Managerial Finance Final Exam
Course Introduction
Managerial Finance is a course designed to provide students with a comprehensive understanding of financial decision-making within organizations. The course covers fundamental concepts such as financial analysis, planning, forecasting, budgeting, and the evaluation of investment opportunities. Students learn how to apply financial theories and tools to analyze business performance, assess risk, and make informed managerial decisions aimed at maximizing shareholder value. Topics include the time value of money, capital structure, working capital management, cost of capital, and the use of financial information for strategic planning. By the end of the course, students will be equipped with practical skills to address financial challenges and support effective management in a dynamic business environment.
Recommended Textbook
Foundations of Finance 7th Edition by Arthur J. Keown
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17 Chapters
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Page 2
Chapter 1: An Introduction to the Foundations of Financial Management
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Sample Questions
Q1) Which of the following is not considered to be a disadvantage of the sole proprietorship form of business organization?
A) limited ability to raise capital
B) life is limited to that of the owner
C) unlimited liability of business owners
D) fewer regulations and reporting requirements
Answer: D
Q2) Your friend,John,believes that since capital markets are efficient,he doesn't need to read the financial press or be involved in stock research before purchasing stocks for his portfolio.He simply throws darts at the stock pages and buys the stocks the darts hit.Is stock research and analysis important when buying and selling stocks in an efficient market?
Answer: Yes! Efficient capital markets theory suggests that investors will not be able to outperform the market in the long-run using just publicly available information.This is due to the fact that market prices very quickly adjust to information.If an investor only knows what all other investors know,then he or she cannot use that information to earn abnormal returns.However,an uninformed investor can certainly underperform the market.
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Page 3
Chapter 2: The Financial Markets and Interest Rates
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Sample Questions
Q1) The negotiated purchase is the most prevalent method of securities distribution in the private sector.
A)True
B)False
Answer: True
Q2) A seasoned equity offering is the sale of additional shares by a company whose shares are already publicly traded.
A)True
B)False
Answer: True
Q3) Reynolds,Inc.needs to raise $5 million by selling common stock.Reynolds sells 1 million shares of stock at $5 each to Goldman Sachs,who then is responsible for selling the shares to investors.This is an example of a
A) privileged subscription.
B) standby agreement.
C) negotiated purchase.
D) commission or best-efforts agreement.
Answer: C
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Chapter 3: Understanding Financial Statements and Cash Flows
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Sample Questions
Q1) Examples of uses of cash include
A) paying cash dividends to stockholders.
B) borrowing an additional amount using a secured loan.
C) selling machinery.
D) all of the above
Answer: A
Q2) A balance sheet is a statement of the financial position of the firm on a given date,including its asset holdings,liabilities,and equity.
A)True
B)False
Answer: True
Q3) All of the following are equity accounts on a balance sheet except:
A) retained earnings.
B) cash.
C) common stock.
D) paid-in capital.
Answer: B
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Page 5
Chapter 4: Evaluating a Firms Financial Performance
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Sample Questions
Q1) Based on the information in Table 4-1,the times interest earned ratio is
A) 32.33 times.
B) 23.75 times.
C) 19.00 times.
D) 12.33 times.
Q2) Based on the information in Table 4-2,the debt ratio is
A) 28.12%.
B) 34.74%.
C) 45.69%.
D) 42.03%.
Q3) Based on the information in Table 4-3,the debt ratio is A) 18.38%.
B) 40.24%.
C) 48.48%.
D) 53.43%.
Q4) All of the following will improve a firm's liquidity position except:
A) increase accounts receivable turnover.
B) increase inventory turnover.
C) increase the average collection period.
D) increase long-term debt and invest the money in marketable securities.
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Chapter 5: The Time Value of Money
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Sample Questions
Q1) To evaluate or compare investment proposals,we must adjust the value of all cash flows to a common date.
A)True
B)False
Q2) A share of preferred stock that pays the same annual dividend forever is an example of a perpetuity.
A)True
B)False
Q3) You bought a racehorse that has had a winning streak for four years,bringing in $500,000 at the end of each year before dying of a heart attack.If you paid $1,518,675 for the horse 4 years ago,what was your annual return over this 4-year period?
A) 8%
B) 33%
C) 18%
D) 12%
Q4) The time value of money is the opportunity cost of passing up the earning potential of a dollar today.
A)True B)False
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Chapter 6: The Meaning and Measurement of Risk and Return
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Sample Questions
Q1) Assume that an investment is forecasted to produce the following returns: a 20% probability of a 12% return; a 50% probability of a 16% return; and a 30% probability of a 19% return.What is the expected percentage return this investment will produce?
