Financial Management Concept Quiz Answers and Explanations, Exams of Finance

Download Financial Management Concept Quiz Answers and Explanations and more Exams Finance in PDF only on Docsity! C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. 1. The goal of the corporation is to: a. Maximize profits b. Maximize market share c. Maximize stock price d. Minimize risk - Correct Answer c. Maximize stock price 2. Risk premium is best described as a. Return on risky securities b. Compensation for risk-taking c. Return on stocks d. Expected return on securities - Correct Answer b. Compensation for risk-taking 3. What is the relationship between risk and required return? a. The two are independent b. Higher required return causes lower risk c. Higher risk causes higher required return d. None of the above - Correct Answer c. Higher risk causes higher required return 4. The value of money depends upon a. The timing of the receipt b. The certainty of receipt C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. c. The size of the receipt d. All of the above - Correct Answer d. All of the above 5. What is the purpose of the SEC 10-K filing requirement? a. Promote transparency and efficiency b. Prevent insider trading c. Regulate sales practices d. Prevent monopolies - Correct Answer a. Promote transparency and efficiency 6. Which line item is not part of net working capital? a. Inventory b. Bonds c. Accounts Payable d. Accrued expenses - Correct Answer b. Bonds 7. Which action causes a cash outflow? a. Increase in accounts payable b. Decrease in accounts receivable c. Increase in inventory d. None of the above - Correct Answer c. Increase in inventory C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. 15. What affects the required return on a security? a. Perceived riskiness of the security b. Degree of investor risk aversion c. Trading in financial markets d. All of the above - Correct Answer d. All of the above 16. Which is the most frequent type of transaction in financial markets? a. IPO's b. Secondary market trades c. Primary market trades d. Venture capitalist trades - Correct Answer b. Secondary market trades 17. Which of the 5 white financial function keys represents a series of cash disbursements? a. N b. PV c. I/Y d. PMT - Correct Answer d. PMT 18. If payments are made semi-annually, which key inputs must be adjusted? a. PMT b. I/Y C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. c. N d. All of the above - Correct Answer d. All of the above 19. Which can be defined as "change in value of cash over time"? a. Interest rate b. Yield c. Expected return d. All of the above - Correct Answer d. All of the above 20. Which signifies a need to change the calculator to Begin mode? a. Cash deposited at the beginning of the year b. Recurring payments made at the beginning of each year c. Payments are made more frequently than annually d. None of the above - Correct Answer b. Recurring payments made at the beginning of each year 21. Why is an annuity due more valuable than an ordinary annuity? a. Payments are received earlier b. Interest is compounded c. It is not more valuable; they are the same d. Use different interest rates. - Correct Answer a. Payments are received earlier C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. 23. Which annuity provides increasing payments over time? a. Annuity Due b. Ordinary Annuity c. Perpetual Annuity d. Perpetual Growth Annuity - Correct Answer d. Perpetual Growth Annuity 24. What causes uncertainty in financial decisions? a. GAAP changes b. Erroneous future projections c. Computer error d. Both b and c - Correct Answer b. Erroneous future projections 25. An increase in net working causes a. A cash inflow b. A cash outflow c. Does not affect cash flow d. Depends upon accrual accounting - Correct Answer b. A cash outflow 26. What feature distinguishes bonds from stock? a. Price determined in market trading C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. a. Default risk b. Market risk c. Credit risk d. Event risk - Correct Answer b. Market risk 34. If a bond's price is at a discount, then a. Bond yield is less that coupon rate b. Bond yield is equal to the coupon rate c. Bond yield is more than the coupon rate d. Insufficient information - Correct Answer c. Bond yield is more than the coupon rate 35. What is the difference between common and preferred stock? a. Preferred stock has a maturity date b. Preferred stock dividends are fixed c. Common stock has priority of claims in bankruptcy d. Preferred stock cannot be bought back - Correct Answer b. Preferred stock dividends are fixed 36. If rating agencies downgrade a bond from AAA to BBB, what happens? a. The bond's price decreases b. Firm must re-purchase the bond C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. c. The firm reduces the bond value on its balance sheet d. Both a and c - Correct Answer a. The bond's price decreases 37. What are the two sources of profit to a stock investor? a. Dividends and redemption at maturity b. Dividends and capital gains c. Coupon payments and capital gains d. Interest and dividends - Correct Answer b. Dividends and capital gains 38. Which best describes the "market risk premium"? a. Expected return on stocks b. Required return on stock c. Excess return over risk free rate d. Beta - Correct Answer c. Excess return over risk free rate 39. What best describes Beta? a. A measure of financial leverage b. The market risk premium c. Relative riskiness of a stock d. Measure of stock's required return - Correct Answer c. Relative riskiness of a stock C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. 