Finance Seminar
Practice Exam
Course Introduction
This Finance Seminar provides an in-depth exploration of contemporary topics and emerging issues in finance, blending theoretical foundations with practical applications. Students will engage in critical analysis and discussions on subjects such as corporate finance, investment strategies, financial markets, risk management, and current financial innovations. The seminar encourages active participation through case studies, guest lectures, and collaborative projects, fostering advanced understanding and professional growth in financial decision-making and research.
Recommended Textbook
Contemporary Financial Management 13th Edition by R. Charles Moyer
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27 Chapters
2109 Verified Questions
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2
Chapter 1: The Role and Objective of Financial Management
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Sample Questions
Q1) Which of the following statements is/are correct?
A)Only statement I is correct
B)Only statement II is correct
C)Both statements I and II are correct
D)Neither statement I nor II is correct
Answer: D
Q2) A corporation that operates ethically will notice certain benefits as it applies to shareholder wealth maximization.With shareholder wealth maximization in mind, all of the following could be experienced by an ethical corporation EXCEPT:
A)The corporation can expect to have reduced litigation expense.
B)The cooperation can expect to have greater agency costs.
C)The corporation can expect to have reduced damages expenses.
D)The corporation can expect to have a more favorable impression by customers and investors.
Answer: B
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Chapter 2: The Domestic and International Financial Marketplace
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Sample Questions
Q1) The most important foreign currency futures market in the United States is the . A)Chicago Board of Trade
B)New York Mercantile Exchange
C)Commodity Exchange
D)Chicago Mercantile Exchange
Answer: D
Q2) All of the following are anomalies that have impacted the financial market in the past EXCEPT:
A)the real estate market
B)the purchase and subsequent sale of internet stock
C)the run up of gold prices
D)investing in blue chip stock
Answer: D
Q3) What is the purpose and importance of the stock market indexes?
Answer: Stock market indexes give a broad indication of how the stock market or a segment of it performed during a particular day.The most known index is the Dow Jones Industrial Average (DJIA), which is composed of 30 stocks.The index gives an overview of how well stocks are doing, the overall health of the economy, and the anticipated marketability of securities.
Page 4
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Chapter 3: Evaluation of Financial Performance
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Sample Questions
Q1) Given the following information, determine Taylor Company's cash balance.
Sales = $10,000,000 (all on credit) Current ratio = 3.0
Current liabilities = $800,000
Average collection period = 36.5 days (Assume 365 days/year) Quick ratio = 1.50
Current assets = cash + accounts receivable + inventory
A)$200,000
B)$1,400,000
C)$2,400,000
D)$500,000
Answer: A
Q2) The work of the external independent auditor includes a letter that states that the financial information represents fairly the financial position of the company and that these statements were:
A)an accurate picture of the company's market position
B)based on the company's accounting information system (AIS)
C)constructed in conformity with generally accepted accounting principles
D)developed using management's choice of accounting enhancement techniques
Answer: C
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Chapter 4: Financial Planning and Forecasting
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Sample Questions
Q1) Jones Company sales last year were $25 million and its total assets were $8 million.Accounts payable were $2 million and common stock and retained earnings were $5 million.Jones sales are forecasted to be $30 million this year, earnings after tax are expected to be 3% of sales, and dividends of $250,000 are expected to be paid.Assuming that the ratio of assets to sales and current liabilities to sales remain the same this year as last year, determine the amount of additional financing required.
A)$550,000
B)$1,200,000
C)$300,000
D)None of the answers is correct
Q2) After-tax cash flow equals:
A)earnings after tax plus non-cash charges
B)net earnings plus deferred expenses
C)net earnings plus depreciation
D)earnings after tax
Q3) Why would a firm experience cash flow difficulties immediately after a good sales period?
Q4) Explain the cash flow generation process:
Q5) What information does a long-term financial plan offer?
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Chapter 5: The Time Value of Money
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Sample Questions
Q1) When using a future value of an annuity table (e.g., Table III at the back of the book),
A)payments are assumed to be made at the end of each period
B)FVIFA factors increase with an increase in the interest rate
C)FVIFA factors increase with an increase in the number of periods
D)all of these
Q2) Annuity due calculations are especially important when dealing with
A)term loans
B)lease contracts
C)capital investments
D)capital recovery problems
Q3) Approximately how long would it take to double my money if I invest it now at 18%?
A)6 years
B)4 years
C)12 years
D)It cannot be determined
Q4) Compare the difference between compound interest and simple interest.
Q5) Explain the concept of interest and compare it to rate of interest.
