Principles of Managerial Finance
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Course Introduction
Principles of Managerial Finance introduces students to the foundational concepts and tools used in financial management within organizations. The course covers topics such as financial statement analysis, time value of money, risk and return, valuation, capital budgeting, and the cost of capital. Emphasis is placed on the role of the financial manager in decision-making processes that maximize shareholder wealth. Students will also learn to apply analytical techniques for planning, managing, and controlling financial resources in both short-term and long-term contexts.
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Principles of Managerial Finance Brief 8th Edition by Chad J. Zutter
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15 Chapters
2711 Verified Questions
2711 Flashcards
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Chapter 1: The Role of Managerial Finance
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) Corporate owners earn a return ________.
A)by realizing gains through increases in share price and interest earnings
B)by realizing gains through increases in share price and cash dividends
C)through capital appreciation and retained earnings
D)through interest earnings and earnings per share
Answer: B
Q2) Firm A generates more cash flow while taking less risk than Firm B.The stock price of Firm A should be higher than the stock price of Firm B.
A)True
B)False Answer: True
Q3) The goal of business ethics is to motivate business and market participants to adhere to both the letter and the spirit of laws and regulations in all aspects of business and professional practice.
A)True
B)False Answer: True
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Chapter 2: The Financial Market Environment
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104 Flashcards
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Sample Questions
Q1) Which of the following is TRUE of mortgage-backed securities?
A)Mortgage-backed securities assure a flat 15% return.
B)Mortgage-backed securities are guaranteed by the U.S.government.
C)Mortgage-backed securities can only be purchased by investment banks.
D)Mortgage-backed securities represent claims on the cash flows generated by a pool of homeloans.
Answer: D
Q2) The Securities Act of 1933 focuses on regulating the sale of securities in the primary market,whereas the 1934 Act deals with the regulations governing the transactions in the secondary market.
A)True
B)False
Answer: True
Q3) The Eurocurrency market is a market where investors can exchange currencies,for example by trading dollars for euros.
A)True
B)False
Answer: False
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4
Chapter 3: Financial Statements and Ratio Analysis
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Sample Questions
Q1) In general,large retail chain stores (like Walmart and Target)tend to operate with lower current and quick ratios than do firms in the computer hardware industry.Why might this be so?
Answer: Liquidity represents a safety cushion against the ups and down of a business.The grocery business is much less risky than the computer hardware business because people have to buy groceries whether the economy is booming or in recession.Thus,the liquidity needs of a grocery store are more predictable,and they need a smaller safety cushion compared to a hardware manufacturer.
Q2) A U.S.parent company's foreign retained earnings are not adjusted for currency movements to reflect each year's operating profits or losses.
A)True
B)False
Answer: False
Q3) The average age of inventory can be calculated as 365 divided by inventory turnover.
A)True
B)False
Answer: True
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5
Chapter 4: Long- and Short-Term Financial Planning
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Sample Questions
Q1) Suppose that under the Tax Cuts and Jobs Act a firm that invests in equipment can immediately deduct the full cost of that equipment or it can depreciate the equipment under the MACRS system.For tax purposes the firm should ________.
A)use the MACRS system because doing so better matches the firms costs to its revenues
B)use the MACRS system because the firm will report higher profits in the year the equipment is purchased than it would report if it fully expensed the cost of the asset
C)deduct the full cost of the asset immediately because doing so reduces taxes and increases cash flow
D)deduct the full cost of the asset immediately because profits in years after the equipment is purchased will be higher
Q2) The pro forma operating expenses for 2019 are ________.(See Table 4.4)
A)$150,000
B)$200,000
C)$210,000
D)$225,000
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Chapter 5: Time Value of Money
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Sample Questions
Q1) You have been given a choice between two retirement policies as described below.
Policy A: You will receive equal annual payments of $10,000 beginning 35 years from now for 10 years.
Policy B: You will receive one lump-sum of $100,000 in 40 years from now. Which policy would you choose? Assume rate of interest is 6 percent.
