Introduction to Finance
Chapter Exam Questions
Course Introduction
Introduction to Finance provides students with a foundational understanding of financial principles and practices. The course covers key topics such as the time value of money, risk and return, valuation of assets, capital budgeting, and the functioning of financial markets. Emphasis is placed on the decision-making process within firms, including analysis of investment opportunities and strategies for raising and managing capital. Through case studies and real-world examples, students gain practical insights into how financial concepts are applied in business, preparing them for more advanced courses in finance and related fields.
Recommended Textbook
Foundations of Finance 8th Edition by Arthur J. Keown
Available Study Resources on Quizplus
17 Chapters
2473 Verified Questions
2473 Flashcards
Source URL: https://quizplus.com/study-set/3170
Page 2
Chapter 1: An Introduction to the Foundations of Financial Management
Available Study Resources on Quizplus for this Chatper
137 Verified Questions
137 Flashcards
Source URL: https://quizplus.com/quiz/62742
Sample Questions
Q1) High Tech Corp.cut its research and development budget in 2010 by $4,000,000 in order to improve its cash flow for the year.Which of the following statements is MOST correct?
A)The stock price will likely increase because the value of stock is based on reported cash flow.
B)The stock price may decrease because investors may predict that future cash flows will decrease due to the lack of innovation and new products.
C)The change will have no impact on stock price because the company's profits will not change in 2010.
D)The stock price will increase only if reported profits in 2010 are also higher than profits reported in 2009.
Answer: B
Q2) Shareholder wealth maximization means
A)maximizing earnings per share.
B)maximizing dividends per share.
C)maximizing the price of existing common stock.
D)maximizing stockholders equity.
Answer: C
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: The Financial Markets and Interest Rates
Available Study Resources on Quizplus for this Chatper
152 Verified Questions
152 Flashcards
Source URL: https://quizplus.com/quiz/62743
Sample Questions
Q1) Investors expect to receive the highest returns from government-issued securities because the government will not default on securities that it has issued.
A)True
B)False
Answer: False
Q2) Investment firms,such as Goldman Sachs,assist the transfer of capital by
A)facilitating indirect transfers from savers (investing public)to borrowers (corporations needing capital).
B)selling indirect securities to savers and using the funds to buy common stock for corporations needing funds.
C)selling direct securities.
D)selling common stock for corporate clients in the secondary market.
Answer: A
Q3) Which of the following is an advantage of organized stock exchanges?
A)increased stock price volatility
B)screening companies to ensure only low risk stocks are sold
C)providing a continuous market
D)only profitable companies may issue new securities on an organized exchange
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Understanding Financial Statements and Cash Flows
Available Study Resources on Quizplus for this Chatper
117 Verified Questions
117 Flashcards
Source URL: https://quizplus.com/quiz/62744
Sample Questions
Q1) All of the following are income statement items EXCEPT A)accrued expenses.
B)depreciation expense.
C)cost of goods sold.
D)interest expense.
Answer: A
Q2) Under current accounting rules,the plant and equipment account shows the historical cost (purchase price)of,plus any subsequent improvements to,the plant and equipment.
A)True
B)False
Answer: True
Q3) Company A and Company B both report the same level of sales and net income.Therefore
A)both A and B will report the same Earnings Per Share.
B)both A and B will report the same Gross Profit Margin.
C)both A and B will report the same Net Profit Margin.
D)both A and C are true.
Answer: C
Page 5
To view all questions and flashcards with answers, click on the resource link above.
Chapter 4: Evaluating a Firms Financial Performance
Available Study Resources on Quizplus for this Chatper
147 Verified Questions
147 Flashcards
Source URL: https://quizplus.com/quiz/62745
Sample Questions
Q1) The acid-test ratio of a firm would be unaffected by which of the following?
A)Several short-term loans are consolidated and paid off using long-term debt.
B)Equipment is purchased,financed by a long-term debt issue.
C)Additional inventory is purchased for cash.
D)Large accounts receivable balances are collected.
