Strategic Financial Management
Final Exam Questions
Course Introduction
Strategic Financial Management is a comprehensive course designed to equip students with the analytical tools and frameworks necessary to make sound financial decisions that align with an organizations long-term objectives. The course covers key topics such as capital budgeting, financial planning, valuation, risk management, and the integration of financial strategies with overall corporate strategy. Through case studies, real-world applications, and theoretical models, students learn to assess financial performance, manage resources efficiently, and develop strategies that drive value creation in competitive business environments. The course prepares students to critically evaluate financial policies and practices, ensuring they can contribute effectively to high-level decision-making processes within diverse organizational settings.
Recommended Textbook
Financial Management for Decision Makers 2nd Canadian Edition by Peter Atrill
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14 Chapters
590 Verified Questions
590 Flashcards
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Page 2
Chapter 1: Introduction to Financial Management
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Sample Questions
Q1) A mission statement often includes
A) Commitment to shareholders
B) Target values for return on investment
C) Plans for new product/service offerings
D) Names of corporate directors
E) Declaration of future earnings
Answer: A
Q2) Shareholder activism can be most often seen at work by
A) Shareholders voting by proxy for annual meeting resolutions
B) Shareholders attending annual meeting and voting on resolutions
C) Insurance companies voting on resolutions at annual meetings
D) Executive directors voting for a pay raise at annual meetings
E) Head office protests and sit-ins by anti-poverty groups
Answer: C
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3
Chapter 2: Accounting - the Language of Business
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Sample Questions
Q1) Short Ltd. received cash of $400,000 from a sale to Toronto Glass and $450,000 from a sale of a used machine to Oshawa Fibres. Short Ltd. paid $35,000 interest on bonds it had sold to Bankers' Trust. How would these items appear on the cash flow statement?
A) Operating activities $400,000; investing activities $450,000; financing activities $35,000.
B) Operating activities $450,000; investing activities $35,000; financing activities $400,000.
C) Operating activities $35,000; investing activities $400,000; financing activities $450,000.
D) Operating activities $400,000; investing activities $450,000; financing activities $(35,000).
E) Operating activities $(400,000); investing activities $(450,000); financing activities $(35,000).
Answer: D
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Chapter 3: Financial Planning and Pro Forma Financial Statements
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44 Flashcards
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Sample Questions
Q1) A Cash budget is a document that is prepared
A) According to the accrual method of accounting
B) On the basis of the accounting matching principal
C) Based on book values of assets
D) To meet external auditing requirements
E) To reflect the timing of Cash flows
Answer: E
Q2) Company XYZ makes insect repellent and pays $3000 for rent, $32,000 for raw materials, $70,000 for salaries, $12,000 for depreciation and $15,000 for spray bottles. Variable costs are
A) $15,000
B) $47,000
C) $70,000
D) $85,000
E) $117,000
Answer: B
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Chapter 4: Analyzing and Interpreting Financial Statements
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Sample Questions
Q1) The company's leverage ratio has moved from 15.2% to 32%. Its return on equity ratio has also moved up, from 20.5% to 45.3%. Its times interest earned ratio has dropped to 3.5. Which of the following is the best statement to describe the company?
A) Is not in a risky financial position
B) Is depending on debt to finance its expansion
C) Cannot pay the interest on its long-term debt
D) Is depending on equity to finance its expansion
E) Has a sizable cushion to pay the interest on its debt
Q2) The ratio that is the fundamental measure of business performance is
A) EPS - earnings per share
B) ROCE - return on capital employed
C) ROE - return on equity
D) Leverage ratio
E) Gross profit margin ratio
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6
Chapter 5: The Time Value of Money
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Sample Questions
Q1) Maple Cloud Services Inc. is considering the development a brand new type of cloud computing server that requires $85,000 to be spent at the end of each of the next six years. Revenues of $100,000 per year for five years start at the end of the of the second year. Should Maple pursue this opportunity?
A) No, because the Maple will be $21,960 worse off after at the end of the investment period.
B) No, because the Maple will be $10,000 worse off after at the end of the investment period.
C) No, because the Maple will only break even by the end of the investment period.
