Managerial Finance Test Bank
Course Introduction
Managerial Finance introduces students to the financial principles and analytical tools essential for effective decision-making in business management. The course covers topics such as financial statement analysis, budgeting, cost of capital, capital budgeting, risk management, and working capital management. Through case studies and real-world applications, students learn to evaluate investment opportunities, optimize capital structure, and understand the financial implications of managerial actions, equipping them with the skills to maximize firm value and support strategic organizational goals.
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CFIN 6th Edition by Scott Besley Available
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Chapter 1: An Overview of Managerial Finance
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Sample Questions
Q1) The treasurer of a company is a key subordinate of the _____.
A)controller
B)financial vice president
C)chief executive officer
D)credit manager
E)director of capital budgeting
Answer: B
Q2) Which of the following is true of stockholders in continental Europe?
A)The stocks of corporations are widely dispersed among a large number of different investors, both individuals and institutions.
B)Many stockholders assign banks their proxy votes for the directors of the companies.
C)Banks are major stockholders of corporations in continental Europe.
D)Major stockholders of closed corporations are not involved in the firms' daily operations.
E)Stockholders in continental Europe are often family units resulting from the universal banking relationship existing in the United States.
Answer: B
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Chapter 2: Analysis of Financial Statements
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Sample Questions
Q1) The book values of shares of stock are always equal to their market values.
A)True
B)False
Answer: False
Q2) An inventory turnover ratio of 8.5 times indicates that:
A)the inventory of the firm turns over every 8.5 days.
B)the value of the inventory of the firm is 8.5 percent of the total assets of the firm.
C)the value of sales of the firm is 8.5 times the cost of goods sold.
D)the firm will restock its inventory every 42.35 days.
E)the firm pays for its inventory once in 42.35 days.
Answer: D
Q3) Which of the following is an example of a current asset?
A)Inventory
B)Retained earnings
C)Accounts payable
D)Plant and equipment
E)Common stock
Answer: A
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Chapter 3: The Financial Environment: Markets, Institutions, and Investment Banking
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Sample Questions
Q1) Zinc Corporation, a large, well-known public company that frequently issues securities, filed a master registration statement with the Securities and Exchange Commission (SEC). This master statement is updated with a short-form statement just prior to each individual security offering. What is this arrangement called?
A)Underwriting registration
B)Shelf registration
C)Best-effort registration
D)Multiple registration
E)Initial public offering registration
Answer: B
Q2) An investor who wants to purchase previously issued shares of stock from another investor would trade in the _____.
A)primary market
B)debt market
C)IPO market
D)secondary market
E)derivatives market
Answer: D
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Chapter 4: Time Value of Money
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Sample Questions
Q1) When the payment for an annuity is made at the end of each period, such an annuity is referred to as a(n) _____.
A)ordinary annuity
B)annuity due
C)immediate annuity
D)terminal annuity
E)discounted annuity
Q2) The effective annual rate (rEAR) considers the effect of compounding, whereas annual percentage rate (APR) does not consider the effect of compounding.
A)True
B)False
Q3) The process of determining the value to which an amount or a series of cash flows will grow in the future when interest on interest is applied is known as _____.
A)discounting
B)compounding
C)amortization
D)consolidation
E)annualizing
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Chapter 5: The Cost of Money Interest Rates
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Sample Questions
Q1) Assume that a three-year Treasury note (T-note) has no maturity premium, and that the real risk-free rate of interest is 3 percent. If the T-note carries a nominal risk-free rate of return of 13 percent and if the expected average inflation rate over the next two years is 9 percent, what is the implied expected inflation rate during Year 3?
A)7%
B)12%
C)9%
D)11%
E)18%
Q2) The higher the perceived risk associated with an investment, the higher its required rate of return.
A)True
B)False
Q3) Which of the following indicates that the cost of money will increase?
A)Increase in the rate of inflation in an economy
B)Increase in liquidity of an asset
C)Decrease in federal deficit of a country
D)Increase in money supply
E)Decrease in tax rates for corporations
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Chapter 6: Bonds Debt Characteristics and Valuation
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Sample Questions
Q1) Floating-rate debt is advantageous to investors because the interest rate earned on the debt increases when market rates rise.
A)True
B)False
Q2) Cold Boxes Corporation has 100 bonds outstanding with a maturity value of $1,000. The required rate of return on these bonds is currently 10 percent, and interest is paid semiannually. The bonds mature in 5 years, and their current market value is $768 per bond. Which of the following is the annual coupon interest rate?
A)8%
B)6%
C)4%
D)2%
E)0%
Q3) A bond's maturity date is the date on which:
A)the market interest rate equals the coupon rate on a bond.