Q2) Denver Systems has total assets of $1,000,000; common equity of $400,000; a gross profit of $800,000; total operating expenses of $620,000; interest expense of $20,000; income taxes of $74,000; and preferred dividends of $30,000.What is Denver Systems' return on equity?
A)7.5%
B)20.0%
C)21.5%
D)14.0%
Q3) The computation of return on equity,or ROE,does not include retained earnings as part of common equity because retained earnings includes all net income for the company since its inception and analysts are trying to calculate the return for just the current year.
A)True
B)False
Q4) Discuss five limitations to ratio analysis.
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: The Time Value of Money
Available Study Resources on Quizplus for this Chatper
162 Verified Questions
162 Flashcards
Source URL: https://quizplus.com/quiz/62746
Sample Questions
Q1) Which of the following investments has the highest effective annual return (EAR)? (Assume that all CDs are of equal risk.)
A)a bank CD that pays 7.00 percent interest compounded daily
B)a bank CD that pays 7.10 percent compounded monthly
C)a bank CD that pays 7.30 percent annually
D)a bank CD that pays 7.25 percent compounded semiannually
Q2) If the future value of annuity A is greater than the future value of annuity B,then the present value of annuity A must also be greater than the present value of annuity B.
A)True
B)False
Q3) The present value of a single future sum
A)increases as the number of discount periods increases.
B)is generally larger than the future sum.
C)depends upon the number of discount periods.
D)increases as the discount rate increases.
Q4) Your parents are complaining about the price of items today compared to what they cost years ago.If an automobile that cost $12,000 in 1980 costs $40,000 in 2010,calculate the annual growth rate in the automobile's price.
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: The Meaning and Measurement of Risk and Return
Available Study Resources on Quizplus for this Chatper
147 Verified Questions
147 Flashcards
Source URL: https://quizplus.com/quiz/62747
Sample Questions
Q1) According to the CAPM,for each unit of Beta an asset's required rate of return increases by the market's risk premium.
A)True
B)False
Q2) Investment A and Investment B both have the same expected return,but Investment A is more risky than Investment B.In the technical jargon of modern portfolio theory,Investment A is said to "dominate" Investment B.
A)True
B)False
Q3) The S&P 500 index must be used as the measure of market return in the CAPM or the results are not theoretically accurate.
A)True
B)False
Q4) The relevant variable a financial manager uses to measure returns is A)net income determined using generally accepted accounting principles. B)earnings per share minus dividends per share.
C)cash flows.
D)dividends.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: The Valuation and Characteristics of Bonds
Available Study Resources on Quizplus for this Chatper
145 Verified Questions
145 Flashcards
Source URL: https://quizplus.com/quiz/62748
Sample Questions
Q1) A company with a AAA bond rating will command a higher interest rate on its bonds than a company with a lesser BBB bond rating.
A)True
B)False
Q2) A bond's yield to maturity varies from investor to investor because each investor has his or her own required return.
A)True
B)False
Q3) A zero coupon bond is selling for $476.The bond has a face value of $1,000 and matures in 8 years.Your friend asks you if he should buy the bond.He tells you his required return is 9 percent.Would you recommend he buy the bond or not? Explain your answer.
Q4) The par value of a corporate bond indicates the payment that the issuer promises to make to the bondholder at maturity.
A)True
B)False
Q5) Calculate the value of a bond that is expected to mature in 18 years with a $1,000 face value.The coupon rate is 4%,and the required rate of return is 8%.Interest is paid annually.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: The Valuation and Characteristics of Stock
Available Study Resources on Quizplus for this Chatper
128 Verified Questions
128 Flashcards
Source URL: https://quizplus.com/quiz/62749
Sample Questions
Q1) An example of the growth factor in common stock is
A)acquiring a loan to fund an investment in Asia.
B)retaining profits in order to reinvest into the firm.
C)issuing new stock to provide capital for future growth.
D)two strong companies merging together to increase their economy of scale.
Q2) Common stock cannot be worth less than its book value.
