Managerial Finance
Final Test Solutions
Course
Introduction
Managerial Finance explores the principles and techniques that managers use to make sound financial decisions within organizations. The course covers key topics such as financial statement analysis, budgeting, working capital management, capital structure, risk assessment, and valuation. Emphasizing both theory and practical applications, students learn how financial data inform strategic planning and operational control. Real-world case studies and problem-solving exercises develop analytical skills necessary for effective financial management in a dynamic business environment.
Recommended Textbook
Essentials of Corporate Finance 2nd Australia Edition by Stephen Ross
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18 Chapters
871 Verified Questions
871 Flashcards
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Chapter 1: Introduction to Financial Management
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Sample Questions
Q1) Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50/50 basis.Which type of entity did they create if they have no personal liability for the firm's debts?
A)limited partnership
B)corporation
C)sole proprietorship
D)general partnership
E)public company
Answer: B
Q2) Which one of the following functions should be assigned to the treasurer rather than the controller?
A)data processing
B)cost accounting
C)tax management
D)cash management
E)financial accounting
Answer: D
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Page 3
Chapter 2: Financial Statements, Taxes, and Cash Flow
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Sample Questions
Q1) A current asset is defined as an asset that:
A)was purchased after the last financial statement date
B)was purchased within the past twelve months
C)normally converts to cash within one year
D)was manufactured within the past year and has yet to be sold
E)is highly illiquid
Answer: C
Q2) Which one of the following will increase the cash flow from assets,all else constant?
A)a decrease in net capital spending
B)a decrease in the cash flow to creditors
C)a decrease in the annual depreciation
D)an increase in the change in net working capital
E)an increase in the net new equity raised
Answer: A
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4
Chapter 3: Working With Financial Statements
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Sample Questions
Q1) Delmont Movers has a profit margin of 6.2 per cent and net income of $48 900.What is the common-size percentage for the cost of goods sold if that expense amounted to $379 000 for the year?
A)12.90 per cent
B)23.50 per cent
C)33.25 per cent
D)41.06 per cent
E)48.05 per cent
Answer: E
Q2) Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?
A)Du Pont rate
B)External growth rate
C)Sustainable growth rate
D)Internal growth rate
E)Cash flow rate
Answer: D
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Page 5
Chapter 4: Introduction to Valuation: the Time Value of Money
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Sample Questions
Q1) Suppose you need to pay your air-ticket of $2400 for a European trip next year.If you deposit money now,you can earn 7% per annum.How much do you need to invest today?
A)$1759
B)$1968
C)$2000
D)$2151
E)$2243
Q2) Today you invest $1000 in a credit union that pays 5 per cent simple interest.How much will you have accumulated in 4 years?
A)$1215.51
B)$1512.51
C)$1200.00
D)$1215.00
E)$4800.00
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6
Chapter 5: Discounted Cash Flow Valuation
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Sample Questions
Q1) You have approached Which Bank for a loan to buy a house.The bank offers you a $400 000 loan,repayable in equal monthly instalments at the end of each month for the next 20 years.If the interest rate on the loan is 9% per annum,compounded monthly,your monthly repayment (to the nearest dollar)will be:
A)$1831
B)$3599
C)$2821
D)$4667
E)$3652
Q2) Bondi Beachwear Pty Ltd has just purchased a new warehouse.To finance the purchase,they arranged for a 25-year mortgage for 80 per cent of the $1 800 000 purchase price.The monthly payment on this loan will be $10 800.What is the APR? What is the EAR?
A)7.67 per cent;7.94 per cent
B)7.67 per cent;8.03 per cent
C)7.72 per cent;7.94 per cent
D)7.72 per cent;8.03 per cent
E)7.75 per cent;8.03 per cent
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7
Chapter 6: Interest Rates and Bond Valuation
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Sample Questions
Q1) The interest rate of return that has not been adjusted for inflation is called:
A)a nominal rate
B)a yield to maturity
C)a real rate
D)a floating rate
E)a coupon rate
Q2) What is the principal amount of a bond that is repaid at the end of the loan term called?
