1.

Financial management decisions are concerned with:

A. Managing employees and organizational culture

B. Developing business strategies and plans

C. Allocating financial resources efficiently

D. Enhancing customer satisfaction and loyalty 2.

The main goal of financial management is to:

A. Increase revenue and sales

B. Minimize costs and expenses

C. Maximize shareholder value

D. Expand market share 3. One way often used to insure that management decisions are in the best
interest of the stockholders is to

A. threaten to fire managers who are seen as not performing adequately.

B. remove management's perquisites.

C. tie management compensation to the performance of the company's common stock price.

D. tie management compensation to the level 4.

The capital budgeting decision involves: of earnings per share

A. Managing short-term cash flows

B. Determining the optimal capital structure

C. Evaluating investment projects

D. Allocating resources to different departments 5. The agency problem may result from a manager's
concerns about any of the following

EXCEPT

A.job security.

B. personal wealth.

C. corporate goals.

D. company-provided perquisites 1 6.
The conflict between the goals of a firm's owners and the goals of its non-owner managers is

A. the agency problem.

B. incompatibility.

C. serious only when profits decline.

D. of little importance in most large firms.

The role of financial institutions includes:

A. Channeling funds from savers to borrowers 7.

B. Providing financial advice and wealth management services

C. Facilitating payments and transactions

D. All of the above 8.

The risk returns trade off refers to the concept that:

A. Higher risks always lead to higher returns

B. Higher risks are not associated with higher returns

C. Lower risks always lead to higher retuns

D.Lower risks are not associated with higher returns

Commercial banks, insurance companies, and investment firms are examples of:

C. Financial markets

D. Financial consultants 9.

A. Financial intermediaries

B Financial regulators 10. Liquidity ratios measure a company's

A. Ability to meet short-term obligations

B. Profitability and return on investment

C. Efficiency in managing its assets

D. Market value and investor confidence 11. The debt-to-equity ratio is an example of a:

C. Solvency ratio
D. Efficiency ratio

A. Liquidity ratio

B. Profitability ratio 12. The return on equity (ROE) ratio measures a company's:

A. Efficiency in managing its assets

B Ability to generate profits from its equity investment

C. Liquidity and ability to meet short-term obligations

D. Market value and investor confidence 13. Considered alone, which of the following would increase a
company's current ratio?

A. An increase in net fixed assets

B. An increase in accrued liabilities

C. An increase in accounts receivable.

D. An increase in accounts payable.14. XYZ Company's sales last year were S435,000, its operating costs
were S362,500, and its interest charges were S12,500. What was the firm's times interest earned (TIE)
ratio?

A. 4,97

B 5.23

C 5.51

D. 5.80 2 15. ABC Company's sales last year were S320,000, and its net income after taxes was S23,000.

What was its profit margin on sales?

A. 6.49%

C 7.19% D 7.55% B6.83%

16. DEF Company's total assets at the end of last year were S315,000 and its net income afler taxes was
S22,750. What was its retum on total assets? .7.22%

C. 7.96%

B. 7.58% 8.36%

D. of last year was S305,000 and its net income after taxes was S60,000. What was its ROE?

A. 16.87% 17. Nikko Company's total common equity at the end pay
C. 18.69%

D. 19.67%

B. 17.75% 18. Vertical analysis is a technique used to:

A. Compare financial statements over multiple periods

B. Evaluate the performance of a company relative to its industry peers

C. Assess the composition of individual items within a financial statement

D. Calculate financial ratios to measure a company's liquidity 19. Which of the following is a liquidity
ratio?

A. Retum on assets (ROA)

B. Debt-to-equity ratio

C. Current ratio

D. Price-earnings ratio 20. The weighted average cost of capital (WACC) is the:

A. Total cost of financing a company's operations

B. Average cost of all outstanding debt securities

C. Average cost of equity financing

D. Average cost of all capital sources weighted by their proportions 21. When caleulating the WACC, the
weights assigned to different capital sources are based on:

A. The market value of each capital source

B. The face value of each capital source

C. The book value of each capital source

D. The risk associated with each capital source 22. You plan to invest some money in a bank account.
Which of the following banks provides you wih the highest effective rate of interest?

A. Bank 1; 6.1% with annual compounding.

B. Bank 2; 6.0% with monthly compounding.

C. Bank 3; 6.0% with annual compounding.

D. Bank 5; 6.0% with daily compounding. 23. How much would S100, growing

A. S3,689.11 at 5% per year, be worth after 75 years?

C. S4.077.43

D. S4.281.30

B. S3,883.2724. Jose now has Ss00. How much would he have after 6 years if he leaves it invested at
5.50% with annual compounding?

AS591.09

B. S622.20 . S654.95

D. S689.42 25. Suppose you have S1,500 and plan to purchase a 5-year certificate 3.5% interest,
compounded annually. How much will you have when

D. $2,062.34 of deposit (CD) that pays the CD matures?

A. SI,781.53

C. SI,964.14

B. S1.870.61 26. You deposit Sl,000 today in a savings account that pays much will your account be
worth at the end of 25 years? 3.5% interest, compounded annually. How

A. $2,245.08

C. $2,481.41

B. $2.363.24 27. How much would S20,000 due in 50 years be worth today if the discount

D. $2,605,48 rate were 7.5%6

A S461.08

B. 5.35

C. $S10.89

D. $537.78 28. Net present value (NPV) is a capital budgeting technique that:

A Considers the payback period of an investnent

B. Compares the intemal rate of return (IRR) of di fferent projects

C. Determines the profitability of an investment by comparing the present value of cash inflows and
outflows

D. Calculates the accounting rate of return (ARR) for 29. When evaluating mutually exclusive projects,
the best decision
A The highest net present value (NPV) a project. is to choose the project with:

B. The highest pro fitability index (PI)

C, The shortest payback period.