Q6) What is the net present value rule?
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Chapter 5: A: The Time Value of Money
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Sample Questions
Q1) What continuously compounded effective rate of interest will yield the same present value of a future cash flow as an annual rate of interest of 8.25%?
A)8.60%
B)7.93%
C)8.25%
D)7.70%
Q2) Fred deposited $5,000 in an account that promised a nominal interest rate of 8% compounded continuously for his daughter who will be going to college in 18 years.How much will she have in the account in 18 years?
A)$19,980
B)$20,054
C)$21,103
D)$21,694
Q3) What is the effective interest rate on 12% if interest is compounded continuously?
A)15.11%
B)16.25%
C)14.11%
D)12.75%
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Chapter 6: Fixed-Income Securities: Characteristics and Valuation
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Sample Questions
Q1) If an Allied Chemical zero coupon bond due in 12 years is selling for $420.00, what is its yield to maturity?
A)7.50%
B)4.64%
C)6.51%
D)5.26%
Q2) What is the yield-to-maturity of a Viacom bond which is selling for $948.75 with 6 years to maturity and a 7% coupon?
A)7.01%
B)8.11%
C)8.38%
D)7.38%
Q3) Which of the following features (if any) of preferred stock provides the investor with a measure of protection against inflation?
A)adjustable dividend rate
B)cumulative feature
C)call feature
D)after-tax cost
Q4) How does a firm value an asset?
9
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Chapter 7: Common Stock: Characteristics, Valuation, and Issuance
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Sample Questions
Q1) The most important factor to be considered in the valuation of a closely held firm is
A)earnings growth
B)book value of the firm
C)earnings capacity
D)the general economic outlook
Q2) Which one of the following is not a reason a firm may decide to repurchase its own stock?
A)future corporate needs
B)financial restructuring
C)investment
D)disposition of excess warrants
Q3) During the past 8 years, Beef Wellington Cattle Company's common stock dividends have grown from $2.00 to $3.19.Estimate the compound annual dividend growth rate over the 8 year period.
A)59.5%
B)6%
C)12%
D)19%
Q4) What are some of the costs associated with new security offerings?
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Chapter 8: Analysis of Risk and Return
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Sample Questions
Q1) Kermit Industries current common stock dividend is $1.35 per share and the dividend is expected to grow at 6% per year into the foreseeable future.Currently the risk-free rate is 4.5% and the estimated market risk premium is 8.5%.Merrill Lynch has estimated KI's beta to be 1.10.Compute the expected price for KI's common stock.
A)$17.20
B)$10.33
C)$18.23
D)$49.35
Q2) The risk premium for an individual security is equal to the A)beta times the market return
B)difference between the required return and the risk free rate
C)weighted average of the individual security betas in a portfolio
D)the security's covariance divided by the variance of the market
Q3) How can standard deviation, a statistical measure of dispersion, be used in investment analysis?
Q4) Why is risk an increasing function of time?
Q5) Explain marketability risk and marketability premium.
Q6) List types of events that influence systematic (non-diversifiable) risk.
Q7) What is an efficient portfolio?
Page 11
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Chapter 9: Capital Budgeting and Cash Flow Analysis
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Sample Questions
Q1) Felix Industries purchased a grinder 5 years ago for $15,000.It is being depreciated on a straight-line basis over 15 years to an estimated salvage value of zero.It could be sold now for $6,000.The firm is considering selling it and purchasing a new one.The new grinder would cost $25,000 installed and would be depreciated on a straight-line basis over 10 years to a zero estimated salvage value.The company's marginal tax rate is 40%.Determine the net investment if the old grinder is sold and the new one purchased.
A)$19,000
B)$16,600
C)$17,400
D)cannot be computed
Q2) Projects are often classified based on the type of capital expenditure.All of the following are project classifications EXCEPT:
A)projects generated by growth opportunities
B)projects generated by cost reduction opportunities
C)projects generated to meet legal requirements and health and safety standards
D)projects generated to meet the needs of customers
Q3) List the reasons that the marginal cost of capital schedule increases as more funds are sought in the capital markets.
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Chapter 10: Capital Budgeting: Decision Criteria and Real
Option Considerations
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Sample Questions
Q1) The objective in solving capital rationing problems is to:
A)accept all projects with a PI greater than 1.1
B)maximize the IRR of the projects that are accepted
C)maximize the NPV of the projects that are accepted
D)minimize the opportunity cost of the firm's funds
Q2) Colex wishes to bid on a contract that is expected to yield after-tax net cash flows of $25,000 in year 1, $30,000 in year 2, and $35,000 per year in years 3-8.To obtain the contract, Colex will need to invest $110,000 to reconfigure a packaging system, $20,000 (after-tax) to retrain current employees, and $15,000 (after-tax) on an environmental impact study that is required to be completed on acceptance of the contract.What is the project's internal rate of return?