A)market price
B)dirty price
C)accrued price
D)coupon
E)face value
Q3) The interest rate risk premium is the compensation investors require for their assumption of the risk related to:
A)inflation rate fluctuations
B)the convertibility of a bond
C)a potential default on the bond
D)changes in interest rates
E)the taxability of a bond
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Chapter 7: Equity Markets and Stock Valuation
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Sample Questions
Q1) Next year's expected annual dividend divided by today's stock price is called the stock's:
A)required return
B)capital return
C)capital gains yield
D)maturity yield
E)dividend yield
Q2) Which one of the following generally pays a fixed dividend,receives first priority in dividend payment,and maintains the right to a dividend payment,even if that payment is deferred?
A)cumulative preference shares
B)ordinary shares
C)non-cumulative preference shares
D)promisary notes
E)corporate bonds
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9
Chapter 8: Net Present Value and Other Investment Criteria
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Sample Questions
Q1) Which one of the following is an indicator that an investment is acceptable?
A)a modified internal rate of return equal to zero
B)a profitability index of zero
C)an internal rate of return that exceeds the required return
D)a payback period that exceeds the required period
E)a negative average accounting return
Q2) The average net income of a project divided by the project's average book value is referred to as the project's:
A)required return
B)market rate of return
C)internal rate of return
D)average accounting return
E)discounted rate of return
Q3) Calculate the approximate internal rate of return given the following series of cash flows.
A)14.47%
B)15.80%
C)19.67%
D)17.92%
E)16.83%
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Chapter 9: Making Capital Investment Decisions
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Sample Questions
Q1) Which one of the following principles refers to the assumption that a project will be evaluated based on its incremental cash flows?
A)forecast assumption principle
B)base assumption principle
C)fallacy principle
D)erosion principle
E)stand-alone principle
Q2) Billy's Plumbing Supplies is considering the purchase of an asset that costs $450 000 and is depreciated straight-line to zero over its six-year tax life.The asset is to be used in a four-year project;at the end of the project,the asset can be sold for $120 000.If the relevant tax rate is 30 per cent,what is the depreciation tax shield over the life of this asset of this asset?
A)-$22 500
B)-$75 000
C)$75 000
D)$52 500
E)$22 500
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Chapter 10: Some Lessons From Capital Market History
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Sample Questions
Q1) The higher the standard deviation of a security,the _____ the expected rate of return and the _____ the risk.
A)lower;lower
B)lower;higher
C)higher;lower
D)higher;higher
E)more constant;more constant
Q2) Over the past ten years,large-company stocks have returned 11.2 per cent.The risk premium on these stocks was 4.8 per cent and the inflation rate was 3.7 per cent.What was the risk-free rate of return?
A)2.7 per cent
B)6.4 per cent
C)7.5 per cent
D)8.5 per cent
E)10.1 per cent
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12
Chapter 11: Risk and Return
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Sample Questions
Q1) Bondi Beachwear has an expected return of 12.9 per cent and a beta of 1.21.The expected return on the market is 11.7 per cent.What is the risk-free rate?
A)3.87 per cent
B)5.99 per cent
C)5.38 per cent
D)4.24 per cent
E)4.61 per cent
Q2) The beta of a portfolio cannot be less than _____ and no more than _____:
A)0;1
B)the lowest individual beta in the portfolio;the highest individual beta in the portfolio
C)the lowest individual beta in the portfolio;1
D)0;the highest individual beta in the portfolio
E)1;2
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13
Chapter 12: Long-Term Financing
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Sample Questions
Q1) Rainbow Mining Pty Ltd is concerned that opening a new credit line will affect its share price.Now the company has a risk return on its shares of 17.50%,determined by using a beta factor of 1.50.The risk free rate is 7%.What is the market risk premium based on the information given for Rainbow Mining?
A)11.86%
B)5.50%
C)7.00%
D)17.50%
E)10.50%
Q2) Which one of the following statements is correct? Assume the pre-tax cost of debt is less than the cost of equity.
A)A firm may change its capital structure if the government changes its tax policies.
B)The cost of preferred stock decreases when the tax rate increases.
C)A decrease in the systematic risk of a firm will increase the firm's cost of capital.
D)A decrease in a firm's debt-equity ratio will decrease the firm's cost of capital.
E)A decrease in the dividend growth rate increases the cost of equity.
