Finance for Non-Financial Managers Practice Exam
Course Introduction
Finance for Non-Financial Managers is designed to equip professionals without a formal background in finance with the essential tools and concepts necessary to understand and interpret financial information. The course covers fundamental topics such as financial statement analysis, budgeting, costing, and cash flow management, enabling managers to make informed business decisions and communicate effectively with financial teams. Through practical examples and case studies, participants learn how to assess the financial health of their organizations, justify budgets, and understand the impacts of their decisions on financial outcomes, thus bridging the gap between management and finance.
Recommended Textbook
M Finance 4th Edition by Marcia Cornett
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14 Chapters
1727 Verified Questions
1727 Flashcards
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Page 2
Chapter 1: Introduction to Financial Management
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Sample Questions
Q1) Agency problems exist in which forms of business ownership?
A) sole proprietorship
B) S corporation
C) partnership
D) corporation
Answer: D
Q2) From the perspective of control,the best form of business organization is the A) sole proprietorship.
B) corporation.
C) partnership.
D) S corporation.
Answer: A
Q3) As individual legal entities,corporations assume liability for their own debts,so the shareholders hold
A) only limited liability.
B) unlimited liability.
C) shared liability.
D) joint liability.
Answer: A
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Page 3
Chapter 2: Reviewing Financial Statements
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Sample Questions
Q1) On which of the four major financial statements would you find net plant and equipment?
A) balance sheet
B) income statement
C) statement of cash flows
D) statement of retained earnings
Answer: A
Q2) Bullseye,Inc.'s 2018 income statement lists the following income and expenses: EBIT = $900,000,interest expense = $85,000,and net income = $570,000.What are the 2018 taxes reported on the income statement?
A) $245,000
B) $330,000
C) $815,000
D) There is not enough information to calculate 2018 taxes.
Answer: A
Q3) Which of the following is an example of a capital structure?
A) 15 percent current assets and 85 percent fixed assets
B) 10 percent current liabilities and 90 percent long-term debt
C) 20 percent debt and 80 percent equity
Answer: C
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Chapter 3: Analyzing Financial Statements
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Sample Questions
Q1) Which of the following is unlikely to have a high capital intensity ratio?
A) railroad
B) automobile manufacturer
C) law firm
D) shipbuilder
Answer: C
Q2) Nicole's Neon Signs,Inc.reported a debt to equity ratio of 1.9 times at the end of 2018.If the firm's total assets at year-end are $100 million,how much of their assets is financed with equity?
A) $34.48m
B) $65.52m
C) $52.63m
D) $100m
Answer: A
Q3) Which of these can be used by interested parties to identify changes in corporate performance?
A) common-size financial statements
B) industrialized financial statements
C) sanitized financial statements
Answer: A
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Chapter 4: Time Value of Money 1: Analyzing Single Cash Flows
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Sample Questions
Q1) Which of the following is NOT true when developing a time line?
A) Cash inflows are designated with a positive number.
B) Cash outflows are designated with a positive number.
C) The cost is known as the interest rate.
D) The time line shows the magnitude of cash flows at different points in time.
Q2) Moving cash flows from one point in time to another requires us to use
A) only present value equations.
B) only future value equations.
C) both present value and future value equations.
D) the Rule of 72.
Q3) How are present values affected by changes in interest rates?
A) The lower the interest rate, the larger the present value will be.
B) The higher the interest rate, the larger the present value will be.
C) Present values are not affected by changes in interest rates.
D) One would need to know the future value in order to determine the impact.
Q4) How long will it take $100 to reach $500 when it grows at 10 percent per year?
A) 7.20 years
B) 16.89 years
C) 17.46 years
D) 40.00 years
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Chapter 5: Time Value of Money 2: Analyzing Annuity Cash
Flows
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Sample Questions
Q1) Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment.If you get a 15-year mortgage with a 6 percent interest rate,what would the loan balance be in seven years?
A) $74,778.16
B) $79,091.72
C) $84,223.16
D) $86,687.84
Q2) When computing the future value of an annuity,the higher the compound frequency
A) the lower the future value will be.
B) the higher the future value will be.
C) the less likely the future value can be calculated.
D) the more likely the future value can be calculated.
Q3) Payday loans are very short-term loans that charge very high interest rates.You can borrow $500 today and repay $550 in ten weeks.What is the compound annual rate implied by this 10 percent rate charged for only ten weeks?
A) 5.20 percent
B) 10.41 percent
C) 59.94 percent
D) 64.15 percent
Page 7
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Chapter 6: Understanding Financial Markets and Institutions
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Sample Questions
Q1) One-year Treasury bills currently earn 4.5 percent.You expect that one year from now,one-year Treasury bill rates will increase to 6.65 percent.The liquidity premium on two-year securities is 0.05 percent.If the liquidity theory is correct,what should the current rate be on two-year Treasury securities?
A) 5.24 percent
B) 5.59 percent
C) 5.65 percent
D) 5.95 percent
Q2) Which of these formalizes an agreement between two parties to exchange a standard quantity of an asset at a predetermined price on a specified date in the future?
A) derivative security
B) initial public offering
C) liquidity asset
D) trading volume
Q3) Why would foreign participants borrow from U.S.financial markets?
A) They look for the cheapest source of funds.
B) They look at the economic conditions of their home country.
C) All of these choices are correct.
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Chapter 7: Valuing Bonds
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Sample Questions
Q1) A 30-year bond with an 8 percent coupon has a yield to maturity of 6 percent.The bond could be called in seven years and if called would generate a yield to call of 5.75 percent.What is this bond's call premium? Assume the coupon payments are made annually and par value is $1,000.
A) $219.73
B) $152.64
C) $106.29
D) $301.76
Q2) A bond issued by a corporation on May 1,1999,is scheduled to mature on May 1,2019.If today is May 2,2009,what is this bond's time to maturity? (Assume annual interest payments.)