A) 33.3%
B) 16.1%
C) 9.3%
D) 15.7%
Q2) Assume that an investment is forecasted to produce the following returns: a 10% probability of a $1,400 return; a 50% probability of a $6,600 return; and a 40% probability of a $10,500 return.What is the expected amount of return this investment will produce?
A) $6,167
B) $7,640
C) $12,890
D) $18,500
Q3) Proper diversification generally results in the elimination of risk.
A)True
B)False
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Page 8
Chapter 7: The Valuation and Characteristics of Bonds
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Sample Questions
Q1) A bond with a $1,000 face value and a 10 percent annual coupon rate matures in 15 years.
a.Determine the value of the bond to a friend of yours with a required rate of return of 13%.
b.A zero coupon bond with similar risk is selling for $180.The bond has a face value of $1,000 and matures in 15 years.Your friend asks you which bond she should invest in,the zero coupon bond or the bond in part (a).Which bond do you recommend,and why? Assume the market price of the bond in part (a)is $820.
Q2) Alaska Power Company issued $1,000 bonds that have an annual coupon rate of 6.5%.The present market value of the bonds is $1,225.If the bonds have 17 years remaining until maturity,what is the current yield on Alaska Power Company bonds?
A) 5.3%
B) 6.5%
C) 7.2%
D) 13.2%
Q3) In Excel,the variable PV stands for a bond's par value.
A)True
B)False
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Chapter 8: The Valuation and Characteristics of Stock
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Sample Questions
Q1) Under cumulative voting a 10% shareholder will likely be able to elect 10% of the board of directors.
A)True
B)False
Q2) Two approaches that allow for the retirement of preferred stock are call provisions and sinking fund provisions.
A)True
B)False
Q3) 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.
Q4) All of the following affect the value of a share of common stock except:
A) the dollar amount of the dividends.
B) investors' required rate of return.
C) the future growth rate for dividends.
D) the stock and paid-in-capital amounts on the balance sheet.
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Chapter 9: The Cost of Capital
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Sample Questions
Q1) Seafood Products Corp.is expected to pay a dividend of $2.60 next year.Dividends are expected to grow at a constant rate of 8% per year,and the stock price is currently $20.00.New stock can be sold at this price subject to flotation costs of 15%.The company's marginal tax rate is 35%.Compute the cost of internal equity (retained earnings)and the cost of external equity (new common stock),respectively.
A) 0, 21.00%
B) 8.00%, 23.29%
C) 21.00%, 23.29%
D) 23.00%, 25.48%
Q2) If a firm's tax rate increases then its weighted average cost of capital increases also. A)True
B)False
Q3) Preferred dividends are paid with before-tax dollars because the dividend rate is known,whereas common stock dividends are paid with after-tax dollars.
A)True
B)False
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Chapter 10: Capital-Budgeting Techniques and Practice
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Sample Questions
Q1) The discounted payback period takes the time value of money into account in that it uses discounted free cash flows rather than actual undiscounted free cash flows in calculating the payback period.
A)True
B)False
Q2) A significant disadvantage of the payback period is that it
A) is complicated to explain.
B) increases firm risk.
C) does not properly consider the time value of money.
D) provides a measure of liquidity
Q3) An independent project should be accepted if it
A) produces a net present value that is greater than or equal to zero.
B) produces a net present value that is greater than the equivalent IRR.
C) has only one sign reversal.
D) produces a profitability index greater than or equal to zero.
Q4) If a project is acceptable using the net present value criteria,then it will also be acceptable under the less stringent criteria of the payback period.
A)True
B)False
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Chapter 11: Cash Flows and Other Topics in Capital Budgeting
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Sample Questions
Q1) Increasing depreciation expense results in a decrease of the incremental after-tax free cash flow.
A)True
B)False
Q2) Creighton Industries is considering the purchase of a new strapping machine,which will cost $150,000,plus an additional $10,500 to ship and install.The new machine will have a 5-year useful life and will be depreciated to zero using the straight-line method.The machine is expected to generate new sales of $45,000 per year and is expected to save $16,000 in labor and electrical expenses over the next 5-years.The machine is expected to have a salvage value of $20,000.Creighton's income tax rate is 35%.Creighton uses a 12.5% discount rate for capital budgeting purposes.What is the machine's NPV?
A) $29,888
B) $25,062
C) $22,153
D) $27,894
Q3) The most relevant measure of risk for capital budgeting is project standing alone risk.
A)True
B)False
Page 13
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Chapter 12: Determining the Financing Mix
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Sample Questions
Q1) Potential applications of the break-even model include
A) replacement for time-adjusted capital budgeting techniques.
B) pricing policy.
C) optimizing the cash-marketable securities position of a firm.
