Finance for Managers Practice Exam
Course Introduction
Finance for Managers is designed to equip non-financial managers with a solid understanding of fundamental financial principles and practices essential for effective decision-making in a business environment. This course covers key topics such as financial statement analysis, budgeting, cost management, capital investment decisions, and the principles of value creation. Through practical case studies and real-world applications, students learn how to interpret financial data, communicate financial insights, and make informed decisions that align with organizational goals. By the end of the course, participants will possess the financial acumen necessary to contribute strategically to their organizations success.
Recommended Textbook
Financial Management Concepts and Applications 1st Edition by Stephen Foerster
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14 Chapters
1072 Verified Questions
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Chapter 1: Overview of Financial Management
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Sample Questions
Q1) The creation of value is driven by what factors?
A)Cash flow and growth
B)Growth and risk
C)Profitability and growth
D)Reducing risk
Answer: B
Q2) Which of the following is NOT an advantage of a limited partnership?
A)Minimal legal requirements to start the business
B)Limited partnerships are limited in their management of the firm
C)Limited liability
D)None of the above
Answer: C
Q3) A limited partnership provides limited liability to:
A)all general partners.
B)only limited partners responsible for day-to-day management of the firm's operations.
C)only to limited partners who do not participate in the management of the business.
D)all partners.
Answer: C
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3
Chapter 2: Sizing up a Business: a Non-Financial Perspective
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Sample Questions
Q1) The sizing up of the industry involves:
A)an external assessment of the industry.
B)identifying the industry life cycle stage.
C)the nature and intensity of the competition.
D)All of the above.
Answer: D
Q2) Initial public offerings are more frequently issued during which stage of the industry life cycle?
A)Stage 1 - start-up stage
B)Stage 2 - rapid growth and little competition stage
C)Stage 3 - intense competition stage
D)Stage 4 - stabilization and maturity stage
Answer: B
Q3) Sizing up operation management involves:
A)identifying the firm's strengths and weaknesses related to operations.
B)an external assessment of the industry.
C)an internal assessment of the firm's strengths and weaknesses.
D)All of the above.
Answer: A
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Chapter 3: Understanding Financial Statements
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Sample Questions
Q1) Why does the preferred stockholders' equity section of the balance sheet change only when new shares are sold or repurchased,whereas the common stockholders' equity section changes from year to year regardless of whether new shares are bought or sold?
Answer: Preferred stock is a fixed perpetuity.Common equity consists of the paid in capital plus changes in retained earnings.The portion of net income not paid as dividends to common stock holders becomes additions to retained earnings for the firm.Because this money belongs to the shareholders but is being retained by the firm and reinvested,it is considered an addition to the equity provided by common shareholders.
Q2) Which of the following is NOT a use of cash from financing activities?
A)Repayment of long-term debt
B)Proceeds from issuance of common stock
C)Proceeds for long-term borrowing
D)Both B and C
Answer: D
Q3) Reducing a firm's debt will increase its cash flow.
A)True
B)False
Answer: False
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Chapter 4: Measuring Financial Performance
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Sample Questions
Q1) Public corporations are NOT required to publish annual reports.
A)True
B)False
Q2) The average age of inventory ratio would most likely be considered:
A)a profitability ratio.
B)a leverage ratio.
C)a working capital measure.
D)a debt ratio.
Q3) The higher a firm's long-term-debt-to-capital ratio is,the LESS financial risk the firm is taking on.
A)True
B)False
Q4) ROE is an important benchmark because it indicates the overall profits of a firm for a particular period relative to the shareholders' investment in the firm.
A)True
B)False
Q5) If a firm has any long-term debt then its ROE will exceed its ROA.
A)True
B)False
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Chapter 5: Managing Day-To-Day Cash Flow
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Sample Questions
Q1) Empirical evidence suggests that retail firms such as Safeway have a shorter working capital gap than a heavy manufacturing firm such as Boeing.
A)True
B)False
Q2) What is the percentage cost of foregoing the payable discounts when the terms are 1/15 net 45 (rounded to the nearest whole percentage point)?