A)True
B)False
Q3) Dynamic Industries paid a dividend of $1.65 on its common stock yesterday.The dividends of Wallace Industries are expected to grow at 9% per year indefinitely.If the risk free rate is 3% and investors' risk premium on this stock is 8%,estimate the value of Wallace Industries stock 2 years from now.
A)$106.84
B)$100.43
C)$91.81
D)$54.71
Q4) Common stock does not mature.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: The Cost of Capital
Available Study Resources on Quizplus for this Chatper
130 Verified Questions
130 Flashcards
Source URL: https://quizplus.com/quiz/62750
Sample Questions
Q1) Coyote Inc.operates three divisions.One division involves significant research and development,and thus has a high-risk cost of capital of 15%.The second division operates in business segments related to Coyote's core business,and this division has a cost of capital of 10% based upon its risk.Coyote's core business is the least risky segment,with a cost of capital of 8%.The firm's overall weighted average cost of capital of 11% has been used to evaluate capital budgeting projects for all three divisions.This approach will
A)favor projects in the core business division because that division is the least risky.
B)favor projects in the related businesses division because the cost of capital for this division is the closest to the firm's weighted average cost of capital.
C)favor projects in the research and development division because the higher risk projects look more favorable if a lower cost of capital is used to evaluate them.
D)not favor any division over the other because they all use the same company-wide weighted average cost of capital.
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Capital-Budgeting Techniques and Practice
Available Study Resources on Quizplus for this Chatper
153 Verified Questions
153 Flashcards
Source URL: https://quizplus.com/quiz/62751
Sample Questions
Q1) NPV assumes reinvestment of intermediate free cash flows at the cost of capital,while IRR assumes reinvestment of intermediate free cash flows at the IRR.
A)True
B)False
Q2) Arguments against using the net present value and internal rate of return methods include that
A)they fail to use accounting profits.
B)they require detailed long-term forecasts of the incremental benefits and costs.
C)they fail to consider how the investment project is to be financed.
D)they fail to use the cash flow of the project.
Q3) Positive NPV projects may be rejected when capital must be rationed.
A)True
B)False
Q4) If two projects are mutually exclusive then the IRR is more important than the NPV in deciding the project that should be chosen.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
12
Chapter 11: Cash Flows and Other Topics in Capital Budgeting
Available Study Resources on Quizplus for this Chatper
154 Verified Questions
154 Flashcards
Source URL: https://quizplus.com/quiz/62752
Sample Questions
Q1) A project's contribution to firm risk is relevant for undiversified investors or when bankruptcy costs exist.
A)True
B)False
Q2) In general,a project's free cash flows will fall in one of the following three categories: initial outlay,differential cash flows over the project's life,and the terminal cash flow.
A)True
B)False
Q3) In a replacement decision,the initial outlay is equal to the cost of the new asset less the reduction in depreciation from elimination of the old asset.
A)True
B)False
Q4) If a project uses an asset the corporation already owns,the cost of that asset for capital budgeting purposes is zero to reflect the advantage the project has over projects that require the purchase of new assets.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Determining the Financing Mix
Available Study Resources on Quizplus for this Chatper
150 Verified Questions
150 Flashcards
Source URL: https://quizplus.com/quiz/62753
Sample Questions
Q1) If we ignore bankruptcy and agency costs then the optimal capital structure for a firm under the moderate view would be 100% debt.
A)True
B)False
Q2) Premium Lodging,Inc.,is financed entirely with 3 million shares of common stock selling for $50 a share.Capital of $10 million is needed for this year's capital budget.Additional funds can be raised with new stock (ignore dilution)or with 11 percent 12-year bonds.Premium Lodging's tax rate is 35 percent. a.Calculate the financing plan's EBIT indifference point.
b. The expected level of EBIT is $10,320,000 with a standard deviation of $2,000,000. What is the probability that EBIT will be above the indifference point?
c. Does the "indifference point" calculated in question (a) above truly represent a point where stockholders are indifferent between stock and debt financing? Explain your answer.
