Financial Decision Making
Mock Exam
Course Introduction
Financial Decision Making explores the principles, frameworks, and analytical tools essential for making informed financial choices within organizations and personal finance contexts. The course covers key concepts such as time value of money, risk and return analysis, capital budgeting, financial statement interpretation, and investment appraisal. Students will develop critical thinking skills to evaluate financing options, assess financial risks, and use quantitative techniques to support strategic and operational decisions. By engaging with real-world case studies and practical scenarios, participants will gain a comprehensive understanding of how to apply financial reasoning to contribute to long-term value creation and organizational success.
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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Chapter 1: Introduction to Financial Management
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42 Verified Questions
42 Flashcards
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Sample Questions
Q1) The company is performing the function of financial control when it
A) Raises funds from capital markets
B) Takes corrective action to achieve business goals
C) Assesses the riskiness of investment projects
D) Identifies possible sources of funds
E) Reinvests profits from operations
Answer: B
Q2) Today, Financial Management can be appropriately described as
A) The economics of time and risk
B) A direct offshoot of accounting
C) The quantitative side of strategic management
D) A practice based on informal procedures
E) The implementation of capital market theories
Answer: A
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Chapter 2: Accounting - the Language of Business
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Sample Questions
Q1) When an asset, which had been in use for several years, is sold at a price that exceeds the balance in the UCC account but is less than book value
A) The excess amount is called CCA
B) The excess amount is called is a capital gain
C) The excess amount is called recaptured CCA
D) The excess amount reduce taxable income
E) The excess amount is not considered income
Answer: C
Q2) In the direct cash flow method, which part of the cash flow statement do heating expenses paid affect?
A) Operating activities cash inflows.
B) Operating activities cash outflows.
C) Investing activities cash inflows.
D) Investing activities cash outflows.
E) Financing activities cash inflows.
Answer: B
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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) The advantage of the Percent of Sales Method of creating pro forma statements is in its ability to
A) Accommodate changing relationships between expenses and revenue
B) Be created with ease and speed
C) Model actual changes in the competitive environment
D) Provide projections reflecting major shareholder beliefs and aims
E) Reliably bring to management's attention key financing issues
Answer: A
Q2) Mandrake Manufacturing had sales revenue for the second quarter of $936,000. Cost of Goods Sold was $520,000. The company is expecting a manufacturing cost increase of 5%. It is increasing its average selling price from $180 this year to $195 next year and expecting a sales volume decrease of 5%. What is the company's projected gross profit for the coming year?
A) $468,000
B) $417,300
C) $444,600
D) $495,300
E) $494,000
Answer: C
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Chapter 4: Analyzing and Interpreting Financial Statements
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45 Flashcards
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Sample Questions
Q1) The gross profit margin will be impacted by
A) Higher productivity from their production equipment
B) A $50,000 loss of an uninsured warehouse to fire
C) An interest rate hike on the Company's variable rate mortgage
D) Retiring the outstanding principal of a bank loans
E) A reduction in the number of people employed
Q2) The sales revenue to capital employed ratio for Miralonge Manufacturing is 3.2. The industry benchmark is 3. One conclusion that would be consistent with the ratio, is that the company
A) Has a lower book value for assets than the industry in general
B) Is using its assets more efficiently than its closest competitor's
C) Has a higher operating profit than its closest competitors
D) Has amortized the assets of less fully than the industry in general
E) Is in a serious over trading situation
Q3) Before undertaking ratio analysis, a prudent first step is to
A) Select the specific ratios to be used
B) Determine who the target user is and their needs
C) Assemble the information required for the analysis
D) Review the economic and competitive environment
E) Select either a trend analysis or benchmark analysis
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Chapter 5: The Time Value of Money
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Sample Questions
Q1) Tuscarora Transportation recently signed a seven-year loan of $350,000 with annual payments at the end of each year on four warehouses and the adjacent paved acreage at a 9% interest rate compounded annually. What is the total interest that will be paid by the end of the seven-year term?
