Managerial Finance
Solved Exam Questions
Course Introduction
Managerial Finance explores the principles and practices essential for effective financial management within organizations. The course covers topics such as financial analysis, planning, and control; capital budgeting; valuation of assets; cost of capital; and financial decision-making in both short-term and long-term contexts. Students will learn how financial managers use data-driven tools to allocate resources, assess risks, and maximize shareholder value, while also considering ethical and global factors affecting financial strategies. Emphasis is placed on practical application through case studies and problem-solving, preparing students to make informed decisions in real-world managerial finance scenarios.
Recommended Textbook
Practical Financial Management 7th Edition by William R. Lasher
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3308 Verified Questions
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Chapter 1: Foundations
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Sample Questions
Q1) Which of the following represents a real asset?
A) Land
B) Bonds
C) Stocks
D) Both a & c
E) All of the above
Answer: A
Q2) Security analysis may be conducted by:
A) only investors themselves.
B) only professional analysts.
C) investors and professional analysts.
D) None of these are correct.
Answer: C
Q3) Another name for a financial asset like a stock or a bond is a security.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Financial Background: a Review of Accounting, Financial Statements, and Taxes
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Sample Questions
Q1) Depreciation, from an accounting viewpoint, can best be thought of as:
A) accounting for the physical deterioration of an asset.
B) writing off assets like patents, trademarks, and copyrights.
C) matching the carrying value of the asset with the estimated net realizable value of the asset.
D) allocating the cost of the asset to the periods in which it gives service.
Answer: D
Q2) Which of the following causes net income to differ from cash flow?
A) Depreciation
B) The purchase of inventory on credit
C) The sale of merchandise on credit
D) All of the above
Answer: D
Q3) Generally, merchandise is sold on credit under terms such as 2/10, net 30, meaning the buyer may deduct 10% from the bill if he pays within 2 days or pay the full amount within thirty days.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Cash Flows and Financial Analysis
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Sample Questions
Q1) Given the following information, determine Salem Company's net fixed assets. Sales = $10,000,000
Total asset turnover = 4 times
Current ratio = 2.40
Current liabilities = $500,000
Total assets = current assets + fixed assets
A) $1,200,000
B) $4,800,000
C) $1,300,000
D) Cannot be determined
Answer: C
Q2) The statement of cash flow is divided into the following sections:
A) operating activities and investing activities.
B) operating activities, financing activities, and equity activities.
C) operating activities; investing activities, and equity activities.
D) operating activities, financing activities; and investing activities.
Answer: D
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Page 5
Chapter 4: Financial Planning
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Sample Questions
Q1) A firm has the following balance sheet. It expects sales to increase 30% over the previous year's level of $9,000, and anticipates retaining $3,000 of its earnings. \(\begin{array}{lclc}
\text { Cash } & \$ 4,000 & \text { Accountspayable } & \$ 2,500 \\
\text { Accountsreceivable } & 3,000 & \text { Accrued expenses payable } & 1,000 \\ \text { Inventories } & 2,000 & \text { Longterm debt } & 6,000 \\
\text { Net fixed assets } & 12,500 & \text { Common stock } & 8,500\\&&\text { Retained earnings } & 3,500\\\text { Total asssets }&\$21,500&\text { Total liabilities and capjital }&\$21,500
\end{array}\) According to the unmodified percentage of sales method, the amount of external funds needed will be:
A) $2,400.
B) $6,450.
C) $3,450.
D) None of the above
Q2) How have personal computers affected financial planning. Have they made planning something that anyone can do? Explain.
Q3) Which is harder, planning for a new or an existing business? Why?
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Chapter 5: The Financial System, Corporate Governance, and Interest
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Sample Questions
Q1) Which financial institution is not involved in the indirect method of financial intermediation?
A) Banks
B) Investment bankers
C) Mutual funds
D) Pension funds
Q2) What is the real rate of interest on a $50,000 loan if $62,000 repays the loan after one year, given a rate of inflation of 12%?
A) 18%
B) 24%
C) 12%
D) 10%
E) 21%
Q3) The term structure of interest rates or yield curve is the pattern of interest rate yields for securities that differ only in:
A) default risk.
B) liquidity premiums.
C) the yield to maturity.
D) the length of time to maturity.
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Chapter 6: Time Value of Money
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Sample Questions
Q1) You have borrowed $130,000 to buy a new motor home. Your loan is to be repaid over 15 years at 8% compounded monthly. How much total interest will you save over the life of the loan by paying an extra $200 per month loan?
A) $24,247
B) $41,872
C) $69,418
D) $81,763
Q2) The annual percentage rate considers the effects of periodic compounding. A)True B)False
Q3) In six years, your daughter will be going to college. You wish to have a fund that will provide her with $10,000 at the end of each of her four years in college. How much must you deposit today if the money will earn 10 percent in each of the 10 years?
A) $29,744.65
B) $29,783.76
C) $17,878.80
D) $21,651.10
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Chapter 7: The Valuation and Characteristics of Bonds
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Sample Questions
Q1) Which bond rating is below investment grade?