Q2) Otto is planning for his son's college education to begin ten years from today.He estimates the end-of-the-year tuition,books,and living expenses to be $10,000 per year for a four-year degree.How much must Otto deposit today,at an interest rate of 12 percent,for his son to be able to withdraw $10,000 per year for four years of college?
A)$12,880
B)$9,780
C)$40,000
D)$18,950
Q3) An ordinary annuity is an annuity in which cash flows occur at the beginning of each period.
A)True
B)False
Q4) Calculate the present value of a $10,000 perpetuity at a 6 percent discount rate.
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Page 7
Chapter 6: Interest Rates and Bond Valuation
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Sample Questions
Q1) ________ are secured by stock and/or bonds that are owned by the issuer.
A)Mortgage bonds
B)Equipment trust certificates
C)Collateral trust bonds
D)Subordinated debentures
Q2) In most cases,the longer the maturity of a bond,the higher is the cost of a bond to the issuer.
A)True
B)False
Q3) The longer the maturity of a Treasury security,the smaller the interest rate risk.
A)True
B)False
Q4) Which of the following explains the general shape of the yield curve?
A)Expectations theory
B)Perfect market theory
C)Capital asset pricing theory
D)Securities market theory
Q5) (a)Calculate the current value of Bond L.(See Table 6.2)
(b)What will happen to the value/price as the bond approaches maturity?
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Chapter 7: Stock Valuation
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Sample Questions
Q1) If a firm has class A and class B common stock outstanding,it usually means that
A)each class receives a different dividend
B)the par value of each class is different
C)the dividend paid to one of the classes is tax deductible by the corporation
D)the classes have different voting rights
Q2) China Imports currently has 2,000 shares of common stock outstanding.The firm has assets of $200,000 and total liabilities including preferred stock of $75,000.Calculate the book value per share of China Imports common stock.
Q3) In an inefficient market,stock prices adjust quickly to new public information. A)True
B)False
Q4) Unlike equityholders,creditors are owners of the firm.
A)True
B)False
Q5) Holders of equity have claims on both income and assets that are secondary to the claims of creditors.
A)True
B)False
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Chapter 8: Risk and Return
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Sample Questions
Q1) The beta associated with a risk-free asset ________.
A)is greater than 1
B)is less than 1
C)is equal to 0
D)is between 0 and 1
Q2) A given change in inflationary expectations will be fully reflected in a corresponding change in the returns of all assets and will be reflected graphically in a parallel shift of the SML.
A)True
B)False
Q3) Systematic risk is also referred to as ________.
A)business specific risk
B)internal risk
C)nondiversifiable risk
D)maturity risk
Q4) The CAPM uses standard deviation to relate an asset's risk relative to the market to the asset's required return.
A)True
B)False
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Chapter 9: The Cost of Capital
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Sample Questions
Q1) The cost of capital is the rate of return a firm must meet or exceed on investments to increase the firm's value.
A)True
B)False
Q2) The firm's cost of retained earnings is ________.(See Table 9.1)
A)10.2 percent
B)13.9 percent
C)12.7 percent
D)13.6 percent
Q3) A firm has issued 10 percent preferred stock,which sold for $100 per share par value.The cost of issuing and selling the stock was $2 per share.The firm's marginal tax rate is 40 percent.The cost of the preferred stock is ________.
A)3.9 percent
B)6.1 percent
C)9.8 percent
D)10.2 percent
Q4) The cost of retained earnings will always equal the cost of preferred stock.
A)True
B)False
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Chapter 10: Capital Budgeting Techniques
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148 Flashcards
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Sample Questions
Q1) If a project's payback period is greater than the maximum acceptable payback period,we would accept it.
A)True
B)False
Q2) Projects having higher cash inflows in the early years tend to be less sensitive to changes in the cost of capital and are therefore often acceptable at higher discount rates compared to projects with higher cash inflows that occur in the later years.
A)True
B)False
Q3) Which capital budgeting method is most useful for evaluating a project that has an initial after-tax cost of $5,000,000 and is expected to provide after-tax operating cash flows of $1,800,000 in year 1,($2,900,000)in year 2,$2,700,000 in year 3,and $2,300,000 in year 4?
