Finance for Managers
Final Exam Questions
Course Introduction
Finance for Managers offers a comprehensive introduction to the principles and practices of financial management essential for non-financial managers. The course covers key topics such as financial statement analysis, budgeting, cost control, capital investment decisions, and the time value of money, enabling managers to make informed decisions that align with organizational objectives. Through real-world case studies and practical exercises, students will develop the skills to interpret financial data, manage resources efficiently, and communicate financial information effectively within their organizations. This course empowers managers to contribute strategically to their companys financial success and long-term sustainability.
Recommended Textbook
Foundations of Financial Management 14th Edition by Stanley B. Block
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Chapter 1: The Goals and Functions of Financial Management
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Sample Questions
Q1) Capital markets refer to those markets dealing with short-term securities having a life of one year or less.
A)True
B)False
Answer: False
Q2) Companies that perform well
A) can sell their stock for a lower price
B) can minimize dilution when issuing new shares
C) can issue debt at a lower interest rate
D) two of the above
Answer: D
Q3) The formation of a Subchapter S corporation is a way to circumvent the double taxation of a small corporation.
A)True
B)False
Answer: True
Q4) Agency Theory examines the relationship between companies and their customers.
A)True
B)False Answer: False
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Chapter 2: Review of Accounting
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Sample Questions
Q1) Which of the following would not be classified as a current asset?
A) Marketable securities
B) Investments
C) Prepaid expenses
D) Inventory Answer: B
Q2) Which of the following is not a primary source of capital to the firm?
A) Assets
B) Common stock
C) Preferred stock
D) Bonds
Answer: A
Q3) Free cash flow is equal to cash flow from operating activities minus necessary capital expenditures and normal dividend payments.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Financial Analysis
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Sample Questions
Q1) Return on equity will be higher than return on assets if there is debt in the capital structure.
A)True
B)False
Answer: True
Q2) The ______________ method of inventory costing is least likely to lead to inflation-induced profits.
A) FIFO
B) LIFO
C) Weighted average
D) Lower of cost or market
Answer: B
Q3) Refer to the figure above. The firm's average collection period is
A) 18 days.
B) 277 days.
C) 139 days.
D) 20 days.
Answer: A
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Chapter 4: Financial Forecasting
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Sample Questions
Q1) Growth in sales volume prevents a shortage of funds.
A)True
B)False
Q2) Profit is generally adequate to finance significant growth.
A)True
B)False
Q3) 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.
Q4) The difference between total receipts and total payments is referred to as
A) cumulative cash flow.
B) beginning cash flow.
C) net cash flow.
D) cash balance.
Q5) An increase in sales and profits generates the necessary cash required for economic growth.
A)True
B)False
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Chapter 5: Operating and Financial Leverage
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Sample Questions
Q1) Financial leverage emphasizes the impact of using debt in the business.
A)True
B)False
Q2) Operating leverage emphasizes the impact of using fixed assets in the business.
A)True
B)False
Q3) Which of the following is concerned with the change in operating profit as a result of a change in volume?
A) Financial leverage
B) Break-even point
C) Operating leverage
D) Combined leverage
Q4) Operating leverage primarily affects the left hand side of the balance sheet while financial leverage affects the right hand side of the balance sheet.
A)True
B)False
Q5) The contribution margin is equal to price per unit minus total costs per unit.
A)True
B)False
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Chapter 6: Working Capital and the Financing Decision
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Sample Questions
Q1) As the economy moves through a business cycle, which of the following term structure of interest rate theories dominate the shape of the yield curve.
A) The expectations theory
B) The market segmentation theory
C) The liquidity premium theory
D) None of these dominate the shape of the yield curve
Q2) According to the expectations hypothesis, when long-term interest rates are higher than short-term interest rates, short-term rates are expected to rise.
A)True
B)False
Q3) A risky financial plan will use long-term financing for fixed assets, permanent current assets, and a portion of temporary current assets.
A)True
B)False
Q4) Use of long-term financing and the carrying of highly liquid assets is a high-risk combination.
A)True
B)False
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Chapter 7: Current Asset Management
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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) Checks can be cleared only through the Federal Reserve System.
A)True
B)False
Q3) How would electronic funds transfer affect the use of "float"?
A) Increase its use somewhat
B) Decrease its use somewhat
C) Virtually eliminate its use
D) Have no effect on its use
Q4) The system whereby funds are moved between computer terminals without use of checks is
A) electronic funds transfer.
B) float.
C) a lock-box system.
D) magnetic character recognition.
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Page 9
Chapter 8: Sources of Short-Term Financing
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Sample Questions
Q1) Which of the following best describes the benefits to the borrower of selling asset backed securities?
