Strategic Financial Management
Exam Questions
Course Introduction
Strategic Financial Management is a course designed to equip students with advanced knowledge and analytical skills required for effective financial decision-making in a complex and dynamic business environment. The course covers critical areas such as investment analysis, capital structure decisions, risk management, financial planning, and the evaluation of strategic corporate actions like mergers, acquisitions, and divestitures. Emphasis is placed on integrating financial theory with real-world application, enabling students to develop strategies that align financial policies with broader organizational goals. Through case studies and practical assignments, students learn how to assess financial performance, optimize resource allocation, and create value for stakeholders in a variety of business contexts.
Recommended Textbook
Corporate Finance Core Principles and Applications 5th Edition by Stephen Ross
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Chapter 1: Introduction to Corporate Finance
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Q1) Net working capital is best defined as
A)excess cash on hand.
B)a firm's current assets.
C)current assets minus current liabilities.
D)total assets minus total liabilities.
E)cash and near-cash assets.
Answer: C
Q2) Sole proprietorships
A)are expensive to set up.
B)create unlimited liability for their owners.
C)are faced with double taxation of profits.
D)can have multiple owners.
E)provide limited liability to owners.
Answer: B
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Chapter 2: Financial Statements AMCQ Cash Flow
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Q1) Art's Boutique has sales of $610,000 and costs of $480,000.Interest expense is $40,000,dividends paid is $37,000,and depreciation is $60,000.The tax rate is 34 percent and there are 8,500 shares of stock outstanding.What is the earnings per share?
A)$1.99
B)$2.33
C)$3.53
D)$4.28
E)$2.67
Answer: B
Q2) A firm has total equity of $2,011,net working capital of $175,long-term debt of $890,and current liabilities of $420.What is the amount of the net fixed assets?
A)$2,325
B)$2,974
C)$2,726
D)$3,075
E)$2,825
Answer: C
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Chapter 3: Financial Statements Analysis Amcq Financial
Models
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Q1) Which cash coverage ratio would a lender prefer its borrower have?
A) 1.5
B) 0.5
C)0
D)0)5
E)1)5
Answer: E
Q2) Assume a firm is operating at full capacity.Which one of these accounts is least apt to vary directly with sales?
A)Inventory
B)Cash
C)Long-term debt
D)Accounts payable
E)Fixed assets
Answer: C
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Chapter 4: Discounted Cash Flow Valuation
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Q1) The highest effective annual rate that can be derived from an annual percentage rate of 9 percent is computed as
A)0)09<sup>e</sup> - 1
B)e<sup>0.09</sup> × (1 / 0.09)
C)e<sup>0.09</sup> - 1
D)e × (1 + 0.09)
E)(1 + 0.09)<sup>e</sup> <sup
Q2) What is the effective annual rate on a loan with an APR of 10.6 percent if interest is compounded daily? Assume a 365-day year.
A)10.08%
B)11.02%
C)10.72%
D)10.16%
E)11.18%
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Chapter 5: Interest Rates AMCQ Bomcq Valuation
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Q1) Last year,Theo purchased a fixed-rate,7-year bond at par that has a coupon rate of 6.5 percent.If the current market rate for this type and quality of bond is 6.8 percent,then he should expect
A)his interest payments to increase.
B)the bond's yield to maturity to remain constant.
C)the current yield today to be less than 6.5 percent.
D)the bond's current market price to exceed its face value.
E)to realize a capital loss if he sold the bond at today's market price.
Q2) TJ Machine bonds have a coupon rate of 5.3 percent,a face value of $1,000,and pay interest semiannually.The bonds mature in 23 years and have a yield to maturity of 5.4 percent.What will be the percentage change in the bond's price if the market rate increases by 1 percent to 6.4 percent?
A)13.32%
B)12.02%
C)-11.96%
D)-12.00%
E)-13.13%
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Chapter 6: Stock Valuation
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Q1) Which of these factors are most associated with a high PE ratio?