A)8%
B)10%
C)12%
D)14%
Q3) Decreases in assets and increases in liabilities and equity represent SOURCES of cash.
A)True B)False
Q4) Other things equal,it is more desirable to have a larger working capital gap. A)True
B)False
Q5) What is LIBOR,how are LIBOR interest rates determined,and for what are they used?
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Chapter 6: Projecting Financial Requirements and Managing Growth
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Sample Questions
Q1) Which of following is NOT a variable in the equation for sustainable growth?
A)profit ratio
B)net working capital ratio
C)asset turnover ratio
D)leverage ratio
Q2) On -The-Level Manufacturing buys materials on credit at the start of the month and pays in 60 days.They also sell on credit,bill customers at the beginning of the month,and receive payment 30 days later.Using Table 6.2,what is the net cash flow from purchases and sales for the month of March?
A)There is NOT enough information to answer this question.
B)$40,000
C)$45,000
D)-$45,000
Q3) The ________ is a two-edged sword in that as its value increases the ROE should increase,but the risk to shareholders also increases.
A)profit margin
B)ROA
C)leverage ratio
D)asset turnover ratio
Page 8
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Chapter 7: Time Value of Money Basics and Applications
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Sample Questions
Q1) Which choice has a greater present value if we assume a required rate of return of 10%? 1: A lump sum cash flow today of $248.69,2: $100 cash flows occurring one,two,and three years from today,or 3: a single cash flow of $331 three years from today.
A)Choice 1
B)Choice 2
C)Choice 3
D)The choices all have equal present values at a discount rate of 10%.
Q2) You plan to purchase a new car with a retail price of $26,499 after your trade-in and astute negotiations with the dealership sales manager.You have agreed to make 5 ANNUAL payments with an annual interest rate of 3.90%.How large are your equal annual end-of-the-year payments for your new car?
A)$5299.80
B)$5,462.21
C)$5,841.89
D)$5,935.68
Q3) Explain the rationale for why anyone would choose to buy a zero coupon bond that pays no interest prior to maturity and pays only the face value of the bond at maturity.
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Chapter 8: Making Investment Decisions
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Sample Questions
Q1) Which of the following is NOT a major strength of the IRR method of capital budgeting?
A)For straight forward projects of negative cash flows followed by positive cash flows,it is consistent with the NPV method of establishing if a project is acceptable or not.
B)The IRR method uses time value of money techniques.
C)The IRR cutoff interest rate is arbitrary.
D)The IRR considers opportunity costs.
Q2) Which of the following is NOT a strength of the payback method of capital budgeting?
A)The payback values are relatively simple to calculate.
B)When comparing projects the payback method decision is intuitive.
C)The payback method uses all project cash flows in establishing the project payback period.
D)It is a quick measure of the inherent risk of a project.
Q3) One weakness of the net present value method is that it provides an answer in dollar terms while many managers focus on percentage returns when assessing projects.
A)True
B)False
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Chapter 9: Overview of Capital Markets: Long-Term Financing Instruments
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Sample Questions
Q1) The ________ is a regulatory document filed with the SEC that describes the details of the IPO and is meant to help investors make informed decisions.
A)red herring
B)prospectus
C)indenture
D)debenture
Q2) Non-U.S.firms may list their equity securities on U.S.exchanges by issuing negotiable certificates that represent an equivalent amount of stock ownership.These certificates are known as:
A)American Depositary Receipts.
B)Initial Public Offerings.
C)Seasoned Public Offerings.
D)Negotiable Certificates of Deposit.
Q3) A firm's stock price tends to decline on the firm's announcement of a seasoned equity offering.
A)True
B)False
Q4) What is a callable bond,who "calls" a bond,and under what circumstances?
Q5) List and describe the three methods used to distribute shares in an IPO.
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Chapter 10: Assessing the Cost of Capital: What Return Investors
Require
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Sample Questions
Q1) If Home Depot has before-tax earnings of $7,000,000,Pays $2,400,000 in taxes,has no preferred stock,and a beta of 1.20,what is the firm's current average tax rate?