D) Yes, because the Maple will be $4,870 better off after at the end of the investment period.
E) Yes, because the Maple will be $75,000 better off after at the end of the investment period.
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Chapter 6: Making Capital Investment Decisions
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Sample Questions
Q1) Which of the following is considered a relevant cost when undertaking an investment analysis?
A) Sunk cost.
B) Common future cost.
C) Interest payments.
D) Standard costs.
E) Opportunity cost.
Q2) Aviation Cargo Ltd. (ACL) wants to spend $5 million to expand a runway at its air field to accommodate a new larger cargo jet. It estimates additional cash inflows of $1 million for the next ten years. What should ACL do?
A) Accept the project because the payback period is six years.
B) Accept the project because the ARR is 20%.
C) Accept the project because the IRR is 15%.
D) Accept the project because the NPV is $1, 710,000.
E) Accept the project because the the profits will increase.
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8
Chapter 7: Making Capital Investment Decisions: Further Issues
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Sample Questions
Q1) Mercury Metals has up to $100 million budgeted to purchase high efficiency smelters. The company has an 12% hurdle rate. A part of a smelter cannot be purchased. If Smelter A will cost $55 million and provide an expected income before depreciation of $16 million for each of 20 years and Smelter B will cost $90 million and provide an expected income before depreciation of $22 million in each of 20 years, which is the project Mercury Metals should undertake?
A) Project A with the higher profitability index at 2.2.
B) Project B has the higher profitability index at 1.8.
C) Project A has the higher NPV at $64.5 million.
D) Project A has the higher IRR at 29%.
E) Project B with the higher NPV at $74.3 million.
Q2) If the coefficient of correlation between two projects is 0, it would indicate that
A) One project is cyclical and the other is somewhat less so B) Both projects react in a similar manner to a change in interest rates
C) The factors that impact one project's success have no impact on the other project's success
D) The projects are not well diversified
E) The revenue from one project will equally offset the losses in the other
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Chapter 8: Financing a Business 1: Sources of Funds
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Sample Questions
Q1) Holdean Property Development Ltd. has been downgraded to a BB rating (below investment grade) by the major debt rating agencies. What is the immediate consequence of the reclassification?
A) The company's shareholders are demanding a higher dividend payout.
B) Current bond holders are experiencing a decline in the value of the company's bonds.
C) Current bond holders are requiring and receiving a higher coupon payment on the company's bonds.
D) Holdean Property Development Ltd. has a higher weighted average cost of capital.
E) Banks and financial institutions are legally empowered to step in and restructure Holdean's debt.
Q2) Which of the following is an example of an appropriate matching of sources of funds with uses of funds?
A) Financing an expansion of accounts receivable with bonds
B) Purchasing a truck fleet using accounts receivable discounting
C) Financing a decrease in accounts payable with debentures
D) Financing an operational plant expansion using factoring
E) Purchasing new equipment with a term loan
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Chapter 9: Financing a Business 2: Raising Long-Term Funds
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Sample Questions
Q1) The response that Fandango Co. Ltd. received to its tender offer was the following: 95,000 shares would be purchased at $35.00; 90,000 shares at $45.50; 80,000 at $50.50; 70,000 at $55.00; and 60,000 at $60.50. If Fandango would like to maximize the amount raised from the share issue, what should the the striking price be?
A) $35.00
B) $45.50
C) $50.50
D) $55.00
E) $60.50
Q2) Which of the following is an example of a primary capital market?
A) The government issues new securities to raise short term funds.
B) Forward contracts and derivatives are bought and sold.
C) Shares that have been previously purchased are offered for sale to others.
D) Equity shares held in another company are sold.
E) Dealers trade in shares not listed on the stock exchanges.
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Chapter 10: The Cost of Capital and the Capital Structure
Decision
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Sample Questions
Q1) Company A has $45 million worth of common share capital, $3.5 million in retained earnings, $30 million in long-term debt and $2.5 million in preferred shares. Company B has $22.5 million of common share capital, $3 million in retained earnings, $51 million in long-term debt and $4.5 million in preferred shares. If both companies face a tax rate of 32%, cost of common share capital of 11%, cost of debt capital of 8%, cost of preferred share capital of 9.5%, which company is more highly levered?