A)High growth opportunities and high risk
B)Low risk and low growth opportunities
C)Conservative accounting practices and low risk
D)High risk and low growth opportunities
E)Aggressive accounting practices and high growth opportunities
Q2) Webster preferred stock pays an annual dividend of $6.20 a share.What is the maximum price you should pay today to purchase this stock if you desire a rate of return of 14.25 percent?
A)$40.12
B)$43.51
C)$46.50
D)$51.88
E)$55.02
Q3) Differential growth refers to the stock of a firm that increases its dividend by
A)three or more percent per year.
B)a stated percent each year.
C)a rate that is expected to be sustainable indefinitely.
D)an amount in excess of $.25 per year.
E)varying rates over a period of time.
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Chapter 7: Net Present Value AMCQ Other Investment Rules
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Q1) The net present value of a project is projected at $210.How should this amount be interpreted?
A)The project's cash inflows exceed its outflows by $210.
B)The project will return an accounting profit of $210.
C)The project's discounted cash flows are $210 less than its undiscounted cash flows.
D)The project will increase the firm's cash account by $210 when the project is started.
E)The project is earning $210 in addition to the project's required rate of return.
Q2) Project Water has an initial cost of $598,900 and projected cash flows of $302,000,$264,000,and $250,000 for Years 1 to 3,respectively.Project Aqua has an initial cost of $512,200 and projected cash flows of $290,000,$214,000,and $220,000 for Years 1 to 3,respectively.What is the incremental IRR<sub>A-B</sub> of these two mutually exclusive projects?
A)8)67%
B)6)93%
C)2)75%
D)11.06%
E)4)37%
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Chapter 8: Making Capital Investment Decisions
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Q1) Global Enterprises is considering a new 5-year project that will require $872,000 for new fixed assets,$210,000 for inventory,and $80,000 for accounts receivable.Short-term debt is expected to increase by $140,000.The fixed assets will be depreciated straight-line to zero over the project's life.At the end of the project,the fixed assets are expected to be sold for 30 percent of their original cost,and the net working capital will return to its original level.The tax rate is 35 percent.What is the initial cost of this project?
A)$446,040
B)$1,022,000
C)$726,040
D)$1,302,000
E)$170,040
Q2) The sale of an asset creates an aftertax cash flow in an amount equal to the
A)Sale price - Book value.
B)Sale price - Tax rate × (Book value - Sale price).
C)Sale price - Tax rate × (Sale price - Book value).
D)Sale price + Tax rate × (Sale price - Book value).
E)Sale price × (1 - Tax rate).
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Chapter 9: Risk Analysis, Real Options, AMCQ Capital Budgeting
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Q1) Which one of these would increase the value of a single-family housing development project if that development were delayed?
A)Decrease in demand for housing
B)Increase in unemployment
C)Decrease in property taxes
D)Increase in building costs
E)Increase in insurance costs
Q2) Which one of the following statements concerning variable costs is correct?
A)Variable costs minus fixed costs equal marginal costs.
B)Variable costs are equal to zero when production is equal to zero.
C)An increase in variable costs increases the operating cash flow.
D)Variable costs minus fixed costs equals the contribution margin.
E)Future variable costs are generally known with certainty.
Q3) Ignoring taxes,which one of these is a correct formula for calculating the accounting profit breakeven point?
A)(Fixed costs - Depreciation)/ (Sales price - Variable costs)
B)Contribution margin / (Fixed costs + Total variable costs)
C)(Fixed costs + Depreciation)/ Contribution margin
D)(Sales price - Variable costs)/ (Fixed costs + Depreciation)
Page 11
E)(Sales price - Variable costs - Fixed costs)/ Depreciation
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Chapter 10: Risk Amcq Return: Lessons From Market History
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Q1) Which one of these statements is correct?
A)Treasury bills outperformed inflation every year during the period 1926-2015.
B)Small-company stocks outperformed large-company stocks every year during the period 1926-2015.
C)On an annual basis,small-company stocks had more consistent rates of return than did large-company stocks for the period 1926-2015.
D)The inflation rate has been positive every year during the period 1926-2015.
E)During the 1930s (Great Depression),long-term government bonds produced a relatively stable rate of return relative to large-company stocks.
