FIN 300 W07 Final Exam Part 4 | Pro
Forma Scenario | 10 Questions and
Worked Solutions | 2026 Updated |
100% Correct - BYU.
1. Which of the following best describes the primary goal of financial
management in a corporation?
• A. Maximizing current period net income
• B. Maximizing shareholder wealth
• C. Minimizing the firm's tax liability
• D. Maximizing market share
Rationale: Shareholder wealth maximization, often measured by stock price,
is the central goal because it reflects long-term value creation for owners. Profit
maximization ignores risk and timing, tax minimization is secondary, and market
share does not always translate to value.
2. A firm has current assets of $500,000 and current liabilities of $250,000. What
is its current ratio?
• A. 0.5
• B. 1.0
• C. 2.0
• D. 2.5
Rationale: Current ratio = Current Assets ÷ Current Liabilities = $500,000 ÷
$250,000 = 2.0. The firm has $2 of current assets for every $1 of current liabilities.
,3. Which capital budgeting technique explicitly considers the time value of
money?
• A. Payback period
• B. Accounting rate of return
• C. Net present value (NPV)
• D. Profitability index without discounting
Rationale: NPV discounts all future cash flows to present value using the
required rate of return, directly incorporating the time value of money. Payback
period and accounting rate of return ignore it.
4. If a bond's yield to maturity (YTM) is greater than its coupon rate, the bond
will trade at:
• A. A premium
• B. Par
• C. A discount
• D. Cannot be determined
Rationale: When YTM > coupon rate, the bond's fixed coupons are less
attractive than market rates, so price falls below par (a discount). When YTM <
coupon rate, it trades at a premium.
5. According to CAPM, the expected return on a stock depends on all of the
following EXCEPT:
• A. The risk-free rate
• B. The stock's beta
, • C. The market risk premium
• D. The stock's dividend payout ratio
Rationale: CAPM: E(R) = Rf + β × (Rm − Rf). It uses the risk-free rate, beta, and
market risk premium. Dividend payout ratio is not a direct input.
6. Which financial statement shows a firm's financial position at a single point in
time?
• A. Income statement
• B. Balance sheet
• C. Statement of cash flows
• D. Statement of retained earnings
Rationale: The balance sheet is a snapshot of assets, liabilities, and equity at a
specific date. The income statement and cash flow statement cover periods of
time.
7. A company has net income of $120,000 and 40,000 shares outstanding. What
is its EPS?
• A. $2.00
• B. $3.00
• C. $4.00
• D. $0.33
Rationale: EPS = Net Income ÷ Shares Outstanding = $120,000 ÷ 40,000 =
$3.00 per share.
, 8. Which of the following is NOT a source of long-term financing?
• A. Common stock
• B. Corporate bonds
• C. Accounts payable
• D. Preferred stock
Rationale: Accounts payable is a short-term (current) liability from trade
credit. Common stock, bonds, and preferred stock are long-term financing
sources.
9. The discount rate that makes the NPV of a project equal to zero is called the:
• A. Payback period
• B. Internal rate of return (IRR)
• C. Profitability index
• D. Discounted payback
Rationale: IRR is defined as the discount rate at which NPV = 0. It represents
the project's expected rate of return.
10. Which of the following increases a firm's financial leverage?
• A. Issuing new common stock
• B. Taking on additional debt
• C. Retaining more earnings
• D. Selling assets for cash
Rationale: Financial leverage refers to the use of debt. Issuing debt increases
fixed interest obligations and magnifies returns/risk to equity holders.
Forma Scenario | 10 Questions and
Worked Solutions | 2026 Updated |
100% Correct - BYU.
1. Which of the following best describes the primary goal of financial
management in a corporation?
• A. Maximizing current period net income
• B. Maximizing shareholder wealth
• C. Minimizing the firm's tax liability
• D. Maximizing market share
Rationale: Shareholder wealth maximization, often measured by stock price,
is the central goal because it reflects long-term value creation for owners. Profit
maximization ignores risk and timing, tax minimization is secondary, and market
share does not always translate to value.
2. A firm has current assets of $500,000 and current liabilities of $250,000. What
is its current ratio?
• A. 0.5
• B. 1.0
• C. 2.0
• D. 2.5
Rationale: Current ratio = Current Assets ÷ Current Liabilities = $500,000 ÷
$250,000 = 2.0. The firm has $2 of current assets for every $1 of current liabilities.
,3. Which capital budgeting technique explicitly considers the time value of
money?
• A. Payback period
• B. Accounting rate of return
• C. Net present value (NPV)
• D. Profitability index without discounting
Rationale: NPV discounts all future cash flows to present value using the
required rate of return, directly incorporating the time value of money. Payback
period and accounting rate of return ignore it.
4. If a bond's yield to maturity (YTM) is greater than its coupon rate, the bond
will trade at:
• A. A premium
• B. Par
• C. A discount
• D. Cannot be determined
Rationale: When YTM > coupon rate, the bond's fixed coupons are less
attractive than market rates, so price falls below par (a discount). When YTM <
coupon rate, it trades at a premium.
5. According to CAPM, the expected return on a stock depends on all of the
following EXCEPT:
• A. The risk-free rate
• B. The stock's beta
, • C. The market risk premium
• D. The stock's dividend payout ratio
Rationale: CAPM: E(R) = Rf + β × (Rm − Rf). It uses the risk-free rate, beta, and
market risk premium. Dividend payout ratio is not a direct input.
6. Which financial statement shows a firm's financial position at a single point in
time?
• A. Income statement
• B. Balance sheet
• C. Statement of cash flows
• D. Statement of retained earnings
Rationale: The balance sheet is a snapshot of assets, liabilities, and equity at a
specific date. The income statement and cash flow statement cover periods of
time.
7. A company has net income of $120,000 and 40,000 shares outstanding. What
is its EPS?
• A. $2.00
• B. $3.00
• C. $4.00
• D. $0.33
Rationale: EPS = Net Income ÷ Shares Outstanding = $120,000 ÷ 40,000 =
$3.00 per share.
, 8. Which of the following is NOT a source of long-term financing?
• A. Common stock
• B. Corporate bonds
• C. Accounts payable
• D. Preferred stock
Rationale: Accounts payable is a short-term (current) liability from trade
credit. Common stock, bonds, and preferred stock are long-term financing
sources.
9. The discount rate that makes the NPV of a project equal to zero is called the:
• A. Payback period
• B. Internal rate of return (IRR)
• C. Profitability index
• D. Discounted payback
Rationale: IRR is defined as the discount rate at which NPV = 0. It represents
the project's expected rate of return.
10. Which of the following increases a firm's financial leverage?
• A. Issuing new common stock
• B. Taking on additional debt
• C. Retaining more earnings
• D. Selling assets for cash
Rationale: Financial leverage refers to the use of debt. Issuing debt increases
fixed interest obligations and magnifies returns/risk to equity holders.