A) B
B) Cbb
C) Aaa
D) Baa
Q2) A call provision allows bond issuers to retire bonds before maturity by:
A) discounting the face value of the bonds.
B) paying premiums to bondholders.
C) paying higher interest rates.
D) penalizing the bondholders.
Q3) The coupon rate that is shown on the face of a bond:
A) can be multiplied by the par value of the bond to calculate the semiannual interest payment.
B) should be used as the discount rate when calculating the present value of the future cash flows from the bond.
C) is normally close to the interest rate that a company will have to pay when the bonds are issued.
D) Both a. and c. are correct.
E) All of the above are correct.
Q4) What are the different kinds of leases as per the FASB?
Page 9
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Chapter 8: The Valuation and Characteristics of Stock
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Sample Questions
Q1) You are considering purchasing a share of Cass Inc. stock today for $75.00. You forecast no dividend payment this year but two years from today, you expect a $10 dividend. You plan to sell the stock immediately after receiving the dividend. If you want a return of 15% on the investment, how much must your forecast of the stock price be two years from today?
A) $ 89.19
B) $ 92.57
C) $ 99.19
D) $102.57
E) $112.57
Q2) Frazier Enterprises stock is selling for $45 today. You are expecting a dividend of $4 next year and a capital gains yield of 10%. Calculate the price of the stock 1-year from now.
A) $45.00
B) $49.50
C) $52.00
D) $55.50
Q3) The dividend yield is the annual dividend divided by the current stock's price. A)True B)False
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Chapter 9: Risk and Return
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Sample Questions
Q1) A rational investor will make an investment only if he or she believes the required return is equal to or higher than expected return.
A)True
B)False
Q2) Although the CAPM is intuitively appealing in that it relates risk and return in a straightforward manner, the model's predictive value is often challenged because:
A) statistical tests have not been conclusive in validating the relationship between beta and return proposed by the CAPM.
B) the CAPM only addresses unsystematic risk, not market risk.
C) beta measures only the stock's coefficient of business-specific risk.
D) All of the above
Q3) Stock A's returns over the past ten years have been: 10.0%, 8.0%, 12.0%, (5.0%), 10.0%, 12.0%, 10.0%, (4.0%), 8.0%, 9.0%.
a. What is the mean of Stock A's return over the past 10 years?
b. What is the standard deviation of Stock A's return over the past 10 years?
c. What is the coefficient of variation of Stock A's return over the past 10 years?
Q4) What is the market risk premium?
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11
Chapter 10: Capital Budgeting
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Sample Questions
Q1) Gamma Inc. is considering two mutually exclusive projects with the following cash flows. Based on their approximate MIRRs, which project should the company accept? Gamma's cost of capital is 8%. \(\begin{array}{lll}
\text { Years } & \text { Project A } & \text { Project B } \\ & (\$ \text { in millions) } & (\$ \text { in millions) } \\
0 & (100) & (85) \\
1 & 65 & 44 \\
2 & (8) & (5) \\
3 & 48 & 55 \end{array}\)
A) Project A, as it has an MIRR of 8%
B) Project B, as it has an MIRR of 5%
C) Project A, as it has an MIRR of 6%
D) Project B, as it has an MIRR of 6%
Q2) A larger interest rate will reduce all of the following, except the:
A) initial cash flow.
B) net present value.
C) present value of future cash outlays.
D) profitability index.
Q3) What are some of the practical reasons for capital rationing?
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Chapter 11: Cash Flow Estimation
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Sample Questions
Q1) Sunk costs are also called opportunity or alternative costs.
A)True
B)False
Q2) At the beginning of the year, the Personnel Department hired new staff. Six months later, one of the new staff members has been re-assigned to work on your project. How should the salary of the staff member be considered within the cost structure of your project?
A) It should be considered a part of the incremental overhead.
B) It is a sunk cost because the person already worked for the firm prior to being assigned to the project.
C) It should remain part of the Personal Department's budget.
D) It is a part of the operating budget within the project as part of the salary expense.
Q3) The determination of net cash flows should never include:
A) changes in depreciation.
B) changes in operating costs.
C) interest charges.
D) a and b only
Q4) Define sunk costs and explain their role in capital budgeting.
Q5) Define opportunity costs and explain their role in capital budgeting.
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Chapter 12: Risk Topics and Real Options in Capital
Budgeting
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Sample Questions
Q1) A(n) ____ is a graphic representation of a business project in which events have multiple outcomes, each of which is assigned a probability.
A) probability distribution
B) decision tree
C) NPV profile
D) real option
Q2) In theory, the certainty equivalents imply zero risk.
A)True
B)False
Q3) Evaluating several possible cash flow scenarios gives a feel for variability of a project's NPV.
A)True
B)False
Q4) If a low cash flow this year makes a low cash flow next year more likely to occur, this means the project cash flows tend to be ____.
A) less predictable
B) independent of each other
C) more volatile
D) correlated
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Chapter 13: Cost of Capital
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Sample Questions
Q1) Donoho Corp. issued 20-year, $1,000 par bonds eight years ago with a 10% coupon paying semiannually that are now selling for $1,152.47. Estimate the cost of retained earnings assuming investors generally demand a 5% risk premium on equity over the cost of debt.