Q2) Over the past 3 years,a stock had annual returns of 6.4 percent,11.9 percent,and 14.8 percent.What is the mean return?
A)11.03%
B)7)47%
C)8)28%
D)16.55%
E)12.60%
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Chapter 11: Return Amcq Risk: the Capital Asset Pricing
Model Capm
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Q1) Which one of the following is the best example of systematic risk?
A)The price of tomatoes declines sharply.
B)Inflation rises unexpectedly.
C)Commercial airline pilots go on strike.
D)A hurricane hits a tourist destination.
E)People become diet conscious and avoid fast food restaurants.
Q2) A portfolio has a beta of 1.27.The portfolio consists of 25 percent U.S.Treasury bills,38 percent Stock A,and 37 percent Stock B.Stock A has a risk level equivalent to that of the overall market.What is the beta of Stock B?
A)1)54
B)1)49
C)2)02
D)1)79
E)2)41
Q3) The systematic risk of the market is assigned a A)beta of 1.
B)beta of 0.
C)standard deviation of 1.
D)standard deviation of 0.
E)variance of 1.
Page 13
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Chapter 12: Risk, cost of Capital, AMCQ Valuation
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Q1) Which one of these is represented by the slope of the characteristic line?
A)Market beta
B)Market variance
C)Security risk premium
D)Security beta
E)Market risk premium
Q2) Companies A and B are identical except for their capital structures.Company A is an all-equity company while Company B is levered.Given this,you can assume that Company B's equity beta is ________ Company A's beta and its debt beta is assumed to be ________.
A)greater than;equal to zero
B)greater than;equal to one
C)equal to;equal to the market beta
D)less than: equal to zero
E)less than;equal to one
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Chapter 13: Efficient Capital Markets Amcq Behavioral Challenges
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Q1) The hypothesis that market prices reflect all publicly available information is called ________ form efficiency.
A)open
B)strong
C)semistrong
D)weak
E)stable
Q2) If behavioral finance holds,this implies
A)all investors are irrational some of the time.
B)all investors are irrational all the time.
C)some investors are irrational some of the time.
D)some investors are irrational all of the time.
E)all investors are rational all of the time.
Q3) Which one of these statements is correct?
A)Irrationality may be related across investors.
B)Arbitrage is risk-free.
C)Irrationality always cancels out among a group of investors.
D)Investors are always rational.
E)Arbitrage eliminates all market inefficiencies.
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Chapter 14: Capital Structure: Basic Concepts
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Q1) MM Proposition I,with taxes,is based on the concept that the A)optimal capital structure is the one that is totally financed with equity. B)capital structure of the firm does not matter because investors can use homemade leverage.
C)firm is worse off levered than unlevered.
D)value of the firm increases as total debt increases because of the interest tax shield. E)cost of equity increases as the debt-equity ratio of a firm increases.
Q2) The Border Cafe has a cost of equity of 13.2 percent and a pretax cost of debt of 7.5 percent.The debt-equity ratio is 0.6 and the tax rate is 35 percent.What is the unlevered cost of capital?
A)11.60%
B)12.30%
C)11.97%
D)12.08%
E)10.80%
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Chapter 15: Capital Structure: Limits to the Use of Debt
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Q1) Which one of these statements is a correct implication of the pecking order theory?
A)External financing should be limited to debt issues.
B)The target debt level occurs when the marginal benefit of debt equals the marginal cost of debt.
C)Companies like financial slack so they can reduce their external capital needs.
D)Internally funded projects lower the market value of equity.
E)Profitable firms use more debt.
Q2) Which one of the following claims on a firm would be paid first in a bankruptcy liquidation if the court adheres to the absolute priority rule?
A)Government tax claims
B)Wages,salaries,and commissions
C)Consumer claims
D)Preferred stockholder dividends
E)Contributions to employee benefit plans
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Chapter 16: Dividemcqs AMCQ Other Payouts
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Q1) Payments made out of a firm's earnings to its owners in the form of cash or stock are called
A)stock splits.
B)distributions.
C)dividends.
D)payments-in-kind.
E)share repurchases.