A)33.33%
B)34.29%
C)35.00%
D)36.14%
Q2) ________ represent current investor expectations about a firm whereas ________ are representations of historical costs.
A)Book values; market values
B)Market values; book values
C)Regulators; investment bankers
D)Common equity holders; bondholders
Q3) The rate on 3-month Treasury Bills is always considered to be the risk-free rate when applying the CAPM.
A)True
B)False
Q4) What is the logic behind using just one cost of debt financing rather than estimating the cost of financing with each specific issue of long and short-term debt?
Page 12
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Chapter 11: Understanding Financing and Payout Decisions
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Sample Questions
Q1) Modigliani and Miller (M&M)Proposition II states:
A)the cost of equity does not change when a firm takes on a greater proportion of debt.
B)the cost of equity increases when a firm takes on a greater proportion of debt.
C)the cost of debt increases when a firm takes on a greater proportion of equity.
D)the cost of equity decreases when a firm takes on a greater proportion of debt.
Q2) Under terms of the U.S.federal bankruptcy code,chapter ________ call for a ________ pr.
A)11; liquidation
B)7; reorganization
C)7; liquidation
D)None of the above
Q3) Modigliani and Miller each won a Nobel prize in economics in at least in part because of their work with capital structure.
A)True
B)False
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Chapter 12: Designing an Optimal Capital Structure
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Sample Questions
Q1) Optimal capital structure "first" criteria suggests that the impact on EPS should be ________ and that the best way to obtain that is with ________ levels of debt and ________ levels of equity.
A)high; low; high
B)low; high; low
C)high; high; low
D)low; low; high
Q2) The interest coverage ratio is equal to:
A)EBIT/interest.
B)interest/EBIT.
C)(debt + equity)/EBIT.
D)EBIT * interest.
Q3) According to an international survey of CFOs of publicly traded firms,which of the following was NOT considered to be an important factor in determining the optimal amounts of debt in a firm's capital structure?
A)Credit ratings
B)The tax shield
C)The ability to maintain dividends
D)All of the above were considered to be important.
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Chapter 13: Measuring and Creating Value
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Sample Questions
Q1) Which of the following equations for the Book value Plus Adjustment method is correct?
A)Value of equity (V<sub>E</sub>)= market value of equity - adjustments
B)Value of equity (V<sub>E</sub>)= book value of equity + adjustments
C)Value of equity (V<sub>E</sub>)= book value of equity - adjustments
D)Value of equity (V<sub>E</sub>)= market value of equity + adjustments
Q2) Estimating a firm's forward looking EPS is considered to be easier than determining an appropriate price-earnings multiple to be used in a valuation process.
A)True
B)False
Q3) An uncanny truth in the U.S.equity market is that over time the price-earnings multiple has been almost constant,ranging fewer than two points up or down from the average over the past 130 years.
A)True
B)False
Q4) Compared to a publicly traded firm,a comparable private firm is thought to be up to 20% to 30% more valuable.
A)True
B)False
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Chapter 14: Comprehensive Case Study: Wal-Mart
Stores,inc
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Sample Questions
Q1) Depreciation expense is found on the ________ and accumulated depreciation is found on the ________.
A)income statement; income statement.
B)balance sheet; income statement.
C)income statement; balance sheet.
D)balance sheet; balance sheet.
Q2) Within a firm,the required return on debt must be less than the required return on equity.
A)True
B)False
Q3) What were the industry conditions facing Walmart at the beginning of 2012? Specifically,identify and comment about expectations for the sources for increasing revenues,concerns about costs,expectations for online sales,and where the retail industry was situated from a life-cycle perspective.You DO NOT need to address Porter's Five Forces model in this question.
Q4) Net operating profit after taxes (NOPAT)is equal to:
A)EBITDA * (1 - tax rate).
B)EBITDA * (1 + tax rate).
C)EBIT * (1 - tax rate).
D)EBIT * (1 + tax rate).
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