A) 9 years
B) 10 years
C) 19 years
D) 20 years
Q3) Which of the following issues Treasury Inflation Protected Securities (TIPS)?
A) U.S. Treasury
B) Corporations
C) Municipalities
D) Nonprofits
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Chapter 8: Valuing Stocks
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Sample Questions
Q1) Individuals who use their own stock inventory and capital to buy and sell the stocks they represent are called:
A) market makers.
B) brokers.
C) investors.
D) none of the options.
Q2) A firm's stock is selling at $95.00 per share.Its growth rate is 10 percent and investors demand 15 percent on this stock.What is the firm's expected dividend?
A) $4.75
B) $5.95
C) $6.25
D) $5.50
Q3) Studies of investor psychology have discovered that:
A) investors tend to trade too much.
B) investors tend to sell their winners too soon.
C) investors tend to become overconfident.
D) All of the options.
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Chapter 9: Characterizing Risk and Return
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Sample Questions
Q1) Which of the following is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification?
A) Firm specific risk
B) Market risk
C) Modern portfolio risk
D) Total risk
Q2) An investor owns $2,000 of Adobe Systems stock,$4,000 of Dow Chemical,and $6,000 of Office Depot.What are the portfolio weights of each stock?
A) Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333
B) Adobe System = 0.1667, Dow Chemical = 0.3333, Office Depot = 0.5
C) Adobe System = 0.3333, Dow Chemical = 0.1667, Office Depot = 0.5
D) Adobe System = 0.2, Dow Chemical = 0.4, Office Depot = 0.6
Q3) The past three monthly returns for Kohl's are 2.25 percent, 1.54 percent,and 1.35 percent.What is the average monthly return?
A) 0.69 percent
B) 1.71 percent
C) 2.06 percent
D) 5.14 percent
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Chapter 10: Estimating Risk and Return
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Sample Questions
Q1) IBM has a beta of 1.0 and Apple Computer has a beta of 3.0.Which of the following statements must be correct?
A) The market risk premium for Apple must be larger than the market risk premium of IBM.
B) If investors become more risk averse, the expected return of Apple will increase more than the expected return on IBM.
C) Apple's expected rate of return must be three times as large as IBM's.
D) none of these choices are complete.
Q2) U.S.Bancorp holds a press conference to announce a positive news event that was unexpected to the market.As soon as the announcement is made,the stock price increases $8 per share but then over the next hour the price falls resulting in a net increase of only $4.Given this information which of the following statements is correct?
A) This is an example of a market overreaction.
B) This is an example of a market underreaction.
C) This is an example of a semi-strong efficient market.
D) none of these choices are complete.
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Page 12
Chapter 11: Calculating the Cost of Capital
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Sample Questions
Q1) Which of the following will directly impact the cost of debt?
A) Capital structure
B) Debt ratio
C) Coupon rate
D) Competition within the industry
Q2) Tykes Toys' zero coupon bond has 10 years until maturity and the bonds are selling in the market for $650.If the firm's after-tax cost of debt is 11 percent,what was the firm's tax rate?
A) 25.00 percent
B) 30.00 percent
C) 40.00 percent
D) 250.00 percent
Q3) An estimated WACC computed using some sort of proxy for the average equity risk of the projects in a particular business unit is known as the:
A) Business unit WACC
B) Pure play beta
C) Divisional WACC
D) Component cost
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13
Chapter 12: Estimating Cash Flows on Capital Budgeting Projects
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Sample Questions
Q1) Your company is considering a project that will cost $100.The project will generate after-tax cash flows of $37.50 per year for five years.The WACC is 10 percent and the firm's D/A ratio is 0.40.The flotation cost for equity is 3 percent,the flotation cost for debt is 2 percent,and your firm does not plan on issuing any preferred stock within its capital structure.If your firm follows the practice of incorporating flotation costs into the project's initial investment,what is the weighted-average flotation cost for the firm?
A) 2.6 percent
B) 3.2 percent
C) 3.7 percent
D) 4.1 percent
Q2) All of the following can be included in the depreciable basis of an asset EXCEPT: A) freight charges.
B) installation fees.
C) sales tax.
D) variable costs.
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Page 14
Chapter 13: Weighing Net Present Value and Other Capital
Budgeting Criteria
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Sample Questions
Q1) All of the following capital budgeting tools are suitable for non-normal cash flows EXCEPT:
A) MIRR.
B) profitability index.
C) IRR.
D) NPV.
Q2) The MIRR statistic is different from the IRR statistic in that:
A) the MIRR assumes that the cash inflows can be reinvested at the cost of capital.
B) the MIRR assumes that the cash inflows can be reinvested at the IRR.
C) the MIRR uses weighted-average dollars.
D) the MIRR uses input from the NPV whereas the IRR does not.
Q3) The least-used capital budgeting technique in industry is:
A) NPV.
B) IRR.
C) P\payback.
D) MIRR.
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15
Chapter 14: Working Capital Management and Policies
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Sample Questions
Q1) The financing policy that will result in investing in marketable securities when asset requirements are low is referred to as:
A) compromise financing.
B) restrictive financing.
C) flexible financing.
D) none of the options.
Q2) CM Enterprises estimates that it takes,on average,seven days for their customers' payments to reach them,one day for the payments to be processed and deposited by their bookkeeping department,and three more days for the check to clear once they're deposited.What is their collection float?
A) 11 days
B) 10 days
C) 8 days
D) 7 days
Q3) The operating cycle will increase with all of the following changes EXCEPT:
A) the cost of goods sold increases.
B) the level of accounts receivable increases.
C) the level of inventory increases.
D) All of the options will increase the operating cycle.
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Page 16