A) Due to the portfolio effect, the borrower can package up low quality accounts receivable and sell them for a premium price.
B) The borrower trades future cash flows for current cash flows.
C) The asset-backed security is likely to carry a high credit rating of AA or better.
D) b and c are correct.
Q2) Factoring accounts receivable, unlike pledging accounts receivable, typically passes the risk of loss on the receivable to the buyer.
A)True
B)False
Q3) The movement of the exchange rate can increase the total cost of a loan by making the principal repayment require more money than the original amount of the loan.
A)True
B)False
Q4) Monthly payments.
Q5) Quarterly payments.
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Chapter 9: The Time Value of Money
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Sample Questions
Q1) As the interest rate increases, the interest factor (IF) for the present value of $1 increases.
A)True
B)False
Q2) If a single amount were put on deposit at a given interest rate and allowed to grow, its future value could be determined by reference to the future value of $1 table.
A)True
B)False
Q3) Discounting refers to the growth process that turns $1 today into a greater value several periods in the future.
A)True
B)False
Q4) As the time period until receipt increases, the present value of an amount at a fixed interest rate
A) decreases.
B) remains the same.
C) increases.
D) Not enough information to tell.
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11
Chapter 10: Valuation and Rates of Return
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Sample Questions
Q1) The return measure that an investor demands for giving up current use of funds, without adjusting for purchasing power changes or the real rate of return, is the A) risk premium.
B) inflation premium.
C) dividend yield.
D) discount rate.
Q2) A ten-year bond pays 7% interest on a $1000 face value annually. If it currently sells for $1,195, what is its approximate yield to maturity?
A) 9.33%
B) 3.46%
C) 5.34%
D) 4.52%
Q3) In estimating the market value of a bond, the coupon rate should be used as the discount rate.
A)True
B)False
Q4) Firms with an expectation for great potential tend to trade at low P/E ratios.
A)True
B)False
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Chapter 11: Cost of Capital
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Sample Questions
Q1) Which is not true about debt financing and the weighted average cost of capital?
A) Debt is usually the cheapest source of financing.
B) As the level of debt increases beyond the optimum capital structure, the cost of capital increases.
C) No debt in the firm's capital structure will minimize the firm's weighted-average cost of capital.
D) None of these.
Q2) The calculation of the cost of capital depends upon historical costs of funds.
A)True
B)False
Q3) Most firms are able to use 60%-70% debt in their capital structure without exceeding norms acceptable to most creditors and investors.
A)True
B)False
Q4) A firm's cost of financing, in an overall sense, is equal to its A) weighted average cost of capital.
B) required yield that investors seek for various kinds of securities.
C) required rate of return that investors seek for various kinds of securities.
D) all of these.
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Chapter 12: The Capital Budgeting Decision
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Sample Questions
Q1) With non-mutually exclusive events and no capital rationing, we will usually arrive at the same conclusions using either the net present value or internal rate of return methods.
A)True
B)False
Q2) Capital budgeting is primarily concerned with A) capital formation in the economy.
B) planning future financing needs.
C) evaluating investment alternatives.
D) minimizing the cost of capital.
Q3) You require an IRR of 14% to accept a project. If the project will yield $10,000 per year for 10 years, what is the maximum amount that you would be willing to invest in the project?
A) Less than $50,000
B) More than $50,000 and less than $60,000
C) More than $60,000 and less than $70,000
D) More than $70,000
Q4) Most real estate property is depreciated over a 10 year period.
A)True
B)False
Page 14
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Chapter 13: Risk and Capital Budgeting
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Sample Questions
Q1) Projects with high positive correlation are sometimes valuable because they allow us to smooth out the overall performance of the firm during a business cycle.
A)True
B)False
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.
Q3) In order to reduce risk in a firm, the firm would seek to enter a business that
A) has high positive correlation with its present business.
B) has zero correlation with its present business.
C) has high negative correlation with its present business.
D) has high negative variation with its present business.
Q4) When choosing portfolios of assets, management should try to achieve the highest possible return at a given level of risk.
A)True
B)False
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Chapter 14: Capital Markets
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Sample Questions
Q1) The Sarbanes-Oxley Act of 2002 has ensured that financial executives refrain from fraudulent activities.
A)True
B)False
Q2) Foreign investors have preferred to invest in the United States due to all but one of the following reasons:
A) less stringent regulation of securities markets.
B) political stability of the U.S. government.
C) the U.S. dollar is the world's international currency.
D) all of these are reasons that foreign investors prefer to invest in the United States.
Q3) A key variable of market efficiency is the certainty of the income stream. The most efficient market is for corporate securities.
A)True
B)False
Q4) NASD regulates stock brokers and brokerage firms.
