Managerial Finance Test Preparation
Course Introduction
Managerial Finance explores the principles and practices that underpin effective financial decision-making within organizations. The course examines key topics such as financial statement analysis, budgeting, forecasting, capital structure, risk assessment, and valuation techniques. Students will learn how managers use financial data to plan, control, and evaluate business operations, allocate resources, and maximize shareholder value. Through case studies and practical applications, the course emphasizes the strategic role of finance in achieving organizational objectives and introduces tools for making informed investment and financing decisions.
Recommended Textbook
Foundations of Financial Management 16th Edition by Stanley Block
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21 Chapters
2224 Verified Questions
2224 Flashcards
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Page 2
Chapter 1: The Goals and Activities of Financial Management
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119 Verified Questions
119 Flashcards
Source URL: https://quizplus.com/quiz/167403
Sample Questions
Q1) Corporate governance issues have become less important to the financial community during the first decade of the new millennium.
A)True
B)False
Answer: False
Q2) Which of the following is not an example of restructuring?
A) Increase or decrease the amount of common stock.
B) Eliminating profitable but unrelated divisions.
C) Merging with companies in related industries.
D) Divesting of an unprofitable division.
Answer: B
Q3) In the past, the study of finance has included
A) mergers and acquisitions.
B) raising capital.
C) bankruptcy.
D) All of the options
Answer: D
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Page 3
Chapter 2: Review of Accounting
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) An increase in accounts receivable results in a cash inflow on the statement of cash flows.
A)True
B)False
Answer: False
Q2) Marketable securities are short term investments and are valued on the balance sheet at their original purchase price.
A)True
B)False
Answer: False
Q3) An increase in accrued expenses results in a cash outflow on the statement of cash flows.
A)True
B)False
Answer: False
Q4) Another way of writing net income after tax is earnings after taxes (EAT).
A)True
B)False Answer: True
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Chapter 3: Financial Analysis
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89 Verified Questions
89 Flashcards
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Sample Questions
Q1) Ratios are only useful for those areas of business that involve investment decisions.
A)True
B)False
Answer: False
Q2) Replacement cost accounting (current cost method) during a period of inflation will usually
A) increase assets, decrease net income before taxes, and lower the return on equity.
B) increase assets, increase net income before taxes, and increase the return on equity.
C) decrease assets, increase net income before taxes, and increase the return on equity.
D) None of the options apply.
Answer: A
Q3) The stock market tends to move up when inflation goes up.
A)True
B)False
Answer: False
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Chapter 4: Financial Forecasting
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88 Verified Questions
88 Flashcards
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Sample Questions
Q1) In calculating gross profits, a firm utilizing FIFO inventory accounting would assume that
A) all sales were from the current production.
B) all sales were from the beginning inventory.
C) sales were from the beginning inventory until it was depleted, and then sales were from the current production.
D) all sales were for cash.
Q2) A rapid rate of growth in sales may require
A) higher dividend payments to shareholders.
B) increased borrowing by the firm to support the sales increase.
C) the firm to be more lenient with credit customers.
D) sales forecasts to be made less frequently.
Q3) An increase in sales and/or profits means there is also an increase in cash on the balance sheet.
A)True
B)False
Q4) Pro forma income statements follow the creation of the sales forecast and production plan.
A)True
B)False
Page 6
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Chapter 5: Operating and Financial Leverage
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91 Verified Questions
91 Flashcards
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Sample Questions
Q1) Combined leverage is concerned with the relationship between
A) changes in EBIT and changes in EPS.
B) changes in volume and changes in EPS.
C) changes in volume and changes in EBIT.
D) changes in EBIT and changes in net income.
Q2) If economic conditions were expected to be favorable, an investor would likely prefer a firm with a low degree of leverage.
A)True
B)False
Q3) An example of an adjustment for a cash break-even analysis would be adding back increases in accounts receivable.
A)True
B)False
Q4) Operating leverage will change when a firm alters the mix of fixed capital resources and variable labor that it uses.
A)True
B)False
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Chapter 6: Working Capital and the Financing Decision
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) The use of cash budgeting procedures
A) helps the firm plan its current asset levels for a given production plan.
B) makes managing inventory easier under seasonal production.
C) illustrates fluctuating levels of current assets for a given production plan.
D) All of the options are correct.
Q2) The more short-term financing there is relative to long-term financing, the riskier the financial structure.
A)True
B)False
Q3) Permanent current assets are not a factor in a manager's decision-making process when all current assets are
A) financed by short-term debt.
B) long-term in nature.
C) self-liquidating.
D) internally financed.
Q4) Yield curves change daily to reflect
A) changing conditions in the money and capital markets.
B) new inflation expectations.
C) changing conditions in the overall economy.
D) All of the options are correct.
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Chapter 7: Current Asset Management
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138 Verified Questions
138 Flashcards
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Sample Questions
Q1) When considering offering a cash discount, a firm must weigh the benefits of freed-up cash with the cost of the cash discount.
A)True
B)False
Q2) Every message routed through SWIFT is encrypted and every money transaction is authorized by another code for security purposes.
