Strategic Financial Management
Exam Bank
Course Introduction
Strategic Financial Management explores the integration of financial management principles with strategic decision-making to maximize organizational value and achieve long-term business objectives. The course covers key topics such as investment analysis, capital structure, working capital management, risk assessment, portfolio management, and valuation. Emphasis is placed on aligning financial strategies with corporate goals, evaluating financial performance, and responding to dynamic market environments. Through case studies and real-world scenarios, students develop critical thinking and analytical skills necessary to formulate and implement effective financial strategies in both domestic and global contexts.
Recommended Textbook
Contemporary Financial Management 12th Edition by R. Charles Moyer
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28 Chapters
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Page 2
Chapter 1: The Role and Objective of Financial Management
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Q1) The most important managerial objective is to:
A) make MC=MR
B) maximize profits
C) minimize agency costs
D) none of the above
Answer: D
Q2) ____ are largely outside of the direct control of managers.
A) investment strategies
B) economic environment factors
C) major policy decisions
D) dividend policies
Answer: B
Q3) Techniques identified by John Casey that managers could keep in mind when addressing the ethical dimensions of a business problem include all of the following except:
A) collect all the facts bearing on the problem
B) clarify the parameters of the problem
C) involve all parties with a financial interest in the outcome
D) seek equity for those who may be affected
Answer: C
Page 3
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Chapter 2: The Domestic and International Financial Marketplace
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Sample Questions
Q1) Eurodollars are U.S. dollars that have been deposited in A) foreign banks
B) foreign branches of U.S. banks
C) foreign subsidiaries
D) foreign banks and foreign branches of U.S. banks
Answer: D
Q2) If the spot rate for the British pound is $1.5077 and the 180-day forward rate is $1.4934, what is the annualized premium (discount)?
A) premium of 1.90%
B) premium of 0.97%
C) discount of (-)1.90%
D) discount of (-)0.97%
Answer: C
Q3) ____ markets deal in long-term securities having maturities greater than one year.
A) Credit
B) Money
C) Commodity futures
D) Capital
Answer: D
Page 4
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Chapter 3: Evaluation of Financial Performance
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Sample Questions
Q1) Primary sources of comparative financial data include
A) Dun and Bradstreet
B) New York Times
C) Richard Moore, Inc.
D) Framingham Financial Library
Answer: A
Q2) Financial ratio analysis is most often performed as a
A) comparative analysis
B) trend analysis
C) point in time analysis
D) comparative analysis and a trend analysis
Answer: D
Q3) What is the return on investment for a firm that has a debt ratio of 0.65, a net profit margin of 6.5%, sales of $740,000, and a total asset turnover of 4?
A) 26.0%
B) 16.9%
C) 6.5%
D) 4.6%
Answer: A
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Page 5
Chapter 4: Financial Planning and Forecasting
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Q1) In preparing a statement of cash flows, the ____ method involves adjusting net income to reconcile it to net cash flows from operating activities.
A) direct
B) indirect
C) accrual
D) none of the above
Q2) Operational plans are generally conducted at two levels. Which length of time is considered long-term?
A) 2 years
B) 12 - 18 months
C) 5 years
D) 10 years
Q3) Why would a firm experience cash flow difficulties immediately after a good sales period?
Q4) Why would a firm want to develop a cash budget since it is only a projection of cash inflows and outflows over some future period of time?
Q5) An operational plan is necessary to determine what the firm wants to be at some future point in time. What does an operational plan consist of?
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Chapter 5: The Time Value of Money
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Sample Questions
Q1) What is/are the difference(s) between simple interest and compound interest?
Q2) The present value of an ordinary annuity is the
A) sum of the present value of a series of equal periodic payments
B) future value of an equal series of payments
C) receipt of equal cash flows for a specified amount of time
D) sum of the future value of an equal series of payments
Q3) What is the difference between the nominal interest rate and the effective interest rate?
