Managerial Finance Test Bank
Course Introduction
Managerial Finance explores the fundamental principles and practices involved in the financial management of business organizations. The course examines topics such as financial analysis, planning, and control, emphasizing the role of financial data in decision-making processes. Key concepts include capital budgeting, risk and return, cost of capital, working capital management, and the valuation of assets. Students will learn to apply analytical tools and techniques to solve real-world financial problems, assess the financial health of organizations, and make informed managerial decisions to maximize shareholder value.
Recommended Textbook
NEW Corporate Finance Online 1st Edition by Stanley Eakins
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16 Chapters
1371 Verified Questions
1371 Flashcards
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Page 2
Chapter 1: Overview of Finance
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47 Verified Questions
47 Flashcards
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Sample Questions
Q1) $100 today is worth
A) the same as $100 to be received in one year, since the inflation rate has been low recently and funds received in the near future should have the same purchasing power that they have today.
B) less than $100 to be received in one year, since many people will spend money foolishly today and will become more careful in their spending habits as they mature.
C) more than $100 to be received in one year, since you can invest the money received today for this period, leaving you with more than $100 in the future.
D) the same as a future receipt of $100, since the physical characteristics of U.S. currency are unchanged for long periods of time.
E) less than $100 received by someone ten years ago, since many products have been improved over this time period.
Answer: C
Q2) Money market securities have maturities of one year or less.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Financial Statements and Ratio Analysis
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69 Verified Questions
69 Flashcards
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Sample Questions
Q1) The four-digit codes used by the government to classify firms into industries are known as
A) ratio standards.
B) EIC codes.
C) USIC codes.
D) financial benchmarks.
E) SIC codes.
Answer: E
Q2) Sales for a firm are $500,000,cost of goods sold are $400,000,and interest expenses are $20,000.What is the gross profit margin?
A) 16.0%
B) 20.0%
C) 4.0%
D) 25.0%
E) 30.0%
Answer: B
Q3) All else held constant,an increase in leverage should increase the ROE.
A)True
B)False
Answer: True
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Chapter 3: Time Value of Money - Introduction
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) Leon's has a "Don't Pay For One Year" event on right now at the store,so you purchase an Italian,hand-stitched leather sofa.You will pay $1,267.99 for the sofa in one year.You have a savings account that pays 3% annual interest.How much must you deposit in your account today in order to have enough money to pay for the sofa in one year?
A) $1,231.06
B) $1,267.99
C) $1,195.20
D) $1,230.56
E) $1,337.21
Answer: A
Q2) Compute the simple interest earned on a 1-year $200 deposit that earns 6% per year.
A) $6
B) $60
C) $120
D) $12
E) $200
Answer: D
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5
Chapter 4: Time Value of Money - Streams and Valuations
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) How much must be invested today to make four annual withdrawals of $20,000 each for tuition payments if you can earn 8% compounded annually on your investment and the first withdrawal will take place in one year? (Round to the nearest whole dollar)
A) $66,243
B) $51,242
C) $79,854
D) $47,393
E) $57,341
Q2) The present value of a $20,000 perpetuity at a 7 percent discount rate is: (Round to the nearest dollar)
A) $186,915
B) $285,714
C) $140,000
D) $325,000
Q3) The time value concept/calculation used in amortizing a loan is:
A) Future value of a dollar
B) Future value of an annuity
C) Present value of a dollar
D) Present value of an annuity
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Chapter 5: Risk and Return - Introduction
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46 Verified Questions
46 Flashcards
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Sample Questions
Q1) XYZ Corp expects to have $350,000 in sales in a poor economy,$500,000 in a moderate economy,and $900,000 in a booming economy.If the chances of a booming economy and poor economy are 10% each,what is the expected return?
A) 525,000
B) 512,500
C) 500,000
D) 805,000
E) 621,000
Q2) Frank's Franks went public and opened at $15.00 per share.One year later the stock was selling for $17.50 per share.What was the holding period return if during the year Frank sent out $1.25 per share in dividends?