A) 8%
B) 9%
C) 11%
D) 13%
E) 15%
Q2) The Lever Crowbar Company has a target capital structure of 70 percent debt and 30 percent equity with no preferred stock. The firm doesn't plan to raise equity capital beyond next year's retained which have a cost of 15%. Debt costs the company 8 percent before taxes of 40%. What is Lever's weighted average cost of capital.
A) 4.50%
B) 14.0%
C) 7.60%
D) 7.86%
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Page 15
Chapter 14: Capital Structure and Leverage
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Sample Questions
Q1) In a favorable economic climate, at low to moderate levels of debt, investors value the positive effects of leverage and almost ignore increases in risk.
A)True
B)False
Q2) The combined impact of operating leverage and financial leverage on the firm's EPS is:
A) additive.
B) geometric.
C) multiplicative.
D) None of the above
Q3) "Capital restructuring" is the term applied to the process of retiring an old, high interest bond issue and replacing it with a new lower interest issue.
A)True
B)False
Q4) If a firm has no debt and EBIT increases by 10%, then one can expect ____.
A) EPS to increase by more than 10%
B) ROE to increase by less than 10%
C) net income to increase by 10%
D) ROCE to be less than ROE
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Chapter 15: Dividends
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Sample Questions
Q1) The dividend decision also represents a decision concerning internal vs. external equity financing.
A)True
B)False
Q2) Most companies that adopt a target payout ratio policy modify their actual dividend payments because of the signaling effect.
A)True
B)False
Q3) Orion Inc. had a bad year. Sales were down throughout its industry but Orion was particularly hard hit. Its earnings fell by 30% compared to the previous year on a revenue decrease of 20%. Nevertheless the firm paid a dividend that was 30% larger than the previous year's. Management is probably:
A) matching the 30% earnings drop with an offsetting 30% dividend increase.
B) admitting it's done a bad job and paying stockholders to make up for it.
C) using the signaling effect to tell shareholders that management has confidence in the firm's future earning capability.
D) trying to get money in their own pockets before the firm fails, because management usually holds substantial stock themselves.
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Chapter 16: The Management of Working Capital Multiple
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Sample Questions
Q1) ____ working capital arises from the seasonal or cyclical nature of a company's sales.
A) Current
B) Permanent current
C) Temporary
D) None of the above
Q2) Which of the following bank loans/agreements requires a fee even if no money is borrowed?
A) Promissory note
B) Line of credit
C) Revolving credit agreement
D) Compensating balance
E) None of the above has fees if no money is borrowed.
Q3) Short-term liabilities:
A) represent claims on a firm's income and assets.
B) are sources of funds for the firm.
C) can arise spontaneously from a firm's operations.
D) All of the above
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Chapter 17: The Management of Working Capital
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Q1) The availability of funds under a line of credit is not guaranteed by the lender.
A)True
B)False
Q2) Loans are said to be self-liquidating if the project the funds support automatically generates the cash to repay the loan.
A)True
B)False
Q3) Due to administrative costs, warehousing is an expensive source of financing.
A)True
B)False
Q4) The level of a firm's receivables is influenced solely by factors outside the financial managers' control.
A)True
B)False
Q5) By foregoing the prompt payment discount offered in terms of 2/10, net 30, the customer is effectively borrowing at rate of 36.5%.
A)True
B)False
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Chapter 18: Corporate Restructuring
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Sample Questions
Q1) An investment banker's role in a merger might include:
A) counseling reluctant targets on defensive measures.
B) assisting the acquiring company in raising the capital necessary to pay for the target.
C) assisting the acquiring company in establishing a value for the target.
D) All of the above
Q2) The annual after-tax free cash flow from the acquisition by Pacific Care of Universal Health is projected to be $12 million. These flows are expected to continue for 20 years. No value is placed on cash flows beyond 20 years. If the appropriate risk-adjusted discount rate is 15 percent, what is the maximum amount Pacific Care should pay to acquire Universal Health?
A) $79,476,000
B) $70,164,000
C) $75,111,600
D) Cannot be determined
Q3) Contrast the merger negotiations in a friendly merger and a hostile merger.
Q4) A firm acquires a supplier or a customer in a vertical merger.
A)True
B)False
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Chapter 19: International Finance
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Sample Questions
Q1) The spot rate for the Canadian dollar is $.60 and the forward rate is $.58. The currency, therefore is selling in the forward market at a discount.
A)True
B)False
Q2) The purpose of hedging in forward exchange markets is to limit losses resulting from unexpected future changes in spot exchange rates.
A)True
B)False
Q3) An agreement between a commercial bank and a corporate customer to exchange an exact amount of one currency for another on a specific future date is called a:
A) spot contract.
B) optional contract.
C) forward contract.
D) deferred contract.
Q4) A U.S. company that wants to buy products from a foreign firm must generally buy that country's currency first.
A)True
B)False
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