Q4) Roy, who has just turned 40, would like to have an annual annuity of $20,000 paid over a 20 year period, the first payment occurring on his 66th birthday. How much must Roy save each year (end of year) for the next 25 years to have this annuity, if the investment will earn 12 percent compounded annually?
A) $16,000
B) $19,046
C) $1,120
D) $944.10
Q5) Explain a perpetuity and list some investment vehicles that can be perpetuities.
Q6) Compare the difference between compound interest and simple interest.
Q7) Explain the sinking fund problem.
Q8) Explain the concept of interest and compare it to rate of interest.
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Chapter 6: Fixed Income Securities: Characteristics and Valuation
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Sample Questions
Q1) The following is a bond quotation from The Wall Street Journal: IBM 10¼ 27 9.8 18 104 ½ -½
If the bond has a face (par) value of $1000, what was the market price?
A) $1025
B) $1045
C) $950
D) $980
Q2) Debt is usually issued with a par value of
A) $500.
B) $0.
C) $1000.
D) $5000.
Q3) The major advantages of long-term debt include all the following except:
A) decrease in financial risk
B) relatively low, explicit after-tax cost
C) owners are able to maintain control
D) increased earnings per share through using financial leverage
Q4) Explain a sinking fund.
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Q5) List the restrictions that an indenture places on the borrower of long-term debt.
Chapter 7: Common Stock: Characteristics, Valuation, and Issuance
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Q1) The zero growth dividend valuation model is used when a firm's future dividends are expected to remain constant,
A) so the value of the firm should also remain constant
B) so the required rate of return should also remain constant
C) and the firm can not be valued
D) forever
Q2) Listed below are some of the responsibilities of investment bankers. Which of the following is NOT one of them?
A) They can purchase securities
B) They market securities
C) They directly influence the objectives and direction of the company.
D) They arrange private loans and leases
Q3) The book value of an asset represents
A) the market value
B) the discounted cash flow value
C) the historic acquisition cost of the asset
D) stockholders' acquisition value
Q4) List the responsibilities of investment bankers.
Q6) What are some of the costs associated with new security offerings? Page 9
Q5) What are the advantages and disadvantages of common stock financing?
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Page 10
Chapter 8: Analysis of Risk and Return
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Q1) HDTV has planned on diversifying into the dual-VCR field. As a result, HDTV's beta would rise to 1.6 from 1.2 and the expected future long-term growth rate in the firm's earnings would increase from 12% to 16%. The expected market return, km, is 14%; the risk free rate, rf, is 7%; and the current dividend, D<sub>o</sub>, is $0.50. Should HDTV go into the dual-VCR field?
A) No-stock price decrease $7.82
B) Yes-stock price increase $9.89
C) Yes-stock price increase $3.81
D) No-stock price decrease $3.78
Q2) Why is risk an increasing function of time?
Q3) All of the following factors have their primary impact on unsystematic risk except A) availability of raw materials
B) effects of foreign competition
C) changes in inflation
D) strikes
Q4) How can standard deviation, a statistical measure of dispersion, be used in investment analysis?
Q5) List types of events that influence systematic (non-diversifiable) risk.
Q6) What is an efficient portfolio?
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Chapter 9: Capital Budgeting and Cash Flow Analysis
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Sample Questions
Q1) Ripstart is replacing an old, fully depreciated stamping line with a more efficient machine that will cost $245,000. The line will be depreciated as a 7-year MACRS asset. With the increased production, Ripstart expects revenues to increase by $55,000, and operating expenses to increase by $20,000. If Ripstart expects to sell the new machine at the end of year 5 for $40,000, compute the net cash flow in the fifth year. The MACRS depreciation rate during the fifth year is 8.93% and the accumulated MACRS depreciation after five years totals 77.69 percent of the cost of the asset. Assume the firm's marginal tax rate is 40 percent and that company does get to take the full benefit of year 5 depreciation.