A) $136,792
B) $668,450
C) $754,950
D) $1,761,550
E) $2,450,000
Q2) What is the maximum price XL Satellites can pay for a machine that is expected to produce marginal revenues of $20,000, $25,000, $30,000, $35,000, and $40,000 at the end of each year for five years if the interest rate is 10%?
A) $100,111
B) $110,122
C) $113,724
D) $121,137
E) $150,000
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Chapter 6: Making Capital Investment Decisions
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Sample Questions
Q1) Which of the following is essential to consider when making the calculations required for NPV, IRR, PP or APP?
A) Deciding as to whether to include amortization costs or not.
B) Determining the amount of interest payments to be included in expenses.
C) Reviewing the assumptions on which the revenue forecasts are based.
D) Including the total of costs that have already been incurred.
E) Determining the extent of management's support of the project.
Q2) Of the current methods of investment appraisal, which offers the best measurement?
A) Internal Rate of Return
B) Payback Period
C) Marginal Rate of Return
D) Net Present Value
E) Cash back rate
Q3) What is an advantage of the payback method?
A) It considers the timing of cash flows.
B) It considers all relevant cash flows.
C) It considers the wealth of shareholders of the business.
D) It considers the hurdle rate.
E) It is very intuitive to use.
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Chapter 7: Making Capital Investment Decisions: Further Issues
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42 Flashcards
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Sample Questions
Q1) An investment opportunity with identified risks and returns has been consistently rejected in competition with other opportunities. This is most likely because
A) The project is available over the next few years and so can be delayed
B) The project would require the hiring of new staff
C) The project is not offering sufficient compensation for its risks
D) A company cannot invest in all the opportunities it faces
E) The project is outside the usual business of the company
Q2) The current general purchasing power of cash flows is determined by
A) Applying a general rate of inflation to all cash flows
B) Including an inflation factor when determining the hurdle rate and then applying it to all cash flows
C) Ignoring inflation in the calculations as it affects various items differently and ultimately the effects cancel each other out
D) Determining and applying the specific rate of inflation for each item in a cash flow as well as specific rates of inflation to each type of cash flow
E) Determining the monetary cash flows from each item and deflating these amounts by the general rate of inflation
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Page 9
Chapter 8: Financing a Business 1: Sources of Funds
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Sample Questions
Q1) Comfort Corporation offer its customers payment terms of a 2% discount if they pay in the first 10 days of receiving the invoice or paying the net amount up until 45 days after receipt. If a customer has the option of borrowing from the bank to pay the invoice right away at what interest rate on the borrowings will it make no difference to take the discount or to borrow the money?
A) 21.34%
B) 12.65%
C) 23.45%
D) 44.61%
E) 18.56%
Q2) Which of the following best describes the pecking order theory?
A) Dividend are preferable to capital gains.
B) Capital gains are preferable to dividends.
C) Retained earnings are preferable for long term financing.
D) Debt is preferable for long term financing.
E) Common shares are preferable for long term financing.
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Chapter 9: Financing a Business 2: Raising Long-Term Funds
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Sample Questions
Q1) The Islands Tanning Spa acquired its tanning beds from the franchisor for $125,000. The equipment will last for six years. If the CCA is 30% for tanning beds, the company's tax rate is 35% and the company's discount rate is 9%, what is the present value of The Islands tax shield?
A) $7,175
B) $20,500
C) $27,314
D) $29,398
E) $43,750
Q2) On June 3, CapiCal who had 2,500,000 common shares outstanding executed a two-for-one stock split. The company's shares that had been trading for $96.50 a share at the close of yesterday's trading, closed June 3rd at $48.50. What is the increase/decrease in market capitalization that CapiCal experienced?