D) all of the above.
Q2) The Knight Corporation projects that next year its fixed costs will total $240,000.Its only product sells for $34 per unit,of which $18 is a variable cost.The management of Knight is considering the purchase of a new machine that will lower the variable cost per unit to $14.The new machine,however,will add to fixed costs through an increase in depreciation expense.How large can the addition to fixed costs be in order to keep the firm's break-even point in units produced and sold unchanged?
Q3) Which of the following is a fixed cost?
A) insurance
B) direct material
C) direct labor
D) freight costs on products
Q4) A key tool for evaluating business risk is break-even analysis.
A)True
B)False
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Chapter 13: Dividend Policy and Internal Financing
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Sample Questions
Q1) If the tax rate on dividends and the tax rate on capital gains are the same,then investors are indifferent to dividend policy.
A)True B)False
Q2) A corporation with $1 million in retained earnings at the end of the year could easily pay a dividend of $500,000.
A)True B)False
Q3) Which of the following factors would most likely be present if a company increases its dividend payout ratio significantly?
A) a high debt/equity ratio (i.e., use of a large amount of financial leverage)
B) a quick ratio that is significantly below the industry average
C) current shareholders cannot participate in a new offering and desire to maintain ownership control
D) the variability of expected future earnings decreases
Q4) A firm's dividend policy includes two basic components: the dividend payout ratio and the profit retention ratio.
A)True B)False
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Chapter 14: Short-Term Financial Planning
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Sample Questions
Q1) Discretionary financing needed is equal to projected total assets minus projected total liabilities.
A)True
B)False
Q2) One of the virtues of the percent-of-sales method is the precision of the estimate of future financing needs.
A)True
B)False
Q3) Traditional financial forecasting takes the sales forecast as given and forecasts the corresponding expenses,assets,and liabilities of the firm.
A)True
B)False
Q4) A corporation that increases it net profit margin will need less discretionary financing,other things being equal.
A)True B)False
Q5) The key ingredient in a firm's financial planning is an accurate sales forecast. A)True B)False
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Chapter 15: Working-Capital Management
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Sample Questions
Q1) With regard to the hedging principle,which of the following assets should be financed with current liabilities?
A) minimum level of cash required for year round operations
B) expansion of accounts receivable to meet seasonal demand
C) machinery
D) buildings
Q2) Jones Company has a cash flow problem.The company owes its suppliers $300,000 on credit terms of 2/10 net 40,but Jones doesn't have the cash to pay during the discount period.Jones,however,can borrow the $300,000 at annual rate of 24%.Should Jones borrow the money to pay its accounts payable?
A) No, additional borrowing will cost more for interest ($60,000 per year) than the discount is worth.
B) Yes, the effective cost of forgoing the discount is greater than 24%.
C) No, the effective cost of forgoing the discount is equal to 24%, and there are transactions costs associated with borrowing.
D) It doesn't matter because the present value of the cost of borrowing is exactly equal to the amount of the discount for paying within 10 days.
Q3) Discuss the risk-return tradeoff experienced in working-capital management.
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Chapter 16: Current Asset Management
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Sample Questions
Q1) The benefits of a lockbox system include all of the following except:
A) increased working cash.
B) elimination of clerical functions.
C) increase in total float.
D) early knowledge of dishonored checks.
Q2) Commercial paper is much more liquid than money-market mutual funds because commercial paper is available to only the most creditworthy corporations.
A)True
B)False
Q3) Lockbox arrangement benefits include
A) increased working capital from shorter receivables/cash transformation time.
B) elimination of bank charges for handling and audit functions.
C) increased cash flows from delays in uncollectible check processing.
D) all of the above are benefits from this arrangement.
Q4) A company is technically insolvent when
A) cash outflows in a given period are greater than cash inflows.
B) earnings before interest payments are less than the interest payments.
C) it lacks the necessary liquidity to promptly pay its current debt obligations.
D) current ratio is less than 1.0.
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Chapter 17: International Business Finance
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Sample
Questions
Q1) A British-made component costs 45 U.K.pounds.A company in the United States needs to buy these components and the current indirect quote indicates that one dollar will buy .6250 pounds.Ignoring transactions costs,how much will one component cost in U.S.dollars?
A) $28.13
B) $45.63
C) $57.14
D) $72.00
Q2) A foreign currency option differs from a forward exchange contract is all of the following ways except:
A) it is used to hedge for foreign exchange risk.
B) it permits delivery of the currency anytime before maturity.
C) it is traded in standard amounts.
D) it is traded with standard maturity dates.
Q3) Most major countries in the world have agreed on fixed exchange rates in order to facilitate international trade.
A)True
B)False
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