Florida are increasing at a rate of 4% per year.Joe wants to buy the home in 8 years when he retires.Joe has $25,000 right now in a savings account paying 8% interest per year.Joe wants to make eight equal annual deposits into the savings account starting today.How much must each deposit be so Joe will have enough money in his savings account to buy the retirement home when he retires?
Q4) A bond will pay $5,000 at maturity in 9 years.It also makes semi-annual interest payments of $400 until maturity.If the discount rate is 7% compounded semi-annually,what should be the market price of the bond?
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Chapter 6: The Meaning and Measurement of Risk and Return
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Sample Questions
Q1) Joe purchased 800 shares of Robotics Stock at $3 per share on 1/1/09.Bill sold the shares on 12/31/09 for $3.45.Robotics stock has a beta of 1.9,the risk-free rate of return is 4%,and the market risk premium is 9%.Joe's holding period return is:
A) 15.0%.
B) 16.5%.
C) 17.6%.
D) 21.1%.
Q2) The CAPM designates the risk-return tradeoff existing in the market,where risk is defined in terms of beta.
A)True
B)False
Q3) Actual returns are always less than expected returns because actual returns are determined at the end of the period and must be discounted back to present value.
A)True
B)False
Q4) Proper diversification generally results in the elimination of risk.
A)True
B)False
Page 8
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Chapter 7: The Valuation and Characteristics of Bonds
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Sample Questions
Q1) Which type of value is shown on the firm's balance sheet?
A) book value
B) liquidation value
C) market value
D) intrinsic value
Q2) What is the yield to maturity of a bond that pays an 5% coupon rate with annual coupon payments,has a par value of $1,000,matures in 15 years,and is currently selling for $769?
A) 2.4%
B) 5.7%
C) 7.6%
D) 9.5%
Q3) Finance theory suggests that the current market value of a bond is based upon which of the following?
A) The future value of interest paid on a bond.
B) The sum total of principal and interest paid on a bond.
C) The sum of the present value of the bond's interest payments and the present value of the principal.
D) The present value of a bond's par value plus the future value of the bond's present value.
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Chapter 8: The Valuation and Characteristics of Stock
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Sample Questions
Q1) Lily Co.paid a dividend of $5.25 on its common stock yesterday.The company's dividends are expected to grow at a constant rate of 8.5% indefinitely.If the required rate of return on this stock is 15.5%,compute the current value per share of Lily Co.stock.
A) $81.38
B) $76.43
C) $56.23
D) $43.90
Q2) Preferred stock is riskier than long-term debt because its claim on assets and income come after those of bonds.
A)True
B)False
Q3) Emery Company just paid a dividend yesterday of $2.25 per share.The company's stock is currently selling for $60 per share,and the required rate of return on Emery Company stock is 16%.What is the growth rate expected for Emery Company dividends assuming constant growth?
A) 9.47%
B) 9.89%
C) 10.87%
D) 11.81%
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Page 10
Chapter 9: The Cost of Capital
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Sample Questions
Q1) Royal Mediterranean Cruise Line's common stock is selling for $22 per share.The last dividend was $1.20,and dividends are expected to grow at a 6% annual rate.Flotation costs on new stock sales are 5% of the selling price.What is the cost of Royal's new common stock?
A) 5.73%
B) 11.45%
C) 11.78%
D) 12.09%
Q2) A company's capital structure mix is based on the proportion of fixed versus variable costs in its optimal production process.
A)True
B)False
Q3) Sutter Corporation's common stock is selling for $16.80 a share.Last year Sutter paid a dividend of $.80.Investors are expecting Sutter's dividends to grow at an annual rate of 5% per year.What is the cost of internal equity?
Q4) The firm's cost of capital may also be referred to as the firm's opportunity cost of capital.
A)True
B)False
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Chapter 10: Capital-Budgeting Techniques and Practice
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Sample Questions
Q1) Free cash flows represent the benefits generated from accepting a capital-budgeting proposal.
A)True
B)False
Q2) The net present value method
A) is consistent with the goal of shareholder wealth maximization.
B) recognizes the time value of money.
C) uses all of a project's cash flows.
D) all of the above.
Q3) For a project with multiple sign reversals in its cash flows,the net present value can be the same for two entirely different discount rates.
A)True
B)False
Q4) When several sign reversals in the cash flow stream occur,a project can have more than one IRR.
A)True
B)False
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Chapter 11: Cash Flows and Other Topics in Capital
Budgeting
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Sample Questions
Q1) JW Enterprises is considering a new marketing campaign that will require the addition of a new computer programmer and new software.The programmer will occupy an office in JW's current building and will be paid $8,000 per month.The software license costs $1,000 per month.The rent for the building is $4,000 per month.JW's computer system is always on,so running the new software will not change the current monthly electric bill of $900.The incremental expenses for the new marketing campaign are
A) $13,900 per month.