40. Which is not a means of eliminating idiosyncratic risk? a. A diversified portfolio b. Hold a portfolio with a Beta = 1.0 c. Buy a low beta stock d. Hold a portfolio of high beta stocks - Correct Answer c. Buy a low beta stock 41. The required return on stocks is derived from: a. Idiosyncratic risk b. Systematic risk c. Total risk d. Size of the portfolio - Correct Answer b. Systematic risk 42. A prudent investor would seek a. The lowest risk possible b. The highest return possible c. An appropriate risk exposure d. Minimize the return-to-risk ratio - Correct Answer c. An appropriate risk exposure 43. A stock whose return is affected substantially by a recession is: a. Low beta stock b. High beta stock C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. c. Expected dividends in the future d. Its S&P rating - Correct Answer c. Expected dividends in the future 51. Which measures sales growth that can be financed internally? a. DFN b. CFO c. SGR d. DFN - Correct Answer c. SGR 52. Why are accurate sales forecast desirable? a. To plan resource acquisition b. To calculate price c. To reduce working capital d. Requirement for 10-K report - Correct Answer a. To plan resource acquisition 53. What components of ICF are included in Gross PPE a. Cost of asset b. Shipping & installation expense c. Increase in Net Working Capital d. Both a and b - Correct Answer d. Both a and b C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. 54. If an equipment salvage value is greater than book value, a. There is a tax cash refund b. There is a tax cash outflow c. Taxes are not affected d. Depends on the NWC recapture - Correct Answer b. There is a tax cash outflow 55. A potential project should be adopted if a. IRR is less than WACC b. NPV is positive using the required return on bonds as the discount rate c. IRR is greater than WACC d. IRR equals WACC and NPV is positive - Correct Answer c. IRR is greater than WACC 56. A firm will have volatile profits if a. It has high operating leverage b. It has high financial leverage c. It has high combined leverage d. All of the above - Correct Answer d. All of the above 57. Firms with high leverage a. Have lower net income b. Have more volatile profits C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. c. Have higher required returns d. Both b and c - Correct Answer d. Both b and c 58. Excessive leverage will likely result in a. Increased WACC b. Reduced stock price c. Reduced profits d. Both a and b - Correct Answer b. Reduced stock price 59. Why might a firm buy back stock a. Increase financial leverage b. Reduce financial leverage c. Reduce operating leverage d. Increase operating leverage - Correct Answer a. Increase financial leverage 60. A bond's market risk is measured by a. S&P rating b. Duration c. Beta d. Both a and c - Correct Answer b. Duration C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. 68. Tariffs on imported goods have what effect? a. More US jobs b. Less expensive consumer goods c. More expensive consumer goods d. Both a and c - Correct Answer d. Both a and c 69. If a firm's combined leverage is high, what is the implication? a. High equity ratio b. Profits are more volatile as sales fluctuate c. The firm is less profitable d. The two leverages offset each other - - neutral impact - Correct Answer b. Profits are more volatile as sales fluctuate 70. The mutual benefit of trade for US and China is explained by a. DFN b. WACC c. Comparative Advantage d. FX Hedging - Correct Answer c. Comparative Advantage 71. Which can best be described as a present value problem? a. Valuation of bonds C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. b. Valuation of stock c. Evaluation of potential investment d. All of the above. - Correct Answer d. All of the above. 72. What attributes of cash should be considered in evaluating investments? a. Size of cash flow b. Timing of the cash flow c. Risk of cash flows d. All of the above - Correct Answer d. All of the above 73. Firms use "sensitivity analysis" because: a. Required by the SEC b. To anticipate impact of erroneous forecasts c. To detect computer code errors d. To double check analyst calculations - Correct Answer b. To anticipate impact of erroneous forecasts 74. If IRR is greater than WACC, an adopted project, a. Decreases shareholder value b. Reduces Beta c. Increases shareholder value C214 Financial Management Overview Concept Quiz Answers Guaranteed Success Latest Update. d. Increases leverage - Correct Answer c. Increases shareholder value 75. If a firm increases leverage, a. Stock price decreases b. Stock price increases c. Stock price is not affected by leverage d. Indeterminant impact on price - Correct Answer d. Indeterminant impact on price