A)16.7%
B)14.1%
C)16.2%
D)14.9%
Q3) All of the following are reasons why a firm may face capital rationing except:
A)reluctant to issue additional debt
B)the discount rate is too high
C)lacks the managerial resources
D)restrictive covenants that limit borrowing
Page 13
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Chapter 10: A: Capital Budgeting: Decision Criteria and Real
Option Considerations
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Sample Questions
Q1) Creative Furniture is considering two mutually exclusive projects that would automate part of their production facilities.Project A costs $120,000 and would produce net cash flows of $37,000 annually for 5 years.Project B also costs $120,000 and will produce annual net cash flows of $25,000 for 10 years.Creative's cost of capital is 11 percent.Using a replacement chain, which project should be chosen? Assume that in 5 years, Project A will still cost $120,000 and produce 5 more years of $37,000 annual net cash flows.
A)Project B.NPV of A is negative
B)Project A.NPV of B is negative
C)Project B.NPV is $492 higher
D)Project A.NPV is $6,468 higher
Q2) When two or more mutually exclusive alternative investments have , neither the net present value nor the internal rate of return method yields reliable accept-reject information unless the projects are evaluated for an equal period of time.
A)unequal lives
B)unequal net cash flows
C)unequal net investments
D)a and b
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Chapter 11: Capital Budgeting and Risk
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Sample Questions
Q1) Determine the coefficient of variation for the following annual cash in flows from an investment project:
\(\text { Cash Flow }\)
\[\begin{array} { c c }
\text { (E20) F0\% } & \text { Prabability } \\
\hline 2,000 & .10 \\
2,500 & .20 \\
3,000 & .30 \\
3,500 & .20 \\
4,000 & .20
\end{array}\]
A)$624.50
B)125.8
C)0.201
D)cannot be determined
Q2) Simulation techniques are
A)cheap to apply
B)widely used
C)mostly beneficial for large projects
D)identical to sensitivity analysis
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Page 15
Chapter 12: The Cost of Capital, Capital Structure, and Dividend Policy
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Sample Questions
Q1) Firms can raise capital in two ways.Why is it that internal funding does not have a zero cost?
Q2) Wellington Gas has a target capital structure of 50 percent common equity, 40 percent debt, and 10 percent preferred stock.The cost of retained earnings is 16 percent, and the cost of new equity (external) is 16.7 percent.Wellington can sell debentures that will have an after-tax cost of 8.3 percent and the after-tax cost of preferred stock will be 11.9 percent.What is the marginal cost of capital before and after the break point?
A)12.51% and 12.86%
B)11.18% and 11.53%
C)14.23% and 14.68%
D)12.51% and 11.53%
Q3) The major components that determine the risk premium on a specific security at any point in time include all of the following except
A)business risk
B)financial risk
C)interest rate risk
D)real rate of return risk
Q4) Explain how the investment opportunity curve is determined.
Page 16
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Chapter 13: Capital Structure Concepts
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Sample Questions
Q1) Agency costs
A)increase as the debt/total assets ratio decreases
B)affect the present value of the tax shield
C)decrease as financial distress increases
D)reduce the market value of the levered firm
Q2) The tax deductibility of interest payments provides the firm with a:
A)market advantage
B)learning curve
C)tax shield
D)safeguard against auditing
Q3) The process of simultaneously buying and selling the same or equivalent securities in different markets to take advantage of price differences and make a profit is called:
A)option pricing
B)diversification
C)arbitrage
D)margining
Q4) How do signaling effects impact the firm's capital structure decision?
Q5) What is the pecking order theory with regard to managerial preferences for financing alternatives?
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Chapter 14: Capital Structure Management in Practice
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Sample Questions
Q1) Sulzar's capital structure consists only of common stock (20 million shares), but the firm is planning a major expansion which will require $100 million of new capital.Sulzar has a choice of obtaining the needed capital through the sale of 5 million shares of common stock at $20 per share or the sale of $100 million of first mortgage bonds that would have a coupon rate of 9%.If Sulzar has a marginal tax rate of 40%, calculate the EBIT-EPS indifference point.
A)$45 million
B)$36 million
C)$5 million
D)$9 million
Q2) In evaluating a firm's degree of financial leverage, financial risk is with an increase in DFL.