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Chapter 13: Leverage and Capital Structure
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Sample Questions
Q1) Day 'n Nite currently has 25 000 shares of stock outstanding and no debt.The price per share is $20.The firm is considering borrowing funds at 8 per cent interest and using the proceeds to repurchase 5000 shares of stock.Ignore taxes.How much is the firm borrowing?
A)$180 000
B)$140 000
C)$100 000
D)$165 000
E)$185 000
Q2) If we observe capital structures across the industries in Australia,what industry typically has the highest debt-equity ratios,excluding banks?
A)property trusts
B)capital goods
C)gold mining
D)food and staples retailing
E)utilities
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15
Chapter 14: Dividends and Dividend Policy
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Sample Questions
Q1) Which one of the following is a payment of either cash or shares that is paid out of earnings to a firm's shareholders?
A)retained earnings
B)dividend
C)stock repurchase
D)interest
E)distribution
Q2) The ex-dividend date is defined as _____ business days before the date of_____:
A)four;record
B)three;declaration
C)two;payment
D)three;payment
E)three;record
Q3) If a firm follows a residual dividend policy,they will give precedence to:
A)avoiding dividend cuts over changing the debt-equity ratio
B)maintaining a constant level of debt before paying dividends
C)paying dividends over accepting positive investments
D)maintaining their desired debt-equity ratio over paying dividends
E)paying a constant dividend over increasing retained earnings
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Page 16
Chapter 15: Raising Capital
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Sample Questions
Q1) Bondi Bakery needs to raise $38 million to expand its operations nationally.The company will sell new shares using a general cash offering.The underwriters charge a 7.65 per cent fee,the administrative costs are $395 000,and the offer price is $26 per share.How many shares of stock must be sold for Bondi Bakery to receive the total funds it desires?
A)1 814 141 shares
B)1 638 311 shares
C)1 833 333 shares
D)1 599 059 shares
E)1 647 222 shares
Q2) Which one of the following is the most likely to be financed with venture capital?
A)building a new factory overseas to move production closer to existing foreign customers
B)building a prototype of a new invention
C)expanding a firm's existing production line
D)raising capital to purchase a competitor
E)raising equity to reduce the debt load of a firm
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Chapter 16: Short-Term Financial Planning
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Sample Questions
Q1) Which one of the following statements related to a cash budget is correct?
A)The cumulative surplus is computed prior to adjusting for the minimum cash balance.
B)Financially healthy firms can have a negative quarterly net cash inflow.
C)Firms generally set the minimum cash balance at zero for planning purposes.
D)Capital expenditures are treated as a cash inflow on a cash budget.
E)A positive net cash inflow for a period indicates the cash disbursements exceed the cash collections for the period.
Q2) Which one of the following is the length of time that a retailer owes its supplier for an inventory purchase?
A)inventory period
B)operating cycle
C)cash cycle
D)accounts payable period
E)accounts receivable period
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Chapter 17: Working Capital Management
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Sample Questions
Q1) Fischer's Furniture sells 2400 sofas a year at an average price per sofa of $1250.The carrying cost per unit is $11.60.The company orders 80 sofas at a time and has a fixed order cost of $52 per order.The sofas are sold out before they are restocked.What is the economic order quantity?
A)147 sofas
B)171 sofas
C)211 sofas
D)162 sofas
E)188 sofas
Q2) Which one of the following is the graphical representation of the sum of the carrying costs and the opportunity costs of a credit policy?
A)economic credit function
B)credit analysis
C)credit cost curve
D)accounts receivables aging
E)optimal credit curve
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Chapter 18: International Aspects of Financial Management
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Sample Questions
Q1) Which one of the following must be significantly eliminated if interest rate parity is to exist?
A)absolute purchasing power parity
B)short-run exposure to exchange rate risk
C)covered interest arbitrage opportunities
D)relative purchasing power parity
E)translation exposure
Q2) Which one of the following is the best universal definition of an exchange rate?
A)number of foreign dollars that can be sold for every one US dollar paid
B)the number of units of a currency that were originally required to obtain one euro when the country adopted the euro as their official currency
C)the price,which includes the government fee,to purchase a country's currency
D)the price of a country's currency expressed in terms of that country's currency unit
E)price of one country's currency expressed in terms of another country's currency
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