Q3) One danger of EBIT-EPS analysis is that it ignores the implicit cost of debt financing.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Dividend Policy and Internal Financing
Available Study Resources on Quizplus for this Chatper
164 Verified Questions
164 Flashcards
Source URL: https://quizplus.com/quiz/62754
Sample Questions
Q1) As a corporation's investment opportunities increase,the dividend payout ratio should decrease so that the corporation can avoid flotation costs.
A)True
B)False
Q2) The clientele effect does not imply that either high or low dividends are optimal,rather that firm's should not make significant and arbitrary changes in their existing dividend policy.
A)True
B)False
Q3) In order to maximize shareholder value,a corporation must earn a higher rate of return on a dollar that is retained in the corporation than the shareholders can earn by investing the dollar elsewhere.
A)True
B)False
Q4) A firm's dividend policy includes two basic components: the dividend payout ratio and the profit retention ratio.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Short-Term Financial Planning
Available Study Resources on Quizplus for this Chatper
141 Verified Questions
141 Flashcards
Source URL: https://quizplus.com/quiz/62755
Sample Questions
Q1) In the percent of sales method,a company's asset requirements are based on the company's projected sales level.
A)True
B)False
Q2) The CFO of Twine Enterprises expects sales to increase from $8,000,000 in 2010 to $12,000,000 in 2011.Current assets in 2010 are equal to $5,000,000.Using the percent of sales method,projected current assets for 2011 are equal to
A)$5,500,000.
B)$7,083,333.
C)$9,000,000.
D)$7,500,000.
Q3) In order to reduce discretionary financing needed,a profitable company could decrease its dividend payout ratio.
A)True
B)False
Q4) Accounts payable and accrued expenses are known as discretionary sources of financing.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Working-Capital Management
Available Study Resources on Quizplus for this Chatper
158 Verified Questions
158 Flashcards
Source URL: https://quizplus.com/quiz/62756
Sample Questions
Q1) Short-term debt has a greater risk of illiquidity than long-term debt because it must be rolled over more frequently and its use creates more uncertainty concerning future interest rates.
A)True
B)False
Q2) One way to improve a company's cash conversion cycle is to increase its days sales outstanding.
A)True
B)False
Q3) In general the greater a firm's reliance upon short-term debt or current liabilities
A)the lower will be its liquidity.
B)the greater will be its liquidity.
C)liquidity will remain constant.
D)there will be no effect on liquidity.
Q4) Discuss the risk-return tradeoff experienced in working-capital management.
Q5) The effective cost to the borrower of an unsecured bank loan is increased if a compensating balance is required.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: International Business Finance
Available Study Resources on Quizplus for this Chatper
109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/62757
Sample Questions
Q1) Covered interest arbitrage can be taken advantage of when premiums in forward rates are not exactly equal to the interest rate differential between two countries.
A)True
B)False
Q2) The spot exchange rate is 1.57 dollars per pound.The 30-day forward exchange rate is .6211 pounds per dollar.Therefore,pounds in the forward market are selling at a ________ to the current spot rate.
A).958 discount
B).958 premium
C).04 discount
D).04 premium
Q3) Exchange rate changes tend to reflect international differences in inflation rates.What is the name of this theory?
A)the purchasing power parity theory
B)the IMF effect
C)interest rate parity theory
D)the law of one price
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Cash,receivables,and Inventory Management
Available Study Resources on Quizplus for this Chatper
179 Verified Questions
179 Flashcards
Source URL: https://quizplus.com/quiz/62758
Sample Questions
Q1) Newtown Manufacturing,Inc.uses semi-hex joints in its manufacturing process.If Stein's total demand for the joints for next year is estimated to be 57,000 units,and if the cost per order is $225,what is Newtown's economic order quantity of semi-hex joints? Assume that carrying costs for semi-hex joints are $0.75 per unit.
A)3,729
B)3,987
C)4,944
D)5,848
Q2) Marketable securities are only those security investments the firm can convert into cash balances within one year.
A)True
B)False
Q3) The more difficult it is to estimate a firm's cash flow needs,the greater the need to carry higher precautionary balances.
A)True
B)False
Q4) Payable-through drafts look like checks but are not drawn on a bank.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 19