A)increased
B)decreased
C)not impacted
D)reflective of excess inventory
Q3) List the five steps developed to assist financial managers in making capital structure decisions.
Q4) In what way does management's willingness to assume risk impact the firm?
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Chapter 14: A: Capital Structure Management in Practice
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Sample Questions
Q1) Another name for breakeven analysis is:
A)cost-volume-profit analysis
B)graphic analysis
C)EBIT-EPS analysis
D)degree of operating leverage
Q2) The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted weather patterns, severe storm safety tips and a tracking chart.The finished product sells for $35 with a variable cost per unit of $21.The company has operating costs of $1,050,000.What is the firm's breakeven point in units?
A)75,000
B)50,000
C)80,000
D)65,000
Q3) The breakeven point occurs where total revenues intersect with:
A)market returns
B)the risk-free rate
C)total costs
D)total interest and taxes
Q4) How can a firm have more than one breakeven output point?
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Chapter 15: Dividend Policy
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Sample Questions
Q1) All of the following are dividend policies EXCEPT:
A)stockholders want dividends and they want them to be consistent
B)stockholders prefer the delay of the payment of dividends if there is a corresponding increase in capital gains.
C)stockholders of small firms favor a dividend policy of retention.
D)stockholders who prefer a high dividend payout are unwilling to pay extra for the stock of companies that provide a higher yield mostly because they are living on a fixed income.
Q2) A foreign subsidiary with good access to capital within the host country, tends to pay dividends to the parent than subsidiaries with poor access to local capital.
A)smaller
B)larger
C)no
D)none of these answers is correct;dividends are not related to availability of capital
Q3) What is the signaling effect of dividend payments?
Q4) Explain the "clientele effect."
Q5) What is a DRIP and how does it work?
Q6) What are the factors that determine the dividend policy of a firm?
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Chapter 16: Working Capital Management
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Sample Questions
Q1) All other things being equal, a policy of holding a relatively proportion of the firm's total assets in the form of current assets will tend to result in a expected profitability or rate of return on the total assets of the firm.
A)large, higher
B)small, higher
C)constant, higher
D)constant, lower
Q2) A firm's net working capital position is a widely used measure of its .
A)leverage
B)profitability
C)risk
D)none of these
Q3) All other things being equal, a policy of financing its assets with a relatively proportion of short-term debt will tend to result in expected after-tax earnings for the firm.
A)large, lower
B)constant, higher
C)constant, lower
D)large, higher
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Page 21
Chapter 17: The Management of Cash and Marketable Securities
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Sample Questions
Q1) , which are similar to other checks except they are not payable on demand, are used primarily to provide for centralized control over payments authorized in field offices.
A)Preauthorized checks
B)Drafts
C)Mail depository transfer checks
D)Electronic depository transfer checks
Q2) Lone Star Technologies has annual sales of $336 million.Management has determined that an average of 8 days elapses between the time customers mail their payments and when the funds are available to the firm.The cost of reducing the float 3 days will be $60,000.Should Lone Star work to reduce the float if the increase in cash can be invested to earn 7.5% per annum?
A)Yes, savings of $9,041
B)Yes, savings of $147,123
C)Yes, savings of $78,080
D)No, loss of $18,080
Q3) Banks use depository transfer checks to move surplus funds from bank accounts to its concentration bank account or accounts.Explain how this is done.
Q4) Why do firms hold liquid asset balances?
Page 22
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Chapter 18: The Management of Accounts Receivable and Inventories
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Q1) In general, the a firm's production cycle, the its work-in-process inventory.
A)longer, larger
B)longer, smaller
C)shorter, larger
D)length of cycle is not related to amount of work-in-process
Q2) How does an optimal credit extension policy impact a company's accounts receivables?
Q3) The primary goal of accounts receivable management should be
A)minimizing lost sales
B)maximizing shareholder wealth
C)increasing market share
D)minimizing receivables investment
Q4) When a company measures its marginal costs and marginal returns it is developing:
A)target capital structure
B)optimal credit extension policy
C)required rate of return
D)a financing decision
Q5) What are the "five Cs of credit" and how are they used?
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Q6) What information could be used to judge the credit worthiness of a customer?
Chapter 19: Lease and Intermediate-Term Financing
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Q1) Contech (lessee) wishes to lease a printing press valued at $60,000 from Wrenn Capital (lessor) for a period of 4 years.Wrenn expects to depreciate the asset on a straight-line basis to a salvage value of $0.Actual salvage value is expected to be $8,000 at the end of 4 years.If Wrenn requires a 12 percent after-tax return on the lease, what is the lease payment that Wrenn will require from Contech? Assume a marginal tax rate of 40%.Under the terms of the lease, payments will be made at the beginning of each of the 4 years.