A)True
B)False
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Chapter 15: Investment Banking: Public and Private Placement
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Sample Questions
Q1) An investment banker acts as a middleman between a corporation needing funds and investors with funds.
A)True
B)False
Q2) Google's IPO was controversial because Google used a Dutch investment banking firm to underwrite the IPO.
A)True
B)False
Q3) The use of banks to finance leveraged buy-outs has often caused a misdirection of capital.
A)True
B)False
Q4) The out-of-pocket cost to issue new common stock is always paid by the investment banker.
A)True
B)False
Q5) A major trend of privatization in foreign markets began in the 1990's.
A)True
B)False
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Chapter 16: Long-Term Debt and Lease Financing
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Sample Questions
Q1) Corporate debt has
A) increased rapidly since World War II.
B) increased slowly since World War II.
C) held fairly steady over the last forty years.
D) none of these.
Q2) The greater use of debt by corporations since the late 1960s is best shown by the
A) declining interest coverage ratio.
B) small amount of common stock sold.
C) rising cost of interest.
D) inability of earnings to keep up with the inflation.
Q3) Investors consider which of the following to be the most important measure of bond returns?
A) coupon rate.
B) yield to maturity.
C) current yield.
D) none of these.
Q4) Par value and maturity value on a bond generally are the same.
A)True
B)False
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Chapter 17: Common and Preferred Stock Financing
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Sample Questions
Q1) If a corporate charter includes a provision for preemptive rights, the stockholders
A) must sell their stock to the company.
B) get first option to buy additional issues of common stock.
C) may purchase existing treasury stock.
D) cannot utilize cumulative voting procedures.
Q2) Common stockholders' rights include all of the following except:
A) fixed dividend yield
B) voting
C) first option to purchase new shares
D) residual claim to income
Q3) The floating rate feature on preferred stock causes more volatility in its price.
A)True
B)False
Q4) There are a number of possible advantages to a rights offering:
A) current shareholders are protected against dilution.
B) the firm has a built-in market of knowledgeable investors.
C) distribution costs are lower than a public offering.
D) all of these.
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Chapter 18: Dividend Policy and Retained Earnings
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Sample Questions
Q1) At maturity (Stage IV) the firm will usually pay out about 15-25% of earnings in dividends.
A)True
B)False
Q2) Leveraged stock repurchases often increase the likelihood of leveraged buyouts by other firms.
A)True B)False
Q3) At what payout percentage is a stock dividend considered a stock split?
A) 10%
B) 15%
C) 25%
D) 33%
Q4) A stock dividend will
A) increase the total value of stockholders' equity.
B) decrease the total value of stockholders' equity.
C) not affect the total value of stockholders' equity.
D) change the total value of stockholders' equity but the direction cannot be determined unless the market price and par value is known.
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Chapter 19: Convertibles, Warrants, and Derivatives
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Sample Questions
Q1) The theoretical floor value for a convertible bond is its
A) conversion price.
B) conversion value.
C) par value.
D) pure bond value.
Q2) Which contract is an option?
A) A call
B) A put
C) A future
D) Both A and B are options
Q3) A convertible security is one that can be converted into common stock only at the option of the issuer.
A)True
B)False
Q4) The conversion value is equal to the conversion ratio times the conversion price.
A)True
B)False
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Chapter 20: External Growth Through Mergers
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Sample Questions
Q1) Selling stockholders generally receive a price below the current market value of their prior stock during a merger.
A)True
B)False
Q2) Selling stockholders are often anxious to sell because of the potential of higher profits.
A)True
B)False
Q3) The potential of a tax loss carryforward has no effect when considering the acquisition of a company.
A)True
B)False
Q4) One of the reasons that companies merge with other companies is to secure access to a competing industry.
A)True
B)False
Q5) Antitrust policy can preclude the acquisition of a competitor.
A)True
B)False
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Chapter 21: International Financial Management
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Sample Questions
Q1) In the Eurobond market:
A) the interest rate is very high.
B) the security is denominated in a currency that is different from that of the nation in which the bonds are issued.
C) the Swiss franc is the most important currency.
D) disclosure requirements are very strict.
Q2) The spot rate of the British pound to the dollar is 1.15 (\(\le\le\)). The 180 day forward rate is $1.17, the annualized forward premium is:
A) 1.018%
B) 3.571%
C) 7.273%
D) 3.478%
Q3) In Germany, restrictions limiting labor layoffs have encouraged companies to reduce investment there. Thus, in the long-run, these labor protection laws actually can be expected to result in higher unemployment in Germany.
A)True
B)False
Q4) Assume the following spot and forward rates for the New Zealand dollar ($/NZD).
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