A) 17%
B) 21%
C) 25%
D) 14%
E) 23%
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Chapter 6: Portfolio Theory
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136 Verified Questions
136 Flashcards
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Sample Questions
Q1) 1) Can the return on a portfolio ever be less than the smallest return on an individual security in the portfolio?
2) Can the risk (variance) of a portfolio ever be less than the smallest risk (variance) of an individual security in the portfolio?
A) No. Yes.
B) No. No.
C) Yes. No.
D) Yes. Yes.
Q2) A beta coefficient of + 1 represents an asset that A) is unaffected by market movement.
B) is less responsive than the market portfolio.
C) has the same response as the market portfolio.
D) is more responsive than the market portfolio.
Q3) ________ risk cannot be eliminated by diversification.
A) Market
B) Unsystematic
C) Firm-specific
D) Systemic
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8
Chapter 7: Interest Rates and Bond Valuation
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84 Verified Questions
84 Flashcards
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Sample Questions
Q1) If a five-year bond paying semiannual interest sells for $1,000 and has a yield to maturity of 10%,what is the semiannual coupon payment?
A) $10
B) $50
C) $75
D) $100
E) $120
Q2) How much should an investor pay for a bond that returns $10,000 at the end of five years if market interest rates are 4%?
A) $8,128.59
B) $8,219.27
C) $8,547.74
D) $9,615.38
E) Bond prices cannot be computed if the bond does not make coupon payments.
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Chapter 8: Stock Valuation and Market Efficiency
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) A stock just paid a dividend of $1.15,has a required rate of return of 17%,and a constant dividend growth rate of 3%.What price should this stock be selling for?
A) $17.08
B) $8.21
C) $8.46
D) $1.22
E) $6.05
Q2) A share of preferred stock pays a quarterly dividend of $2.50.If the price of this preferred stock is currently $50,what is the nominal annual rate of return?
A) 12%
B) 18%
C) 20%
D) 23%
E) 28%
Q3) Preferred stock is valued as if it were
A) a fixed-income obligation.
B) a bond.
C) a perpetuity.
D) a common stock.
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Page 10
Chapter 9: Capital Budgeting Techniques
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86 Verified Questions
86 Flashcards
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Sample Questions
Q1) Unsophisticated capital budgeting techniques do not:
A) examine the size of the initial outlay.
B) use net profits as a measure of return.
C) explicitly consider the time value of money.
D) take into account an unconventional cash flow pattern.
Q2) On a purely theoretical basis,the NPV is the better approach to capital budgeting due to all the following reasons EXCEPT:
A) that it measures the benefits relative to the amount invested.
B) for the reasonableness of the reinvestment rate assumption.
C) that there may be multiple solutions for an IRR computation.
D) that it maximizes shareholder wealth.
Q3) The least desirable capital budgeting technique from a theoretical standpoint is:
A) the payback method.
B) net present value.
C) the profitability index.
D) the internal rate of return.
E) the modified internal rate of return.
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Chapter 10: Capital Budgeting - Cash Flows
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84 Flashcards
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Sample Questions
Q1) Jones Crusher Company is evaluating the proposed acquisition of a new machine.The machine will cost $190,000,and it will cost another $33,000 to modify it for special use by the firm.The machine falls into the MACRS 3-year class,and it will be sold after 3 years of use for $110,000.The machine will require an increase in net working capital of $9,000 and will have no effect on revenues,but is expected to save the firm $90,000 per year in before-tax operating costs,mainly labour.The company's marginal tax rate is 40%.What is the initial cash flow for the project?
A) -$42,000
B) -$190,000
C) -$199,000
D) -$223,000
E) -$232,000
Q2) The book value of an asset is equal to the A) purchase price minus accumulated depreciation. B) purchase price minus recaptured depreciation.
C) purchase price minus depreciation expense.
D) fair market value.