A) Company A with a leverage ratio that equals 40.1%
B) Company B with a leverage ratio that equals 68.5%
C) Company A with a leverage ratio that equals 8.9%
D) Company B with a leverage ratio that equals 7.4%
E) Company B with a leverage ratio that equals 71.2%
Q2) A company has 1.5 million 5% preferred shares with a nominal value of $50 and a market capitalization of $91.5 million. What is the cost of capital for the preferred shares?
A) 4.1%
B) 7.5%
C) 8.2%
D) 10.0%
E) 13.7%
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Chapter 11: Developing a Dividend Policy
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Sample Questions
Q1) The embattled management team at Ram Inc. has promised a new low power consumption core microprocessor incorporating graphics capability for the past two years. The share price has declined from $25 to $17 in the same period even though earning have stayed the same. How might management convey success is at hand in a way that is believable to the market:
A) Call a press conference to announce success.
B) Announce that agency costs have been reduced.
C) Raise the dividend significantly.
D) Inform shareholders about information asymmetry.
E) Institute a share repurchase program.
Q2) When managers and executives know more about the future plans of a company than its shareholders, what is this phenomenon called?
A) Insider trading.
B) Information Asymmetry.
C) Asynchronous Information.
D) Data Discordance
E) Insider Advantage.
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Chapter 12: Managing Working Capital
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Sample Questions
Q1) Les Muebles Martineau is considering a credit application from Modulaire Ltee, a well established retailer whose $456,250 worth of purchases from Martineau are expected to provide Martineau with annual EBIT of $56,600 for three years. Modulaire Ltee spreads its orders evenly and would like to be invoiced quarterly with 30 days to pay, resulting in a payment period of 120 days. Martineau has a cost of capital of 9%, and views credit as a capital investment. Factoring in the credit terms, what should be done with Modulaire's application?
A) Turn it down as the result is a net annual loss of $94,000.
B) Approve it as the result is a net annual gain of $10,260.
C) Turn it down as the NPV is ($6,728).
D) Approve it as the sales will provide an IRR of 12.4%.
E) Approve it as the NPV is $87,272.
Q2) What is the name of the process whereby an external organization takes over the responsibility for the prompt collection of receivables?
A) Outsourcing
B) Pro-rating
C) Capitalizing
D) Monetizing
E) Factoring
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Page 14
Chapter 13: Measuring and Managing for Shareholder Value
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Sample Questions
Q1) A company currently has $6.1 million in free cash flows and expects to have $8.4 million in the last year of its 5-year plan. If its weighted cost of capital is 12%, and its tax rate is 25%, what is its terminal value?
A) $30.3 million
B) $33.6 million
C) $38.1 million
D) $52.5 million
E) $70.0 million
Q2) Which of the following demonstrates a growth strategy for the creation of shareholder wealth?
A) Reducing salary expense of inside sales representatives by creating a self-service web site.
B) Improving the operating cash cycle through Just-In-Time raw materials delivery from suppliers.
C) Instituting recycling and recovery processes to reduce waste and cut costs.
D) Replacing old equipment with newer equipment providing higher quality and yield.
E) Creating a product development process that ensures new products make up a specified proportion of the total product line.
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Page 15
Chapter 14: Mergers, Acquisitions, and the Valuation of Shares
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Sample Questions
Q1) When a large multinational packaged goods company purchased the advertising agency it has used for the past five years, its net savings after increases to salaries and overhead was equal to 12% of its media purchases and advertising production costs. There was no loss of the agency's client base and creative success increased as revenue-generation concerns diminished. What is this an example of?
A) Strategic Partnership.
B) Synergy.
C) Positive Integration.
D) Collective Utility.
E) Reciprocity.
Q2) What is the business strategy involving a defensive tactic against a hostile takeover where severance packages involving enormous sums are approved by the Board of Directors to be paid to senior managers in the event of dismissal because of a takeover known as?
A) Poison pill
B) White knight
C) Golden parachute
D) Pac-man defense
E) Boomerang Liability
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