A) No increase or decrease
B) An increase of $1,250,000
C) An increase of $122,500,000
D) A decrease of $1,121,250
E) A decrease of $121,250,000
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Chapter 10: The Cost of Capital and the Capital Structure
Decision
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Sample Questions
Q1) Why do Modigliani and Miller and the Modernists believe that, when taxes are not being considered, the capital structure is irrelevant?
A) The price of a business's shares are derived as much from rational decisions based on the returns to a company as from irrational ones.
B) Shareholders will always demand risk compensation equal to the increased returns from borrowing.
C) Investors, using borrowed funds to purchase shares in unlevered companies, will equalize the value of levered and unlevered companies.
D) Capital structure is a closed system where companies push to increase debt, and, lenders and shareholders push to reduce it resulting in a predetermined equilibrium.
E) There will always be sufficient risk adverse, risk neutral and risk seeking investors to invest in a company regardless of the proportion of debt in its capital structure.
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12
Chapter 11: Developing a Dividend Policy
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Sample Questions
Q1) What does the traditional view of dividend policy say about a higher payout ratio?
A) It will depress the share value as shareholders must engage in the cost of searching out new investment opportunities.
B) It will artificially depress the share value of a company as the growth in dividends will be lower when the absolute amount of dividends is higher.
C) It will increase the share value of a company as shareholders will be attracted to the investment flexibility provided by liquidity.
D) It will depress the share value of a company as transactions cost must be subtracted from earnings for those shareholders who wish to retain their investment in the company.
E) It will increase the share value of a company as the rate of return demanded by investors will drop as the uncertainty of receiving dividends diminishes.
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13
Chapter 12: Managing Working Capital
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Sample Questions
Q1) When using a cash control model which targets a specific cash balance, what is the problem associated with the cash level breaching the upper, outer limit for an unacceptable length of time?
A) The inability to meet short term financial commitments.
B) The risk of theft.
C) The opportunity cost of foregone interest.
D) A rise in the cost of capital.
E) A negative impact on the company's credit rating.
Q2) Peaches Creamery Ltd. would like to reduce the average number of days it takes to collect its receivables from 60 days down to 30 days. Peaches thinks this can be accomplished by offering a 1% discount to customers who pay withing 30 days. Precisely what is a customer's annualized cost of forgoing the discount?
A) 6.1%
B) 6.2%
C) 11.1%
D) 12.2%
E) 13.0%
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14
Chapter 13: Measuring and Managing for Shareholder Value
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Sample Questions
Q1) Social Games Ltd. has a business value of $50 million, capital invested of $32 million, and annually generates returns that exceed investors required returns by $4 million. What is the percentage required return demanded by investors?
A) 8.0%
B) 12.5%
C)
Q2) For the year just ending, Elena Electronics Inc. had sales revenue equal to $950,000, cost of goods sold $399,000, selling expenses $191,000, distribution expenses of $70,000, administration expenses of $62,000, depreciation expense $18,000, interest charges $44,000 and taxes at $57,000. During that year there was an increase in accounts receivable of $10,000 and no capital asset were purchased. What was the free cash flow generated for the year?
A) $117,000
B) $161,000
C) $171,000
D) $321,000
E) $557,000
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Chapter 14: Mergers, Acquisitions, and the Valuation of Shares
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Sample Questions
Q1) Assiniboine Mills, incorporated ten years ago, shows on its year-end balance sheet net total assets of $30 million, current liabilities of $5 million, long term liabilities of $13 million and paid-in capital from common shares of $12 million at $15.00 each, now selling for $19.50. Of the assets, net realizable value of current assets and liabilities is 90% of book values, $9 million and $5 million, respectively. Land with a book value of $5 million, has appreciated steadily, averaging a 6% increase year-over-year. Building and equipment can be sold at net book value. Assiniboine issued 15-year bonds five years ago at par with an annual coupon rate of 6% and a face value of $12 million. Current interest rates are at 8%.What is the liquidation value per common share?
A) $7.53
B) $15.00
C) $19.50
D) $21.46
E) $22.71
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