Q2) Which one of these statements is correct regarding large U.S.firms for the period 2004 to 2014?
A)Common dividends outpaced share repurchases for the majority of the years during the period.
B)Share repurchases tend to be steadier from year to year than are common dividends.
C)Both common dividends and share repurchases were lower in 2014 than they were in 2004.
D)Corporate earnings tend to be more volatile than either stock dividends or repurchases.
E)Common dividends decreased more than share repurchases during the period 2008 to 2009.
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Chapter 17: Options Amcq Corporate Finance
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Q1) A 4-month ABC $30 call is priced at $1.50 while the 4-month ABC put is priced at $2.20.Risk-free assets are currently returning 0.25 percent per month.What is the price of ABC stock?
A)$29
B)$27
C)$31
D)$34
E)$30
Q2) Assume the delta of a call option on a firm's assets is 0.481.This means that a new $498,000 project will increase the value of equity by
A)$336,259
B)$349,725
C)$239,538
D)$280,790
E)$208,244
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Chapter 18: Short-Term Finance Amcq Planning
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Q1) Which financial policy,or policies,uses both marketable securities and short-term financing to fund seasonal variations in asset needs?
A)Both the flexible and the compromise financial policies
B)Flexible financial policy only
C)Compromise financial policy only
D)Restrictive financial policy only
E)Both the restrictive and the compromise financial policies
Q2) Shortage costs include
A)all costs that increase with increased current assets.
B)production stoppages due to lack of materials and also lost customer goodwill.
C)increased sales due to inventory selection and increased order costs.
D)increased insurance costs on inventory and an increased rate of return on assets.
E)increased uses of cash for net working capital and stockouts.
Q3) The most common means of financing a temporary cash deficit is a
A)short-term issue of corporate bonds.
B)short-term secured bank loan.
C)short-term unsecured bank loan.
D)long-term unsecured bank loan.
E)long-term secured bank loan.
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Chapter 19: Raising Capital
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Q1) Which one of the following is a type of underwriting of securities where the final offer price is determined by investor bids?
A)Private placement
B)Best efforts
C)Initial public offering
D)Green Shoe option
E)Dutch auction
Q2) The Cookie Co.would like to sell 500 shares of stock using the Dutch auction method.The bids received were Bidder A,200 shares at $40;Bidder B,300 shares at $39;Bidder C,500 shares at $38;and Bidder D,400 shares at $37.What will be the gross proceeds from this auction?
A)$19,700
B)$19,200
C)$19,000
D)$20,000
E)$19,500
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Chapter 20: International Corporate Finance
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Q1) A bond issued in multiple countries but generally denominated in the single home currency of the issuer is called a
A)Treasury bond.
B)Eurobond.
C)Bulldog bond.
D)Samurai bond.
E)Yankee bond.
Q2) According to the unbiased forward rate theory,the current 90-day forward rate should fairly accurately predict the
A)interest rate differential between two countries 90 days from now.
B)difference in the inflation rate between two countries 90 days from now.
C)forward rate 90 days from now.
D)real rate 90 days from now.
E)spot rate 90 days from now.
Q3) The international Fisher effect may not hold if
A)risk tolerance levels vary among countries.
B)interest rates vary among countries.
C)currencies can move freely among countries.
D)nominal interest rates vary among countries.
E)inflation rates vary among countries.
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Chapter 21: Mergers Amcq Acquisitions Web Only
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Q1) Al's Market has a market value of $418,900.Liza's has a market value of $724,500.Liza's believes it can create $46,000 of synergy if it acquires Al's for $425,000 in cash.What is the value of the firm following the merger? Assume both firms are all-equity financed.
A)$764,400
B)$1,098,900
C)$1,189,400
D)$718,400
E)$968,900
Q2) Wilson's has 6,000 shares of stock outstanding at a market price per share of $19.Neilsen's has 22,000 shares outstanding that sell for $33 a share.By merging,$11,000 of synergy can be created.Neilsen's is acquiring Wilson's for $115,005 worth of Neilsen stock.What is the postmerger value per share?
A)$33.39
B)$33.00
C)$29.97
D)$29.42
E)$28.15
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