B)the principal amount of the debt is due.
C)investors make no capital gain or loss on an investment.
D)the interest payment is due.
E)the market value of the bond is more than its face value.
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Chapter 7: Stocks Equity Characteristics and Valuation
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Sample Questions
Q1) The constant growth dividend discount model (DDM) may be written as _____.
A) \(\hat { \mathrm { r } } _ { 0 } = \mathrm { \hat D } _ { 0 } / \left( \mathrm { P } _ { 0 } + \mathrm { g } \right)\)
B) \(\hat { \mathrm { P } } _ { 0 } = \hat { \mathrm { D } } _ { 0 } / \left( \mathrm { r } _ { \mathrm { s } } + \mathrm { g } \right)\)
C)\(\hat { \mathrm { P } } _ { 0 } = \widehat { \mathrm { D} } _ { 0 } / \left( \mathrm { r } _ { s } - \mathrm { g } \right)\)
D) \(\hat { \mathrm { P } } _ { 0 } = \hat { \mathrm { D } } _ { 1 } / \left( \mathrm { r } _ { \mathrm { s } } - \mathrm { g } \right)\)
E) \(\hat { \mathrm { r } } _ { 0 } = \hat { \mathrm { D } } _ { 0 } / \left( \mathrm { P } _ { 0 } - \mathrm { g } \right)\)
Q2) Common shareholders can exert control of the management of the firm by:
A)requiring the firm to unionize.
B)directly replacing management with themselves.
C)buying shares in an initial public offering (IPO) at a discounted price.
D)electing board members who can replace the management.
E)buying shares in a second firm at a substantially reduced price.
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Chapter 8: Risk and Rates of Return
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Sample Questions
Q1) Risk refers to the chance that no unfavorable event will occur.
A)True
B)False
Q2) Which of the following statements is true about the beta of a portfolio?
A)If the beta of a portfolio doubles, its required return also doubles.
B)If a stock included in the portfolio has a negative beta, the portfolio's required return is negative.
C)Portfolios that contain higher beta stocks have more company-specific risk, but do not necessarily have more market risk.
D)If a portfolio's beta increases from 1.2 to 1.5, its actual rate of return will decrease by 1.5 times the market risk premium.
E)If the beta of a stock is three, the stock's relevant risk is three times as volatile as the market portfolio.
Q3) The greater the variability of the possible returns on an investment, _____.
A)the lesser the expected return
B)the lower the standard deviation of the investment
C)the higher the actual return on the investment
D)the riskier the investment
E)the lower the beta of the investment
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Chapter 9: Capital Budgeting Techniques
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Q1) Which of the following statements is correct?
A)The internal rate of return (IRR) does not allow you to determine whether mutually exclusive projects are acceptable.
B)The net present value (NPV) is the only capital budgeting technique that allows you to determine which independent projects are acceptable.
C)The net present value (NPV) technique provides an indication of the dollar benefit (on a present value basis) to the firm's shareholders of purchasing a capital budgeting project.
D)A project's internal rate of return (IRR) depends on the firm's required rate of return, which means that a project's IRR is different for each firm that has a different required rate of return.
E)The net present value (NPV) technique contains information about a project's safety margin, which is not inherent in the internal rate of return (IRR).
Q2) One advantage to using the traditional payback period technique is that it provides a rough measure of a project's liquidity and risk.
A)True
B)False
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Chapter 10: Project Cash Flows and Risk
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Sample Questions
Q1) According to the capital asset pricing model (CAPM), a capital budgeting project that has a beta equal to zero should be evaluated using a required rate of return equal to the risk-free rate.
A)True
B)False
Q2) A firm is considering the purchase of an asset whose stand-alone risk is greater than the average risk of its existing portfolio of assets. In evaluating this asset, the decision maker should:
A)increase the internal rate of return (IRR) used to evaluate the asset to reflect its higher risk.
B)increase the asset's net present value (NPV) to reflect its higher risk.
C)reject the asset because its acceptance would clearly decrease the value of the firm.
D)ignore the asset's higher risk if, after purchase, it will make up only a small fraction of the firm's total assets.
E)increase the required rate of return that is used to evaluate the asset to reflect its higher risk.
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Chapter 11: The Cost of Capital
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Sample Questions
Q1) Which of the following mathematical expressions is used to calculate the after-tax cost of debt, r<sub>d</sub>T?