A) $29,751
B) $53,736
C) $75,615
D) $69,751
Q2) When managers knowingly bias estimates of cash flows from investment projects in order to serve their personal objectives, they are ____.
A) performing management by exception
B) increasing their total compensation
C) departing from the shareholder wealth maximization goal
D) increasing their confidence level
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Page 12
Chapter 10: Capital Budgeting: Decision Criteria and Real
Option Considerations
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Sample Questions
Q1) Axa is replacing an old, fully depreciated extractor with a more efficient machine that will cost $265,000. The new extractor will be depreciated as a 7-year MACRS asset. With the more efficient production, Axa expects annual revenues to increase by $80,000, and annual operating expenses to increase by $25,000. If Axa expects to sell the machine at the beginning of year 6 for $40,000, determine the NPV of this project. Assume the firm's marginal tax rate is 40% and that the firm's cost of capital is 10%. Use the depreciation schedule listed below:
(7-Yr Dep. Schedule: 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, 8.92%, 8.93%, 4.46%)
A) -$46,283
B) -$42,855
C) -$40,773
D) -$38,105
Q2) The net present value method assumes that the cash flows over the life of the project are reinvested at
A) the computed internal rate of return
B) the risk-free rate
C) the market capitalization rate
D) the firm's cost of capital
Q3) List the advantages and disadvantages of the payback method.
Page 13
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Chapter 11: Capital Budgeting and Risk
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Q1) Determine the pure project beta of a project that has 30% debt and 70% equity. The beta for the company is 1.4 and a tax rate of 40%.
A) 1.11
B) 1.56
C) 1.83
D) 1.05
Q2) In a simulation analysis, a model is simulated on a computer program and run through several iterations. The results of these iterations are used to
A) plot a required rate of return value profile
B) compute a mean and a standard deviation of returns
C) provide the decision maker with a measure of beta risk
D) plot the coefficient of variation of the annual net cash flows
Q3) The risk-adjusted discount rate approach is preferable to the weighted cost of capital approach when
A) all projects have the same risk characteristics
B) the risk-free rate is known with certainty
C) the projects under consideration have different risk characteristics
D) the firm is unlevered
Q4) What are the weaknesses of the net present value/payback approach?
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Chapter 12: The Cost of Capital
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Sample Questions
Q1) In determining the cost of debt, several factors must be considered. All of the following are those factors EXCEPT:
A) the firm's before-tax cost of debt
B) the firm's tax rate
C) flotation costs
D) the firm's growth rate of dividends
Q2) Rank in ascending order (lowest to highest) the relative riskiness of the various types of corporate and government securities.
A) common stock, preferred stock, corporate debt, long-term government debt
B) corporate debt, long-term government debt, preferred stock, common stock
C) long-term government debt, corporate debt, preferred stock, common stock
D) corporate debt, preferred stock, long-term government debt, common stock
Q3) The optimal capital budget is indicated by the point at which the ____ and the ____ intersect.
A) depreciation schedule; investment opportunity schedule
B) investment opportunity curve; marginal cost of capital curve
C) investment opportunity curve; average cost of capital curve
D) efficient portfolio curve; marginal cost of capital curve
Q4) How is the marginal cost of the various component capital sources determined?
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Chapter 13: Capital Structure Concepts
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Q1) Due to both financial distress and agency costs, a firm should have a capital structure that
A) contains all debt
B) contains all equity
C) contains both debt and equity
D) contains only long-term debt
Q2) The optimal capital structure of a firm is a function of the ____.
A) business risk of the firm
B) tax structure
C) business risk of the firm and the tax structure
D) the variability of sales volumes
Q3) Calculate the market value of Lotle Group, a firm with total assets of $80 million and $30 million of perpetual debt in its capital structure. The firm's cost of equity is 14% and the cost of debt is 9%. Lotle expects annual, perpetual net operating income (EBIT) of $9 million and a marginal tax rate of 40%.
