Restaurant Financial Management
Exam Practice Tests
Course Introduction
Restaurant Financial Management introduces students to the essential principles and practices of financial management in the hospitality industry, with a particular focus on restaurants. The course covers fundamental concepts such as budgeting, forecasting, cost control, revenue management, financial statement analysis, and performance metrics. Students will learn how to interpret financial reports, manage cash flow, set pricing strategies, and make informed decisions to ensure profitability and long-term success. Real-world case studies and practical exercises provide hands-on experience in applying financial tools and techniques specific to the unique challenges faced by restaurant managers and owners.
Recommended Textbook
Hospitality Financial Management 1st Edition by Robert
E. Chatfield
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12 Chapters
393 Verified Questions
393 Flashcards
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Chapter 1: Introduction
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Sample Questions
Q1) Agency problems arise because
A)some people just don't get along.
B)the principal is shirking from her responsibility.
C)people usually act in their own best interest.
D)you can never make much money working for someone else.
Answer: C
Q2) A value-creating innovation of Marriott was
A)having restaurants in their hotels.
B)guest rewards program.
C)hotel swimming pools.
D)exercise rooms.
Answer: A
Q3) The value of dividends is not affected by the date they are received.
A)True
B)False
Answer: False
Q4) Preferred stock is a security that has the features of both debt and equity.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Financial Markets and Financial Instruments
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) Stock prices are based upon the future value of cash flows.
A)True
B)False
Answer: False
Q2) An 81/2 09 bond is currently selling for 102.50. The principal amount is $1,000. The current yield on the bond is
A)8.5 percent.
B)9 percent.
C)8.29 percent.
D)none of the above. Answer: D
Q3) Most stock trading occurs on the secondary market.
A)True
B)False Answer: True
Q4) The return on commercial paper is guaranteed by the federal government. A)True
B)False Answer: False
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Chapter 3: Review of Financial Statements and Selected Ratios
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Sample Questions
Q1) Securities held by the firm for more than are year are classified as
A)temporary investments.
B)marketable securities.
C)deferred investments.
D)long-term investments.
Answer: D
Q2) The DuPont ratio shows that return on assets is a function of
A)current ratio and debt ratio.
B)profit margin and asset turnover.
C)profit margin and inventory turnover.
D)debt ratio and number of times interest earned.
Answer: B
Q3) A manager at a local food service establishment recently calculated her food cost percentage to be 43%. This percentage is:
A)very high.
B)sort of low.
C)can't tell.
D)high, but not too high.
Answer: C
Page 5
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Chapter 4: The Relationship Between Risk and Return
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Sample Questions
Q1) The borrowing-lending line extending from the risk-free asset through the market portfolio is called the Capital Market Line.
A)True
B)False
Q2) The coefficient of variation measures the amount of risk for a given level of return.
A)True
B)False
Q3) All else being equal, risk averse investors prefer wider, flatter distribution of returns around the mean.
A)True
B)False
Q4) The variance is the square root of standard deviation.
A)True
B)False
Q5) The best definition of "risk" is A)taking a chance.
B)not being able to understand all the outcomes.
C)uncertainty about an outcome.
D)how large the outcome is.
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Chapter 5: Time Value of Money
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Sample Questions
Q1) Which of the following properly describes the future value of an annuity due?
A)The first payment is one period after the present value.
B)The last payment is one period after the future value.
C)The first payment is on the same date as the present value.
D)The last payment is on the same date as the future value.
Q2) The future value of an annuity due is on the same date as the last payment.
A)True B)False
Q3) The process of computing the present value of a future value is called discounting.
A)True B)False
Q4) What is the future value of $1,500 invested at a 5% rate for 7 years?
A)$2,103.83
B)$1,066.02
C)$12,213.01
D)$2,110.65
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7
Chapter 6: Fixed Income Securities: Bonds and Preferred Stock
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Sample Questions
Q1) Which of the following is the credit contract governing the investor and issuing corporation of a bond?
A)debenture
B)indenture
C)collateral
D)sinking fund
Q2) What is a bond's market price when the required rate of return on the bond is less than the coupon rate?
A)The bond's price is less than the par value.
B)The bond's price is the same as the par value.
C)The bond's price is greater than the par value.
D)None of the above.
Q3) Interest on a bond is a tax-deductible cost for the paying corporation.
A)True
B)False
Q4) A call feature allows the issuing corporation to repay the bond prior to maturity if it so wishes.