A)r<sub>d</sub>T = Firm's internal rate of return - Tax payments
B)r<sub>d</sub>T = Firm's internal rate of return - Tax savings
C)r<sub>d</sub>T = Bondholders' required rate of return (YTM) - Tax savings
D)r<sub>d</sub>T = Firm's internal rate of return - Dividend payments
E)r<sub>d</sub>T = Bondholders' required rate of return (YTM) - Interest payments
Q2) The before-tax cost of debt, rd, is the same as the:
A)yield to maturity (YTM) associated with the firm's bonds.
B)dividend yield associated with the firm's common stock.
C)average coupon rate on the firm's bonds.
D)return on equity if the firm has no preferred stock.
E)the firm's marginal tax rate.
Q3) The component costs of capital are market-determined variables in as much as they are based on investors' required returns.
A)True
B)False
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Chapter 12: Capital Structure
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Q1) Which of the following situations would intensify the business risk borne by a firm's common stockholders?
A)The firm issues new fixed-income securities, such as bonds, to raise funds to support operations.
B)The firm takes actions to stabilize its annual sales.
C)The firm starts purchasing from a supplier that allows it to renegotiate raw materials costs every six months.
D)The firm reduces its use of fixed operating costs.
E)The firm issues new common stock to raise funds.
Q2) A firm's optimal capital structure is the combination of debt financing and equity financing that ______.
A)maximizes its expected earnings per share (EPS).
B)simultaneously maximizes its EPS and minimizes its weighted average cost of capital (WACC).
C)minimizes its cost of equity, which is a necessary condition for maximizing the firm's stock price.
D)simultaneously minimizes its cost of debt, its cost of equity, and its WACC.
E)maximizes its stock price.
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Chapter 13: Distribution of Retained Earnings: Dividends and Stock Repurchases
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Sample Questions
Q1) A dividend reinvestment plan (DRIP):
A)offers fixed dividends to the firm's stockholders.
B)requires payment of a constant percentage of the firm's earnings as annual cash dividends.
C)enables stockholders to automatically reinvest cash dividends they receive in the stocks of the dividend-paying firm.
D)pays stockholders tax-free cash dividends.
E)pays extra cash dividends in years the firm has few acceptable investment opportunities.
Q2) According to the information content hypothesis that has been proposed to explain how dividend policies affect stock prices, if a firm increases its dividend, but at a rate that is lower than investors expect, the price of its stock probably would decrease.
A)True
B)False
Q3) Many firms offer to reinvest stockholders' cash dividends in new shares of its stock through dividend reinvestment plans (DRIP).
A)True
B)False
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Chapter 14: Managing Short-Term Financing Liabilities
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Q1) Which of the following statements about various short-term credit alternatives is correct?
A)The firm has complete control over the terms and the levels of the accruals it uses, which makes this type of credit an attractive source of additional funding.
B)Commercial paper is a type of secured promissory note issued by large, financially strong firms.
C)Banks generally charge a commitment fee on the used balances of credit lines to compensate for guaranteeing the availability of revolving credit.
D)The funds used by a firm to maintain a compensating balance with the bank cannot be used by the firm to pay its bills or to invest in capital budgeting projects.
E)The credit created when one firm buys goods or services on credit from another firm is known as accounts receivable.
Q2) The inventory conversion period of a firm is equivalent to the average age of its inventory.
A)True
B)False
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Chapter 15: Managing Short-Term Assets
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Sample Questions
Q1) The "redline method" that is used in inventory management is a:
A)policy of drawing a red line around the firm's location to determine from which suppliers it should purchase raw materials.
B)restriction imposed on the amount of inventory a company that uses a just-in-time inventory system can order.
C)minimum credit score (hurdle) that a customer must possess to purchase inventory on credit from the selling firm.c
D)method of controlling inventories by drawing a red line around the inside of a bin.
E)method of controlling receivables by drawing a red line on invoices of companies that normally pay late.
Q2) All else equal, firms that hold greater proportions of their total assets as short-term assets are considered riskier than firms that hold greater proportions of their total assets as long-term assets.
A)True
B)False
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Chapter 16: Financial Planning and Control
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Q1) The financial breakeven point is the level of _____ at which earnings per share (EPS) is equal to zero.
A)net operating income (NOI)
B)retained earnings
C)taxes
D)net income
E)interest payments
Q2) In the control phase of the financial planning process, projected financial statements must be evaluated to determine:
A)the firm's operating breakeven at different sales levels.
B)whether economies of scale have been achieved.
C)the level of leverage the firm can attain with its forecasts.
D)whether the forecasts meet the firm's financial targets.
E)the amount of internal funds the firm must raise to meet its financial goals.
Q3) Adding lumpy assets to a firm does not affect the financial requirements associated with an expansion because the annual costs associated with growth normally are fixed, no matter the level of sales.
A)True
B)False
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