A)True
B)False
Q3) Which of the following is the most liquid asset?
A) Prepaid expenses
B) Inventory
C) Cash equivalents
D) Accounts receivable
Q4) Money market funds
A) are modeled after money market deposit accounts.
B) are insured up to $100,000.
C) have a minimum balance of $2,500.
D) earn competitive market rates of return.
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Page 9
Chapter 8: Sources of Short-Term Financing
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) From the banker's point of view, short-term bank credit is an excellent way of financing
A) fixed assets.
B) permanent working capital needs.
C) repayment of long-term debt.
D) seasonal bulges in inventory and receivables.
Q2) The term "credit crunch" refers to a period in which the interest rate on credit is so high that firms cannot afford to borrow money.
A)True
B)False
Q3) The London Interbank Offered Rate (LIBOR)
A) competes with the U.S. Prime Rate for those companies with an international presence.
B) has been lower than the U.S. Prime Rate for at least the last decade.
C) is an estimate of the interbank lending rate for London banks.
D) all of these options are correct.
Q4) A term loan is less risky to the bank, thus they provide a fixed rate to the customer.
A)True
B)False
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Chapter 9: The Time Value of Money
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) Cash flow decisions that ignore time value of money will probably not be as accurate as those decisions that do consider time value of money.
A)True
B)False
Q2) Using semi-annual compounding rather than annual compounding will increase the future value of an annuity.
A)True
B)False
Q3) A home buyer signed a 20-year, 8% mortgage for $72,500. Given the following information, how much should the annual loan payments be?
A) $1,584
B) $7,384
C) $15,555
D) $15,588
Q4) In evaluating capital investment projects, current outlays must be judged against the current value of future benefits.
A)True
B)False
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11
Chapter 10: Valuation and Rates of Return
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) An issue of common stock is selling for $57.20. The year-end dividend is expected to be $2.32, assuming a constant growth rate of 4%. What is the required rate of return?
A) 10.3%
B) 10.1%
C) 8.1%
D) None of these options are correct
Q2) A 20-year bond pays 6% annually on a face value of $1,000. If similar bonds are currently yielding 4%, what is the market value of the bond?
A) $1,271.40
B) $573.50
C) $770.80
D) Not enough information is given to tell.
Q3) The coupon rate or required return of bonds is equal to the stated rate on the bond's contract.
A)True
B)False
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12
Chapter 11: Cost of Capital
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) In determining the cost of retained earnings
A) the dividend valuation model is inappropriate.
B) flotation costs are included.
C) growth is not considered.
D) the capital asset pricing model can be used.
Q2) A firm's preferred stock pays an annual dividend of $2, and the stock sells for $65. Flotation costs for new issuances of preferred stock are 5% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 30%?
A) 1.2%
B) 1.58%
C) 3.20%
D) 5.26%
Q3) Weights used to calculate the weighted average cost of capital K<sub>a</sub> are derived from the optimum capital structure.
A)True
B)False
Q4) The use of the optimum capital structure minimizes the cost of capital.
A)True
B)False
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Chapter 12: The Capital Budgeting Decision
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) The net present value profile allows a firm to examine the project's net present value over time without any adjustments.
The method provides a comparison at the investment origin point between current cash flows and future discounted cash flows.
A)True
B)False
Q2) Which of the following statements about the "payback method" is true?
A) The payback method considers cash flows after the payback has been reached.
B) The payback method does not consider the time value of money.
C) The payback method uses discounted cash-flow techniques.
D) The payback method generally leads to the same decision as other investment selection methods.
Q3) Project X has a cost of $100,000 and provides the following annual earnings: year 1 $35,000; year 2 $25,000; year 3 $175,000; and year 4 $10,000. Under the payback method, in which year is the investment recouped?
A) Year 2
B) Year 3
C) Year 4
D) Not enough information is given to determine an answer.
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Page 14
Chapter 13: Risk and Capital Budgeting
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85 Flashcards
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Sample Questions
Q1) Which investment has the least amount of risk?
A) Standard deviation = $450, expected return = $4,500
B) Standard deviation = $600, expected return = $400
C) Standard deviation = $500, expected return = $800
D) Standard deviation = $400, expected return = $5,000
Q2) Projects that are negatively correlated
A) reduce the standard deviation of returns for the firm.
B) increase the possible losses of the firm.
C) are generally in the same industry.
D) none of these options are correct.
Q3) When considering the efficient frontier, financial managers should adhere to all of the following guidelines EXCEPT
A) Select the projects on the leftmost and uppermost sector of the possible projects.
B) Prefer the project on the far right side of the efficient frontier because it offers the highest return.
C) Maximize return for a given level of risk.
D) Minimize risk for a given level of return.
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Chapter 14: Capital Markets
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98 Verified Questions
98 Flashcards
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Sample Questions
Q1) Corporations prefer bonds over preferred stock for financing their operations because
A) preferred stocks require a dividend.
B) bond interest rates change with the economy, while stock dividends remain constant.
C) the after-tax cost of debt is less than the cost of preferred stock.
D) None of these options are true.