A)True
B)False
8
Chapter 7: Common Stock
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Sample Questions
Q1) Why is valuing common stock more difficult than valuing bonds?
A)Common stock is a long-term security and a bond is a short-term security.
B)Because bonds have more seniority than common stocks.
C)Because common stock is less risky to the investor than a bond.
D)It is more difficult to forecast future common stock cash flows than bond cash flow.
Q2) Why is common stock financing lower risk to the firm than financing with bonds?
A)The lack of a fixed dividend provides the firm greater flexibility versus the interest cost of a bond.
B)Common stock typically has a shorter maturity than bonds.
C)Although common stock dividends are typically fixed, they are usually lower than the interest on bonds.
D)The sinking fund feature on common stock lowers its risk.
Q3) Common stock provides the investor a residual claim on both the firm's assets and the firm's cash flow.
A)True
B)False
Q4) The most typical common stock maturity is 20 years.
A)True
B)False
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Chapter 8: Cost of Capital
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Sample Questions
Q1) Which model is typically used to estimate the cost of using external equity capital?
A)dividend valuation model
B)capital asset pricing model
C)arbitrage pricing theory model
D)rate of return on perpetuity model
Q2) Marion's Miraculous Resorts has a current capital structure that is 50% equity, 40% debt, and 10% preferred stock. This is considered optimal. Marion is considering a $40 million capital budgeting project. Marion has estimated the following: After-tax cost of debt: 8.5%
Cost of preferred stock: 9.5%
Cost of internal equity: 14.0%
If all equity comes from internal sources, what should Marion's cost of capital be for this project?
A)10.67%
B)11.35%
C)9.45%
D)12.15%
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Chapter 9: Introduction to Capital Budgeting and Cash Flow
Estimation
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Sample Questions
Q1) Which one of the following would not typically be considered a capital budgeting project for a restaurant?
A)renovating the ladies' restroom
B)installing a new fire suppression and alarm system
C)buying a new dishwashing system
D)buying toilet paper for both the ladies' and men's restrooms
Q2) Poon's Noodle House is considering replacing their noodle-processing machine. The current machine was purchased 4 years ago at a total cost of $20,000. It is being depreciated straight-line to a zero value over 8 years. If Poon sells the noodle-processing machine for $6,000, what is the after-tax cash flow to Poon's Noodle House? Use 40% for the effective tax rate.
A)$8,400
B)$3,600
C)$2,400
D)$7,600
Q3) When making a capital budgeting decision, cash flows should be estimated on an incremental basis, not a total basis.
A)True
B)False
Page 11
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Chapter 10: Capital Budgeting Decision Methods
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Sample Questions
Q1) A project's net present value is the sum of the future values of the net cash flows compounded at the required rate of return minus the net investment.
A)True
B)False
Q2) Which of the following is true for 5-year project with a 3-year payback period?
A)The net present value is negative.
B)The net present value is zero.
C)The net present value is positive.
D)Not enough information to determine anything about the project's net present value.
Q3) If a project's net present value is positive negative), the project is generally acceptable unacceptable).
A)True
B)False
Q4) The discounted payback period does not take into account the time value of money.
A)True
B)False
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Page 12
Chapter 11: An Introduction to Hotel Valuation
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Sample Questions
Q1) If the appraiser finds deferred maintenance at the property, she should
A)add it to the value of the property.
B)subtract it from the value conclusion.
C)increase maintenance expense in the income statement.
D)use a higher discount rate.
Q2) Given a debt percentage of 40 percent, a mortgage constant of .12, and a required return on equity of 16 percent, what is the overall capitalization rate?
A)14 percent
B)13 percent
C)12 percent
D)none of the above
Q3) Which of the following is typically used in the cost approach?
A)reproduction cost
B)replacement cost
C)aging cost
D)valuation cost
Q4) The cost approach is generally the easiest approach to complete.
A)True
B)False
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Chapter 12: Capital Structure
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Sample Questions
Q1) As a firm increases its use of debt financing, what is the impact upon the cost of equity?
A)The cost of equity decreases.
B)The cost of equity remains the same.
C)The cost of equity increases.
D)None of the above.
Q2) Financial risk is the basic risk inherent in the operations of a firm. It can be viewed as the volatility of a firm's EBIT.
A)True
B)False
Q3) Bankruptcy costs are one type of financial distress cost.
A)True
B)False
Q4) The desire to maintain excess borrowing capacity will tend to increase the use of debt financing in a firm's capital structure.
A)True
B)False
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