A)$11,385
B)$28,463
C)$18,975
D)$21,252
Q2) The contract period of an operating lease tends to
A)be somewhat less than the economic life of an asset
B)be equal to the economic life of the asset
C)be somewhat greater than the economic life of the asset
D)recover the full cost of the asset
Q3) What are the disadvantages of leasing?
Q4) Explain a leveraged lease.
Q5) In a leveraged lease, what items secure the mortgage bonds of the lender?
Q6) What are the advantages of leasing?
Page 24
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Chapter 20: Financing with Derivatives
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Q1) The most basic type of interest rate swap is the:
A)fixed for floating rate swap
B)exchange-rated swap
C)LIBOR for prime rate swap
D)Interest rate rights offering
Q2) Why would a company issue convertible securities instead of straight bonds?
Q3) The is the price that the call option buyer pays the writer of the option if the buyer decides to exercise the option.
A)option premium
B)option discount
C)conversion price
D)exercise price
Q4) All other things being equal, the the exercise price, given the stock price, the is the call option value.
A)higher, higher
B)higher, lower
C)lower, lower
D)lower, higher
Q5) List some securities that have option features.
Q6) What is the difference between a conversion price and a conversion ratio?
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Chapter 20: A: Financing with Derivatives
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Q1) Bond refunding occurs when a company redeems a callable issue and
A)sells an equity issue, thereby reducing outstanding debt
B)sells a new issue with a lower coupon rate
C)sells a preferred issue with a low dividend rate
D)none of these is correct
Q2) In a bond refunding analysis, the principal benefit, or cash inflow, is the present value of the
A)pretax interest savings over the life of the issue
B)aftertax flotation cost savings
C)aftertax interest savings over the life of the issue
D)aftertax call premium
Q3) When a bond is called, the old issue is retired and the bondholder receives:
A)new, lower interest rate bonds
B)new corporate stock
C)a cash payoff
D)treasury stock
Q4) Why is the after-tax cost of debt used in bond refunding analysis?
Q5) What is the principal inflow and what is the principal outflow from a bond refunding situation?
Q6) Why would a corporation consider bond refunding?
Page 26
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Chapter 21: Risk Management
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Q1) All of the following are losses generally insured by corporations EXCEPT:
A)Death of key employees
B)Executive bonuses
C)Fraud
D)Product liability
Q2) A long hedge requires a futures contract
A)the creation of
B)the selling of
C)the buying of
D)margining
Q3) In the futures market, losers must pay winners each day.This is called:
A)paying up
B)selling short
C)taking a long position
D)marking to market
Q4) List several reasons why a firm may choose to employ risk management techniques.
Q5) List some nonhedging risk management strategies.
Q6) How does hedging reduce or eliminate business risks?
Q7) List five hedging strategies for risk management
Q8) What is marking-to-market and how is this process guaranteed?
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Chapter 22: International Financial Management
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Q1) If the annual nominal interest rate on 5-year U.S.Government Treasury bonds is 7 percent, and the annual nominal interest rate on 5-year Canadian bonds is 5.5 percent, what is the expected future spot rate in 5 years given that the current spot exchange rate between U.S.dollars and Canadian dollars is $0.587?
A)$0.595
B)$0.547
C)$0.578
D)$0.630
Q2) Primary sources of supply of British pounds in the foreign exchange market include:
A)British importers who need to convert their pounds into foreign currency to pay for purchases
B)foreign investors who desire to make investments in physical or financial assets in Great Britain
C)speculators who expect British pounds to increase in value relative to other currencies
D)U.S.importers who need to convert dollars to pounds to pay for purchases
Q3) How do market forces support the relative purchasing power parity?
Q4) How does a firm manage economic exposure due to changes in exchange rates?
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Chapter 23: Corporate Restructuring
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Sample Questions
Q1) One anti-takeover measure is the , where the target company makes a takeover bid for the stock of the bidder.
A)poison put
B)black knight defense
C)pacman defense
D)shark repellent
Q2) An alternative to a spin-off is a(n) which allows a large company to capture the value of a high-growth business buried within the organization.
A)equity carve out
B)holding company
C)tracking stock
D)stock synergy
Q3) The is the number of acquiring company shares received per share of acquiring company stock owned.
A)stock equity ratio
B)exchange ratio
C)dividend exchange ratio
D)interest parity ratio
Q4) How does a joint venture differ from a holding company?
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