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Page 12
Chapter 11: Cost of Capital
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95 Verified Questions
95 Flashcards
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Sample Questions
Q1) Assigning separate discount rates to individual projects when determining which projects should be accepted by the firm:
A) may cause the firm's overall weighted average cost of capital to vary over time if the projects accepted change the overall risk level of the firm.
B) will cause the firm's overall cost of capital to remain constant over time.
C) will cause the firm's overall cost of capital to decrease over time.
D) will change the debt-equity ratio of the firm over time.
E) negates the principle goal of creating the most value for the shareholders.
Q2) The return that shareholders require on their investment in the firm is called the:
A) dividend yield.
B) cost of equity.
C) capital gains yield.
D) cost of capital.
E) income return.
Q3) A firm can raise its value without earning at least the WACC.
A)True
B)False
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13
Chapter 12: Capital Structure
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Sample Questions
Q1) Tardy Clocks Inc.(TC)has long term bonds with a face value of $6M,the coupon rate on the bonds is 6% and the yield on the bonds is also 6%.The unlevered cost of equity is 10% and the value of TC's equity is $9.1M.The corporate tax rate is 35%.What is the required return of shareholders at Tardy?
A) 6.00%
B) 10.00%
C) 10.92%
D) 11.71%
E) 12.57%
Q2) Fred's Frankfurters posted an EBIT of $67,256.He paid $5,360 in interest and $7,521 in taxes.Calculate the interest tax shield.
A) $621.13
B) $599.25
C) $534.99
D) $593.89
E) $575.35
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Chapter 13: Dividends, repurchases, and Splits
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57 Flashcards
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Sample Questions
Q1) Kelly Varnsen,a junior financial analyst at Vandalay Industries,has been asked to calculate this year's dividend.Kelly has gathered the following data:
CAPEX (spending on fixed assets)= $17,000
Increase in net working capital = $3,000
Target capital structure is 20% debt and 80% equity
Net income is = $17,000.
If Vandalay follows a residual dividend policy,then the dividend payout rate this year is:
A) 20%
B) 25%
C) 30%
D) 35%
E) 40%
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15
Chapter 14: Financial Planning
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77 Flashcards
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Sample Questions
Q1) Referring to Cool Looks,what are total cash inflows in September?
A) $18,000
B) $20,000
C) $30,000
D) $38,000
E) $50,000
Q2) Referring to Schwety,what are total cash disbursements in February?
A) $7.09
B) $8.59
C) $9.75
D) $10.59
E) $11.25
Q3) Referring to Gerald's Produce,what is Gerald's ending cash balance expected to be in March?
A) $15,400
B) $16,700
C) $17,000
D) $17,700
E) $18,200
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Page 16
Chapter 15: The Management of Working Capital
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80 Verified Questions
80 Flashcards
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Sample Questions
Q1) If credit terms are 2/30,net 60,what is the effective annual rate for a customer's loan when the customer pays the invoice in 60 days?
A) 44%
B) 16%
C) 59%
D) 11%
E) 28%
Q2) What is the percentage holding cost per period for a credit with the terms of 2/30 net 60?
A) 0.0101
B) 0.2787
C) 0.0667
D) 0.0204
E) 0.0352
Q3) ________ can be found where cost of receivables is equal to the revenues from increased sales.
A) Accounts payable
B) Accounts receivable
C) Optimal amount of credit
D) Cost of extending credit
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Chapter 16: International Finance
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80 Verified Questions
80 Flashcards
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Sample Questions
Q1) It is possible to reduce risk of the portfolio by adding a ________ risk investment if it is ________ correlated with other investments.
A) high; negatively
B) low; negatively
C) high; positively
D) low; positively
Q2) ________ is the price of one country's money quoted in terms of another country's money.
A) Arbitrage
B) PPP
C) Exchange rate
D) Direct rate
E) LIBOR
Q3) Insisting the contracts be denominated in the U.S.dollar can help avoid ________.
A) Exchange rate risk
B) Arbitrage
C) Political risk
D) PPP
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