Managerial Finance
Pre-Test Questions
Course Introduction
Managerial Finance explores the principles and practices essential for effective financial management in organizations. The course covers key topics such as financial analysis, planning and control, capital budgeting, working capital management, risk assessment, and valuation techniques. Emphasis is placed on the decision-making role of financial managers in maximizing firm value, resource allocation, and strategic financial planning. Through case studies and real-world applications, students develop analytical skills to evaluate financial statements, forecast financial performance, and recommend sound financial strategies for businesses operating in dynamic environments.
Recommended Textbook
Financial Management Concepts and Applications 1st Edition by Stephen Foerster
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14 Chapters
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Page 2
Chapter 1: Overview of Financial Management
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Sample Questions
Q1) Do corporate decisions that increase the value of the firm's equity benefit society as a whole?
A)Yes,as long as the value of the firm's equity increases,society is better off.
B)Yes.as long as the increase in the value of the firm's equity does not come at the expense of others.
C)No,any gain in the value of the firm's equity is always less than the cost to society.
D)No,any gains in the value of the firm's equity are perfectly offset by societal costs.
Answer: B
Q2) The main duties of financial managers are:
A)assessing the current business situation and future financing needs.
B)developing long-term financing strategies.
C)assessing future investments.
D)All of the above.
Answer: D
Q3) Limited partners may actively manage the business.
A)True
B)False
Answer: False
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3
Chapter 2: Sizing up a Business: a Non-Financial Perspective
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Sample Questions
Q1) When sizing up the operations of the firm,it is important to examine:
A)the level of technological innovation and investments of the firm.
B)the level of skill of the firm's work force.
C)the capacity of the firm's plant or facilities.
D)All of the above.
Answer: D
Q2) Which of the following is TRUE about the threat of new entrants?
A)New entrants often increase capacity within the industry.
B)The easier to enter an industry,the higher the profit margins and growth potential.
C)If competitors are strong,existing competitors will not react strongly to any new entrants.
D)If there are huge barriers to entry,competitors will be attracted to the industry.
Answer: A
Q3) The overall goal in sizing up each external and internal factor is to increase the value of the firm.
A)True
B)False
Answer: True
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Chapter 3: Understanding Financial Statements
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Sample Questions
Q1) An income statement reports a firm's profit relative to its total investment in plant and equipment.
A)True
B)False
Answer: False
Q2) Which of the basic financial statements is used to explain changes in the owner's equity that are not explained by the income statement?
A)Balance sheet
B)Statement of shareholders' equity
C)Income statement
D)Cash flow statement
Answer: B
Q3) Which of the following is NOT considered a fixed asset?
A)Land
B)Equipment
C)Buildings
D)Patents
Answer: D
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Chapter 4: Measuring Financial Performance
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Sample Questions
Q1) A firm that has an average age of accounts receivable that is significantly lower than the industry average:
A)may have higher credit standards and offer credit to only the most highly qualified customers.
B)may have credit terms that allow fewer days to pay before beginning to charge interest.
C)may offer a larger discount than the industry average to encourage customers to pay early.
D)All of the above.
Q2) Use the information to determine the 2013 long term debt to equity ratio for Bacon Signs.
A)$5,500/$5,420 = 1.01
B)$5,500/$9,620 = 0.57
C)$6,678/ $5,420 = 1.23
D)$6,678/$9,620 = 0.69
Q3) Performance measures (i.e.,ratio analysis)allow for:
A)internal assessment of a firm.
B)external assessment of a firm.
C)comparison with other firms in the industry.
D)all of the above.
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Chapter 5: Managing Day-To-Day Cash Flow
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Sample Questions
Q1) Which of the following in NOT a potential benefit of granting trade credit?
A)Enhances competitiveness for the firm granting credit.
B)A delay in receiving payment from customers.
C)May assist in generating additional sales.
D)May allow quicker movement of inventory.
Q2) The operating cash flow cycle compares the combined age of inventory and receivables with the age of payables in order to identify a funding gap.
A)True
B)False
Q3) A firm has a net income (after-tax profit)of $500,000 and pays dividends of $150,000.Which of the following statements is true?
A)Cash decreased by $150,000
B)Retained earnings increased by $350,000
C)Long-term debt increased by $350,000
D)All of the statements are true.
Q4) Other things equal,it is more desirable to have a larger working capital gap.
A)True
B)False
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Chapter 6: Projecting Financial Requirements and Managing Growth
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Sample Questions
Q1) Jensen Inc.has net earnings of $24,000,000 this year and a dividend payout policy of 40% of earnings.If the firm follows its regular payout policy what will be the addition to retained earnings this year?
A)$9,600,000
B)$12,000,000
C)$14,400,000
D)$16,000,000
Q2) Because key variables are often related rather than isolated we often change our estimates for selected variables simultaneously when examining pro forma statements.We call this type of activity:
A)ratio analysis.
B)scenario analysis.
C)sensitivity analysis.
D)form analysis.
Q3) Which of the following choices would NOT be considered a cash outflow?
A)operational expenses
B)anticipated sales
C)selling,general,and administrative expenses
D)capital expenditures
8
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Chapter 7: Time Value of Money Basics and Applications
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Sample Questions
Q1) Suppose a preferred share pays perpetual quarterly dividends of $0.25 and has a per annum dividend yield of 6 percent.What is the fair value of this preferred share?
A)$14.67
B)$15.33
C)$16.00
D)$16.67
Q2) If the discount rate used to compare the present value of two annuities is 0%,then the timing of the cash flows is unimportant in the present value calculation.