A) $30 million
B) $61.3 million
C) $57 million
D) $64.3 million
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Page 16
Chapter 14: Capital Structure Management in Practice
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Q1) A firm that employs relatively large amounts of labor- saving equipment in its operations will have a relatively ____ degree of operating leverage.
A) low
B) constant
C) insignificant
D) high
Q2) A firm which has a 2.5 DOL (degree of operating leverage) would find that an 8% increase in EBIT would result from a ____ increase in sales.
A) 3.2%
B) 5.4%
C) 20.0%
D) 2.0%
Q3) Some firms prefer to use debt or preferred stock for financing to retain control. Explain the rationale behind this method.
Q4) Explain the difference between short-run costs and long-run costs.
Q5) Why does a firm use operating and financial leverage? In what ways does it help the firm, in what ways does it hurt the firm?
Q6) What are the effects of leverage on shareholder wealth and the cost of capital?
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Chapter 15: Dividend Policy
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Q1) On the ex-dividend date, the
A) seller of the stock is entitled to the dividend
B) buyer has 4 business days to register his/her purchase
C) buyer of the stock is entitled to the dividend
D) corporation records all security owners
Q2) Firms with the ____ earnings growth tend to have the ____ dividend payout ratio.
A) highest, highest
B) highest, lowest
C) lowest, lowest
D) lowest, highest
Q3) In considering the arguments for the relevance of dividends, which of the following statements is/are correct?
I. Shareholders who are risk averse may prefer some dividends over the promise of future capital gains.
II. Flotation costs on new stock sales make dividend payout more desirable, rather than issuing new stock.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
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Chapter 16: Working Capital Policy and Short-term Financing
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Q1) A firm's working capital position is important from an internal and external standpoint. Which of the following apply:
A) It measures a firm's risk.
B) Provisions for a minimum working capital position are often included in restrictive covenants.
C) A firm's policy often affects its ability to obtain debt.
D) A working capital position determines its level of common stock sales.
Q2) The firm's receivables conversion period (measured in days) is equal to its accounts receivable divided by its ____.
A) annual credit sales/365
B) annual credit sales
C) annual sales/365
D) none of the above
Q3) With the matching approach to meeting the financing needs of the firm, fixed and permanent current assets are financed with
A) long-term debt
B) short-term debt
C) equity funds
D) a and c
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Chapter 17: The Management of Cash and Marketable Securities
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Q1) A(n) ____ is an unsigned, nonnegotiable check drawn on the local collection bank and payable to the concentration bank.
A) pre-authorized check
B) bankers acceptance check
C) special remittance
D) mail depository transfer check
Q2) A reason that banks would maintain a bank balance exceeding the compensating balance requirements is:
A) It reduces the opportunity cost.
B) It improves the firm's credit rating.
C) It alters the requirements imposed by the bank.
D) It reduces shortage costs.
Q3) Firms that have large multi-million dollar remittances use:
A) the Federal Reserve System
B) couriers
C) lockboxes
D) wire transfers
Q4) When and why is it best to use lockboxes? Explain when should alternative methods be used.
Q5) Why do firms hold liquid asset balances?
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Chapter 18: Management of Accounts Receivable and Inventories
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Q1) To minimize the possibility of running out of inventory, most companies add a ____ to their inventory.
A) safety stock
B) lead time stock level
C) few days
D) replenishment factor
Q2) What information could be used to judge the credit worthiness of a customer?
Q3) The types of inventories that manufacturing firms generally hold include all the following except:
A) raw materials
B) working stock
C) finished goods
D) work-in-process
Q4) Character, which is one of the traditional "five Cs" of credit analysis, refers to A) the ability of the applicant to meet its financial obligations (i.e., liquidity and cash flow)
B) the general economic climate and its effect on the applicant's ability to pay
C) the financial strength of the applicant (i.e., net worth)
D) the willingness of the applicant to meet it's financial obligations
Page 21
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Chapter 19: Lease and Intermediate-term Financing
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Q1) A capital lease is considered a(n) _________________________agreement.