B) $9,000 per month.
C) $13,000 per month.
D) $8,000 per month.
Q2) The risk-adjusted discount rate method implicitly assumes that distant cash flows have the same risk as near cash flows.
A)True
B)False
Q3) A project's contribution to firm risk is relevant for undiversified investors or when bankruptcy costs exist.
A)True
B)False
Page 13
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Chapter 12: Determining the Financing Mix
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Sample Questions
Q1) Given taxes and bankruptcy costs exist,as financial increases,the weighted average cost of capital first decreases and then increases.
A)True
B)False
Q2) Abrams Steel Company has very high operating leverage due to the capital intensive nature of the steel business.Abrams' CEO is concerned about the variability in the firm's EPS if sales should drop,and decides to take action.Which of the following will reduce the variability in the firm's EPS for a given change in sales?
A) The CEO may increase the firm's financial leverage and hence reduce the variability by using non-shareholder money to support the business.
B) The CEO may decrease the firm's financial leverage, thus lowering the firm's total leverage.
C) The CEO may increase the firm's total leverage by raising money from the sale of common stock.
D) The CEO may issue more corporate bonds and use the proceeds to pay off short-term liabilities.
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14
Chapter 13: Dividend Policy and Internal Financing
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Sample Questions
Q1) The ex-dividend date is typically two days prior to the payment date of the dividend.
A)True
B)False
Q2) Each of the following factors may cause a corporation to lower its dividend payout ratio except:
A) the corporation's earnings predictability is high.
B) the corporation's current and quick ratios are higher than industry average.
C) the corporation's retained earnings balance is high.
D) current common shareholders are unable to participate in new equity offerings.
Q3) Dividend policy is influenced by:
A) a company's investment opportunities.
B) a firm's capital structure mix.
C) a company's availability of internally generated funds.
D) all of the above.
Q4) The existence of taxes can directly affect a common shareholder's preference for capital gains or dividend income.
A)True
B)False
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Chapter 14: Short-Term Financial Planning
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Sample Questions
Q1) What differentiates "discretionary financing needs" from "external financing needs? "
A) Assets
B) Retained earnings
C) Sales
D) Spontaneous liabilities
Q2) The cash budget represents a detailed plan of future cash flows.
A)True
B)False
Q3) The percent of sales forecasting method works well because it accounts for economies of scale in assets such as inventory.
A)True
B)False
Q4) Spontaneous sources of financing include
A) accounts payable and accrued expenses.
B) notes payable and mortgages payable.
C) long term debt and capital leases.
D) common stock and paid-in capital.
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Page 16
Chapter 15: Working-Capital Management
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Sample Questions
Q1) The Stuart Glass Company established a line of credit with a local bank.The maximum amount that can be borrowed under the terms of the agreement is $1,000,000 at an annual rate of 8 percent.A compensating balance averaging 25 percent of the amount borrowed is required.Prior to the agreement,Stuart had no deposit with the bank.Shortly after signing the agreement,Stuart needed $240,000 to pay off a note that was due.Stuart decides to borrow an amount sufficient to pay the $240,000 note and also to cover the compensating balance.What is the effective annual cost of credit if the loan is made on a discount basis?
A) 11.94%
B) 11.00%
C) 10.83%
D) 10.57%
Q2) Trade credit appears on a company's balance sheet as accounts payable.
A)True
B)False
Q3) A company decreases the risk of insolvency by financing long-term assets with short-term debt.
A)True
B)False
Q4) Discuss the risk-return tradeoff experienced in working-capital management.
Page 17
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Chapter 16: Current Asset Management
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Sample Questions
Q1) A zero balance account permits divisions to disburse funds while maintaining centralized control of several bank accounts.
A)True
B)False
Q2) The purpose of carrying inventory is to
A) make different production processes more dependent on sales.
B) make sales more independent of the production process.
C) have collateral for loans.
D) improve the current ratio.
Q3) Which of the following is not a motive for a corporation to hold cash balances?
A) transactions
B) float
C) precautionary
D) speculative
Q4) You purchase $10,000 worth of supplies every 90 days and never take the trade discount of 2/10 net 30.How much could you save each (360-day)year if you took the discount?
Q5) Commercial paper is a short-term,unsecured,promissory note.
A)True
B)False
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Chapter 17: International Business Finance
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Sample Questions
Q1) A narrow spread indicates efficiency in the spot exchange market.
A)True
B)False
Q2) In addition to those risks faced by domestic corporations,multinational corporations face
A) political risk.
B) exchange risk.
C) both A and B are correct.
D) All domestic and multinational corporations face similar risk profiles.
Q3) A direct quote of $1.6255 dollars to buy one U.K.pound corresponds to an indirect quote of .6152 pounds per one dollar.
A)True
B)False
Q4) The cost of debt used in the international investment decision is the lesser of the parent's or the subsidiary's cost of debt.
A)True
B)False
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