A)True
B)False
Q3) Consider the equation for present value.If you wished to increase the present value of a future amount by changing only one variable,which of the following actions should you take?
A)increase the time period
B)decrease the future value
C)decrease the interest rate
D)This statement cannot be answered with the information provided.
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Chapter 8: Making Investment Decisions
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Sample Questions
Q1) The decision rule for the profitability index is that any project with ________ is an acceptable project.
A)a ratio less than one
B)a ratio greater than one
C)a ratio greater than zero
D)a ratio less than zero
Q2) Managers wishing to add value to the firm can do this by adding projects with a ________ net present value.
A)positive
B)negative
C)zero
D)none of the above
Q3) The net present value method implicitly makes the reasonable assumption that any interim cash flows from the project are reinvested at the firm's internal rate of return.
A)True
B)False
Q4) The payback method of capital budgeting does NOT incorporate opportunity costs.
A)True
B)False
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Chapter 9: Overview of Capital Markets: Long-Term
Financing Instruments
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Sample Questions
Q1) In the short-run,firms tend to stick to a stable dollar-dividend policy.
A)True
B)False
Q2) Core Concepts Inc,.has experienced stock returns of 8.4%,6.3%,and 14.2% over the last three years.Over this time period,what has been the firm's arithmetic average annual rate of return?
A)9.58%
B)9.63%
C)9.88%
D)9.92%
Q3) Currently in the United States,it is not legal to issue different classes of common stock.For instance,issuing two classes of common stock where one class has superior voting rights compared to the other.
A)True
B)False
Q4) Equities are more commonly issued as public offerings than as private offerings. A)True
B)False
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Q5) In what ways are preferred shares like debt and in what ways are they like common equity?
Chapter 10: Assessing the Cost of Capital: What Return
Investors Require
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Sample Questions
Q1) The risk that can be eliminated through the practice of diversification is known as ________ risk.
A)unsystematic
B)systematic
C)nondiversifiable
D)speculative
Q2) Diversification of stocks reduces unsystematic or firm-specific risk,leaving systematic or market risk.
A)True
B)False
Q3) The CAPM incorporates the risk-free rate with the market risk premium and beta,a relative risk measure.
A)True
B)False
Q4) Standard deviation is the practice of combining assets or investments in order to reduce risk.
A)True
B)False
Q5) Identify methods that firms use to establish hurdle rates for capital projects.
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Chapter 11: Understanding Financing and Payout Decisions
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Sample Questions
Q1) Your author identifies the ________ model of capital structure as one that describes the order in which firms typically raise capital.
A)step
B)internal-external
C)queuing
D)pecking-order
Q2) The combined debt plus equity income is equal to the equity income + (Interest * the tax rate).
A)True
B)False
Q3) Which of the following is NOT one of M&M's perfect capital market assumptions?
A)There are no taxes.
B)Individuals must borrow (or lend)at the same rate at which a firm can borrow.
C)There is no asymmetric information in the market place.
D)There are no costs of bankruptcy.
Q4) According to data presented by the author,corporate tax rates in the United States are among the lowest across major economies.
A)True
B)False
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Chapter 12: Designing an Optimal Capital Structure
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Sample Questions
Q1) Assume that a firm's earnings per share (EPS)are expected to be $1.35 next year and that analysts have determined that an appropriate forward-looking multiple is 20 times the projected earnings.What should the stock price be?
A)$11.35
B)$20.00
C)$27.00
D)$28.75
Q2) ________ is measured by the proportional amount of debt in the firm's capital structure.
A)Relative risk
B)Business risk
C)Operating risk
D)Financial risk
Q3) If a firm takes on ________ it may be downgraded by rating agencies,resulting in ________ interest payments.
A)too much incremental debt; lower
B)too much incremental debt; higher
C)too little incremental debt; lower
D)too little incremental debt; higher
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Chapter 13: Measuring and Creating Value
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Sample Questions
Q1) In order for a firm to realize positive EVA,the:
A)ROCE must be less than the cost of capital.
B)cost of capital must be greater than the ROCE.
C)ROCE must be greater than the cost of capital.
D)the ROCE and cost of capital must be equal.
Q2) Ellis Manufacturing Inc.has estimated FCFF for each of the next five years and believes that subsequent cash flows will grow at a constant annual rate of 3% indefinitely.If FCFF are $4,500,000 in year five,and the cost of capital is 9%,what is the value TODAY of these terminal value cash flows?
A)$48,744,854
B)$50,207,200
C)$77,250,000
D)There is not enough information to answer this question.
Q3) For the FCFF calculation:
A)we must examine changes in net working capital.
B)a firm that is not growing may be expected to have no changes in net working capital.
C)it is important to consider only incremental or changing working capital needs.
D)all of the above are true.
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Chapter 14: Comprehensive Case Study: Wal-Mart
Stores,inc
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Sample Questions
Q1) The long-run overall outlook for growth in the retail segment of the economy is ________ the economy as a whole.
A)equal to B)less than C)greater than D)this question was not addressed by the author.
Q2) In 2012,Walmart bought back over 100 million shares of stock.
A)True
B)False
Q3) Depreciation expense is found on the ________ and accumulated depreciation is found on the ________.
A)income statement; income statement.
B)balance sheet; income statement.
C)income statement; balance sheet.
D)balance sheet; balance sheet.
Q4) Because book value entries are historical rather than forward-looking,the market value version of a firm's balance sheet must be greater than the book value version.
A)True
B)False
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