Q2) The market for U.S. government securities is the most efficient in the world.
A)True
B)False
Q3) The purpose of Securities Act Amendments of 1975 is to protect the investors by forcing companies to reveal more relevant financial information.
A)True
B)False
Q4) In times of recession, a company's retained earnings may decline as a percent of internal funds.
A)True
B)False
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Chapter 15: Investment Banking
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) Generally, the larger the dollar value of an issue, the smaller is the spread as a percentage of the offering price.
A)True
B)False
Q2) An investment banker acts as a middleman between a corporation needing funds and investors with funds.
A)True
B)False
Q3) The out-of-pocket cost to issue new common stock is always paid by the investment banker. These costs are ultimately borne by the issuer.
A)True
B)False
Q4) IPOs generally underperform compared to the general market in the immediate aftermarket.
A)True
B)False
Q5) A major trend of privatization in foreign markets began after 1984.
A)True
B)False
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Chapter 16: Long-Term Debt and Lease Financing
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) In an inflationary economy, debt is adjusted for inflation and must be paid back with "more expensive dollars."
Debt repayment in dollars is governed by the original contract, and unless specified as such, is not adjusted for inflation.
A)True
B)False
Q2) A Eurobond is a bond payable in the borrower's currency but sold outside the borrower's country.
A)True
B)False
Q3) A "subordinated debenture"
A) must be transferred with the bond to which it is attached.
B) is used mainly by railroad companies and usually specifies equipment as collateral. C) entitles the bondholder to purchase shares of common stock at a specific price.
D) is an unsecured bond with an inferior claim on assets in the event of liquidation.
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18
Chapter 17: Common and Preferred Stock Financing
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Sample Questions
Q1) Participating preferred stock is advantageous to common stockholders because it receives more dividends.
A)True B)False
Q2) American Depository Receipts (ADRs) are certificates that give foreign stockholders a legal claim on U.S. companies' foreign stock.
A)True B)False
Q3) Which of the following best represents a benefit of a rights offering for a company?
A) Rights offerings increase return on equity.
B) Rights offerings substantiate higher debt-to-equity ratios.
C) Rights offerings have lower margin requirements.
D) None of these options are true
Q4) Common stock holders rights include all of the following EXCEPT:
A) Fixed dividend yield
B) Voting rights
C) First option to purchase new shares
D) Residual claim to income
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Chapter 18: Dividend Policy and Retained Earnings
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Sample Questions
Q1) The repurchase of a corporation's own stock will generally have a negative impact on the stock market price.
A)True
B)False
Q2) Stock splits are usually utilized to place stock in a lower-price trading range.
A)True
B)False
Q3) Research shows that firms that repurchase their shares exhibit positive stock price returns.
A)True
B)False
Q4) Stockholders may prefer cash dividends to reinvestment
A) because dividends may resolve some uncertainty.
B) because dividend payments have an information content.
C) because investors may prefer current cash to future cash.
D) all of these options are correct.
Q5) Most dividends, like interest on corporate bonds, are paid semi-annually. A)True
B)False
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Chapter 19: Convertibles, Warrants, and Derivatives
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Sample Questions
Q1) A contract giving the owner the right to buy or sell an asset at a fixed price for a given period of time is
A) a common stock.
B) an option.
C) a futures contract.
D) a capital investment.
Q2) If a $1,000 par value convertible bond has a conversion ratio of 1 bond to 70 shares, the bond conversion price is $14.29.
A)True
B)False
Q3) Investors will generally choose the call price rather than the shares of stock during a forced conversion.
A)True B)False
Q4) If market rates of interest change, the "floor value" of a convertible bond can change. A)True
B)False
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21
Chapter 20: External Growth Through Mergers
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Sample Questions
Q1) Synergy is
A) the 2 + 2 = 3 effect.
B) the 2 + 2 = 4 effect.
C) the 2 + 2 = 5 effect.
D) always present in a merger.
Q2) White knights
A) advise companies on ways to avoid being taken over.
B) offer a higher purchase price and "friendlier offer" in the event of an unsolicited and unfriendly takeover attempt.
C) attempt to make money in the stock market on stocks that are likely merger candidates.
D) buy depressed stock of quality companies when merger talks are discontinued.
Q3) The price that a company has to pay to purchase another firm is usually
A) the book value.
B) the market value.
C) some premium over the current market value.
D) some discount of the current market value.
Q4) Leveraged buyouts are restricted to "outside" tender offers.
A)True
B)False
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Chapter 21: International Financial Management
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) When the euro rises and the dollar falls, foreign travel to Europe becomes cheaper for Americans.
A)True
B)False
Q2) Which of the following is an inducement for foreign investment in the United States?
A) Shortage of land in foreign countries
B) Advanced technology
C) Large market size
D) All of these options are inducement for investment in U.S.
Q3) Legal, political, and economic factors are most conducive to which form of multinational corporation (MNC) organization?
A) Exporter/importer
B) Licensing agreements
C) Joint ventures
D) Fully owned foreign subsidiaries
Q4) One benefit in joining the "Eurozone" was to have easy access to borrowing.
A)True
B)False
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