A) negotiable
B) cancelable
C) noncancelable
D) short-term
Q2) Contech (lessee) wishes to lease a printing press valued at $60,000 from Wrenn Capital (lessor) for a period of 4 years. Wrenn expects to depreciate the asset on a straight-line basis to a salvage value of $0. Actual salvage value is expected to be $8,000 at the end of 4 years. If Wrenn requires a 12 percent after-tax rate of return on the lease, what is the lessor's amount to be amortized? Assume Wrenn's marginal tax rate is 40%.
A) $60,000
B) $38,725
C) $41,778
D) $36,690
Q3) A sale and leaseback agreement
A) is usually an operating lease
B) is rarely used in today's leasing agreements
C) is a method of providing liquidity for the lessee
D) frequently is used for machinery financing, but rarely used in real estate
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Chapter 20: Financing With Derivatives
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Q1) The price at which convertible securities are exchangeable for common stock is the
A) conversion value
B) par value
C) put price
D) conversion price
Q2) Rizzo Company has debentures ($1,000 par) outstanding that are convertible into the company's common stock at a price of $25. The convertibles have a coupon interest rate of 8% and mature in 12 years. In addition, the convertible debenture is callable at 110% of the par value. Straight debt of equivalent risk is yielding 12%. The company's common stock is selling at $22 per share. The company has a marginal tax rate of 40%. Determine the conversion value of the issue.
A) $1,000
B) $ 880
C) $1,136
D) $1,120
Q3) What is an interest rate swap? Describe how they are used.
Q4) What variables affect the call option valuation?
Q5) List some securities that have option features.
Q6) Why would a company issue convertible securities instead of straight bonds?
Page 23
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Chapter 21: Risk Management
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Q1) How does hedging reduce or eliminate business risks?
Q2) Which of the following is/are a company's largest risk?
I. exchange rate risk
II. future raw material price risk
A) I only
B) II only
C) Both I and II
D) Neither I nor II
Q3) All of the following are non-hedging strategies that can be used to manage business risk EXCEPT:
A) acquisition of additional information
B) forward contracts
C) diversification
D) insurance
Q4) Acquisition of additional information can be accomplished by all of the following EXCEPT:
A) Employing individuals or firms with the needed expertise
B) Test-marketing
C) Paying to have new issues of bonds "rated"
D) Changing the location of the distributorship
Page 24
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Chapter 22: International Financial Management
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Q1) A less restrictive form of purchasing power parity is:
A) Omnipotent purchasing power parity
B) Relative purchasing power parity
C) Absolute purchasing power parity
D) Exchange parity
Q2) In considering purchasing power parity, the relationship is:
I. not applicable due to tariffs.
II. is applicable in spite of trade barriers.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
Q3) The international Fisher effect theory states that differences in interest rates between two countries will be offset by equal but opposite changes in
A) the future spot rate
B) the future interest rate
C) the American dollar
D) the euro
Q4) How do market forces support the relative purchasing power parity?
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Chapter 23: Corporate Restructuring
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Q1) A combination of two or more companies that compete directly with each other is known as a
A) conglomerate merger
B) vertical merger
C) horizontal merger
D) takeover
Q2) An antitakeover measure where a company attempts to buy back its shares of stock at a premium from the company or investor who initiated the unfriendly takeover is:
A) pacman defense
B) boardmail
C) white squire
D) greenmail
Q3) In the ____ method of combining financial accounts in a merger, the acquired company's assets are recorded on the acquiring company's books at their cost (net of depreciation) when originally acquired.
A) goodwill consolidation
B) purchase
C) pooling of interests
D) EVA
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Page 26
Chapter 24: Continuous Compounding and Discounting
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Q1) Determine the present value of $5,000 to be received 4 years from now at the continuously discounted rate of 8 percent.