D. The highest internal rate of return (IRR). 30. In capital budgeting decisions, a positive net present
value (NPV) indicates that:

A. The project is profitable and should be accepted

B. The project is not profitable and should be rejected.

C. The project has reached its payback period.

D. The project has a high profitability index (PI). 31. In capital budgeting decisions, a shorter payback
period is generally preferred because it:

A Maximizes the net present value (NPV) of the project.

B. Minimizes the risk associated with the project.

C. Indicates a higher intemal rate of return (IRR) for the project.

D. Allows for quicker recovery of the initial investment. 32. LMN Company is considering a project that
has the following payback? cash flow data. What is the project's 0 -$750 1 $300 3 $350 2 $325

Cash flows

Yean

C. 2.36 years

D. 2.59 years

B 1.91 years 2.12 years 4 33. ABC Enteprises is considering a project that has the following cash flow and
WACC data. What is the project's NPV?

WACC: 10.00%

Year

Cash flows -$1,050

A.9 S92.37 3 $470

C. S101.84 $450 $460

S 96.99

D. S106.93

B. 34. StockA's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true
about these securities? (Assume market equilibrium.)

A StockB must be a more desirable addition to a portfolio than A

B. StockA must be a more desirable addition to a portfolio than B

C. The expected retum on Stock A should be greater than that on B.

D. The expected retum on Stock B should be greater than that on A. 35. StocksA and B each have an
expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks
have a correlation coefficient of +0.6. You have a portfolio that consists of 50% A and 50%B. Which of
the following statements is CORRECT?

A. The portfolio's beta is less than 1.2.

B. The portfolio's expected return is 15%.

C. The portfolio's beta is greater than 1.2.

D. The portfolio's standard deviation is 20% 36. Beta measures the

A. Expected rate ofreturn of an investment

B. Risk of an investment relative to the market

C. Historical rate of return of an investment

D. Correlation between two investments 37. Which factor affects the risk and return of an investment by
considering the overall state of the economy?

A. Market interest rates

C. Industry competition

D. Regulatory changes

B. Company management38. Factors affecting the risk and return of an investment include:

C. Market demand

D. All of the above

A. Inflation rates
B Political stability 39. What does the coefficient of variation indicate?

A. The nnge of historical rates of return

B. The degree of risk per unit of expected return

C. The average rate of return over time

D. The sensitivity of an investment to market movements 40. Which measure is used to quantify the risk

A. Standard deviation of historical rates of return?

C. Coefficient of variation

B. Mean

D.

Beta 41. The coefficient of variation is a measure of

A. Historical rates of return

B. Expected rates of return

C. Risk relative to the expected return

D. Risk relative to the market 42. XYZ Company's stock has a 25% chance of producing a 30% return, a
50% chance of producing a 12% return, and a 25% chance of producing a -18% return. What is the firm's
expected rate of return?

A. 7.72% 8.55%

C.

D 9.00% 8.12% 43. DEF Company is considering a capital budgeting project that has an expected return
of 259% and a standard deviation of 30%. What is the project's coefficient of variation?

A. 120

C. L32 1.26

B.

D. 1.39 44. Dawit Belay has S100,000 invested in a 2-stock portfolio. S35,000 is invested in Stock X and
the remainder is invested in Stock Y. X's beta is 1.50 and Y's beta is 0.70. What is the portfolio's beta?

A. 0.72
C. .0.89

B. 0.80

D. 0.98 45. Which of the following is NOT a capital component cost of capital (WACC) for use in capital
budgeting? when calculating the weighted average

C. Retained earnings

D. Common stock.

B. Accounts payable. 46. A company's perpetual preferred stock currently sells for $92.50 per share, and
it pays an S8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a
flotation

A. Long-term debt. cost of 5.00% of the issue price. What is the firm's cost of preferred stock?

A.7.81%

C. 8.65%

B. 8.22%

D. 9.10% 47. DEF Company has the following data: rRE-5.00%; RPM = 6.00%; and firm's cost of common
from retained earnings based on the CAPM?

I|.99%

A. IL.30%

C. b = 1.05. What is the

D. . 12.35% 11.64% 48. Assume that you are a consultant to ABC Company and you have been provided
with the following data: D,- $0.67; Po = $27. 50, and g =8.00% (constant). What is the cost of common
from retained earnings based on the DCF approach?

A. 942% 10,44%

D. 10.96

B. 9.91% 49. You were hired as a consultant to GEF Company, whose target capital structure is 40%
debt, 15% preferred, and 45% common cquity. The after-tax cost of debt is 6.00%, the cost of preferred
is 7.50%, and the cost of common using retained earnings is 12.75%. The firm will not be issuing any new
stock. What is its WACC?

C.
D 9.54% 9.83%

A. 8.989%

B. 9.26% 50. LMN Company's stock has a beta of 1.40, the risk-free rate is 4.25%, and the market
premium is 5.50%. What is the firm's required rate of return?

A. 11.36% risk

C.I1.959%

B. 11.65%

D. 12.25%