A)net present value
B)internal rate of return
C)payback
D)accounting rate of return
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Page 12
Chapter 11: Capital Budgeting Cash Flows and Risk
Refinements
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Sample Questions
Q1) If a new asset is being considered as a replacement for an old asset,the relevant cash flows would be found by adding the operating cash flows from the old asset to the operating cash flows from the new asset.
A)True
B)False
Q2) An important cash inflow in the analysis of initial cash flows for a replacement project is ________.
A)taxes
B)the cost of the new asset
C)installation cost
D)the sale value of the old asset
Q3) Relevant cash flows for a project are best described as ________.
A)incidental cash flows
B)incremental cash flows
C)sunk cash flows
D)contingent cash flows
Q4) A sunk cost is a cash outlay that has already been made and cannot be recovered.
A)True
B)False
Q5) Calculate the initial investment of the new asset.(See Table 11.1)
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Chapter 12: Leverage and Capital Structure
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Sample Questions
Q1) ________ is the potential use of fixed costs to magnify the effect of changes in sales on the firm's earnings per share.
A)Investing leverage
B)Total leverage
C)Operating leverage
D)Financial leverage
Q2) A firm is analyzing two possible capital structures-30 and 50 percent debt ratios.The firm has total assets of $5,000,000 and common stock valued at $50 per share.The firm has a marginal tax rate of 40 percent on ordinary income.The number of common shares outstanding for each of the capital structures would be ________.
A)30 percent debt ratio: 30,000 shares and 50 percent debt ratio: 50,000 shares
B)30 percent debt ratio: 50,000 shares and 50 percent debt ratio: 70,000 shares
C)30 percent debt ratio: 70,000 shares and 50 percent debt ratio: 100,000 shares
D)30 percent debt ratio: 70,000 shares and 50 percent debt ratio: 50,000 shares
Q3) While operating leverage results only in a magnification of returns,financial leverage results only in a magnification of risk.
A)True
B)False
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Chapter 13: Payout Policy
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Sample Questions
Q1) The level of dividends a firm expects to pay is often directly related to how rapidly it expects to grow and expand its operations.
A)True
B)False
Q2) In the U.S.over the last 40 years or so,in the aggregate ________.
A)the dollar volume of share repurchases has been growing faster than the volume of dividend payments
B)the dollar volume of dividend payments has been growing faster than the volume of share repurchases
C)the dollar volume of dividend payments and share repurchases have been growing at about the same pace
D)firms have been cutting back on share repurchase activities
Q3) The shareholder receiving a stock dividend receives ________.
A)a share of common stock of equal value to their existing shares of common stock
B)cash
C)additional shares of common stock and cash
D)nothing of value
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Chapter 14: Working Capital and Current Assets Management
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Sample Questions
Q1) In exchange for the tailor-made maturity date provided by the repurchase agreement,a bank or security dealer provides a return slightly below than obtainable through outright purchase of similar marketable securities.
A)True
B)False
Q2) The ABC system is an inventory management technique for determining the optimal order quantity for an item of inventory.
A)True
B)False
Q3) The firm's annual financing costs of conservative financing strategy are ________.(See Table 14.1)
A)$22,775
B)$26,075
C)$26,775
D)$21,175
Q4) Eurodollar deposits are deposits of currency that are not native to the country in which the bank is located.
A)True
B)False
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Chapter 15: Current Liabilities Management
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Sample Questions
Q1) The higher cost of unsecured as opposed to secured borrowing is due to the greater risk of default.
A)True
B)False
Q2) With a floating-rate note,the interest rate on the note changes ________.
A)when the risk level of the borrower changes
B)when the prime rate changes
C)when the demand for loans changes
D)when bank profits changes
Q3) A compensating balance is a balance in checking account that is equal to a certain percentage of the borrower's short-term unsecured loan.
A)True
B)False
Q4) The prime rate of interest fluctuates with ________.
A)the changing supply-and-demand relationship for long-term funds
B)the changing supply-and-demand relationship for short-term funds
C)the liquidity requirement in a money market
D)the demand in a bond market
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