A) $6,886
B) $3,631
C) $4,616
D) None of the above
Q2) Jack invested $25,000 into an account paying 6% compounded continuously. In five years how much money will he have?
A) $92,190.45
B) $215,905.42
C) $65,871.15
D) $33,746.47
Q3) City Bank offers a 7 year CD with a nominal rate of interest of 7.0%. If compounding occurs continuously, what is the effective annual rate?
A) 7.25%
B) 6.77%
C) 7.32%
D) 7.00%
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Chapter 25: Mutually Exclusive Investments Having Unequal Lives
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Q1) Marvec needs to replace an extruder and two replacements look good. Extruder A costs $102,000 and has a 10 year life. Extruder B costs only $56,000 but its expected life is 6 years. Extruder A will generate net cash flows of $17,600 per year for 10 years and B will generate net cash flows of $13,800 per year for 6 years. If Marvec's cost of capital is 11%, which extruder should be chosen and what is its NPV? Use equivalent annual annuities.
A) B, $564
B) B, $2,388
C) A, $1,646
D) A, $280
Q2) ____ is (are) used when evaluating mutually exclusive investments having unequal lives.
A) Equivalent annual annuities
B) Replacement chains
C) Linear programming
D) a and b only
Q3) How does the equivalent annual annuity approach solve the time discrepancy problem?
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Page 28
Chapter 26: Breakeven Analysis
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Q1) Breakeven analysis can be used:
A) when planning renovations
B) when planning expansions
C) when planning financial resources
D) when planning new product development
Q2) What are the possible uses for breakeven analysis?
Q3) How can a firm have more than one breakeven output point?
Q4) The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted weather patterns, severe storm safety tips and a tracking chart. The finished product sells for $35 with a variable cost per unit of $21. The company has operating costs of $1,050,000. Using 100,000 units as a base, what is the degree of operating leverage?
A) 6.2
B) 5.7
C) 7.9
D) 4.0
Q5) List the limitations of breakeven analysis:
Q6) Explain the composition of operating costs and why they can cause an inaccurate breakeven analysis.
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Chapter 27: Bond Refunding Analysis
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Source URL: https://quizplus.com/quiz/3399
Sample Questions
Q1) Why is the after-tax cost of debt used in bond refunding analysis?
Q2) Waste Deep Disposal Services are considering refunding a $525,000,000 bond issue. The old bonds have a 7.25% coupon rate. The new bonds will have a 6% coupon rate. Both issues will be outstanding for about four weeks. What is the overlapping interest if the company is in the 38% tax bracket (rounded)?
A) $1,517,465
B) $1,815,288
C) $1,357,642
D) $1,225,427
Q3) In considering the bond refunding analysis, which of the following statements is/are correct?
I. The marginal rate of return is used as the discount rate
II. Bond refunding is most prevalent during a period of high inflation.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
Q4) What is the principal inflow and what is the principal outflow from a bond refunding situation?
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Chapter 28: Taxes
Available Study Resources on Quizplus for this Chatper
19 Verified Questions
19 Flashcards
Source URL: https://quizplus.com/quiz/3398
Sample Questions
Q1) For a corporation with ordinary taxable income of $425,000, what is the additional tax liability if $30,000 in dividends is received from shares it holds in another corporation?
A) $7,140
B) $10,200
C) $11,700
D) $3,060
Q2) For most large U.S. corporations, the maximum capital gain tax rate is
A) 14%
B) 35%
C) 50%
D) 28%
Q3) From a tax standpoint, the advantage of an S corporation is that
A) it avoids the double taxation of dividends
B) additional depreciation is allowed
C) it reduces dividend income
D) interest income is not taxed
Q4) How does a tax loss affect a corporation as it applies to past and future income?
Q5) How are dividends received by a corporation treated for tax purposes?
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