Fundamentals of Corporate Finance –
Practice Problems and Concept Review
(Ross, Westerfield & Jordan 12th Edition)
Topic 1: Introduction to Corporate Finance & Financial Statements
1. What is the primary goal of corporate finance?
A) Maximize market share
B) Maximize the current value per share of the company's existing stock
C) Minimize costs
D) Maximize executive compensation
2. What are the three main areas of concern for corporate finance?
A) Marketing, Production, Finance
B) Capital Budgeting, Capital Structure, Working Capital Management
C) Investing, Lending, Insuring
D) Assets, Liabilities, Equity
3. Which financial statement shows a firm's financial position at a specific
point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
4. The equation that the Balance Sheet is based on is:
A) Revenues - Expenses = Net Income
B) Assets = Liabilities + Shareholders' Equity
C) Profit = Revenue - Cost
D) Cash Inflow = Cash Outflow
5. Net Income is found on which financial statement?
A) Balance Sheet
B) Income Statement
, C) Statement of Cash Flows
D) Both A and B
6. Non-cash expenses such as depreciation reduce taxable income.
(True/False)
A) True
B) False
7. The statement of cash flows is divided into cash flows from which three
activities?
A) Operating, Investing, and Financing
B) Production, Sales, and Administration
C) Current, Fixed, and Intangible
D) Assets, Liabilities, and Equity
8. An increase in inventory is considered what in the Statement of Cash
Flows?
A) A source of cash
B) A use of cash
C) An operating activity
D) A financing activity
Topic 2: Financial Statements Analysis and Financial Models
9. What is a standardized financial statement that presents all items as a
percentage of a key figure?
A) Statement of Operations
B) Common-Size Statement
C) Pro Forma Statement
D) Ratio Analysis
10.Which ratio measures a company's ability to pay its short-term
obligations?
A) Profitability Ratio
B) Leverage Ratio
, C) Liquidity Ratio
D) Turnover Ratio
11.The Current Ratio is calculated as:
A) Current Assets / Current Liabilities
B) Current Liabilities / Current Assets
C) Cash / Current Liabilities
D) Current Assets / Total Assets
12.Total Debt Ratio is a measure of:
A) Profitability
B) Liquidity
C) Financial Leverage
D) Efficiency
13.Return on Equity (ROE) is a measure of:
A) How efficiently a firm uses its assets
B) Profitability from the shareholders' perspective
C) The firm's short-term liquidity
D) The firm's ability to generate sales from its assets
14.The DuPont Identity breaks down ROE into which components?
A) Profit Margin, Total Asset Turnover, Equity Multiplier
B) Current Ratio, Debt-Equity Ratio, Profit Margin
C) Net Income, Sales, Total Assets
D) Operating Efficiency, Asset Use Efficiency, Financial Leverage
15.The internal growth rate of a firm is the maximum growth rate
achievable:
A) With no external financing of any kind
B) With no new debt but with possible new external equity
C) Without issuing new equity
D) With no restrictions
16.The sustainable growth rate is the maximum growth rate achievable:
A) With no external financing of any kind
B) With no new debt but with possible new external equity
Practice Problems and Concept Review
(Ross, Westerfield & Jordan 12th Edition)
Topic 1: Introduction to Corporate Finance & Financial Statements
1. What is the primary goal of corporate finance?
A) Maximize market share
B) Maximize the current value per share of the company's existing stock
C) Minimize costs
D) Maximize executive compensation
2. What are the three main areas of concern for corporate finance?
A) Marketing, Production, Finance
B) Capital Budgeting, Capital Structure, Working Capital Management
C) Investing, Lending, Insuring
D) Assets, Liabilities, Equity
3. Which financial statement shows a firm's financial position at a specific
point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
4. The equation that the Balance Sheet is based on is:
A) Revenues - Expenses = Net Income
B) Assets = Liabilities + Shareholders' Equity
C) Profit = Revenue - Cost
D) Cash Inflow = Cash Outflow
5. Net Income is found on which financial statement?
A) Balance Sheet
B) Income Statement
, C) Statement of Cash Flows
D) Both A and B
6. Non-cash expenses such as depreciation reduce taxable income.
(True/False)
A) True
B) False
7. The statement of cash flows is divided into cash flows from which three
activities?
A) Operating, Investing, and Financing
B) Production, Sales, and Administration
C) Current, Fixed, and Intangible
D) Assets, Liabilities, and Equity
8. An increase in inventory is considered what in the Statement of Cash
Flows?
A) A source of cash
B) A use of cash
C) An operating activity
D) A financing activity
Topic 2: Financial Statements Analysis and Financial Models
9. What is a standardized financial statement that presents all items as a
percentage of a key figure?
A) Statement of Operations
B) Common-Size Statement
C) Pro Forma Statement
D) Ratio Analysis
10.Which ratio measures a company's ability to pay its short-term
obligations?
A) Profitability Ratio
B) Leverage Ratio
, C) Liquidity Ratio
D) Turnover Ratio
11.The Current Ratio is calculated as:
A) Current Assets / Current Liabilities
B) Current Liabilities / Current Assets
C) Cash / Current Liabilities
D) Current Assets / Total Assets
12.Total Debt Ratio is a measure of:
A) Profitability
B) Liquidity
C) Financial Leverage
D) Efficiency
13.Return on Equity (ROE) is a measure of:
A) How efficiently a firm uses its assets
B) Profitability from the shareholders' perspective
C) The firm's short-term liquidity
D) The firm's ability to generate sales from its assets
14.The DuPont Identity breaks down ROE into which components?
A) Profit Margin, Total Asset Turnover, Equity Multiplier
B) Current Ratio, Debt-Equity Ratio, Profit Margin
C) Net Income, Sales, Total Assets
D) Operating Efficiency, Asset Use Efficiency, Financial Leverage
15.The internal growth rate of a firm is the maximum growth rate
achievable:
A) With no external financing of any kind
B) With no new debt but with possible new external equity
C) Without issuing new equity
D) With no restrictions
16.The sustainable growth rate is the maximum growth rate achievable:
A) With no external financing of any kind
B) With no new debt but with possible new external equity
