1
Financial Management Final-Chapter 10,
Chapter 12 Financial Management,
Chapter 11 Financial Management,
Chapter 10, Ch 8 Business Finance,
Financial Management Test 2,
Accounting Chapter 6, FIN2100, Finance,
Man Fin test 3, Finance Study Guide -
TESTBANK
Question 1: Valuation of financial assets requires knowledge of:
Correct Answer: future cash flows and an appropriate discount rate.
Question 2: The market allocates capital to companies based on:
Correct Answer: (All of these options) risk, efficiency, expected returns
Question 3: In a general sense, the value of any asset is the:
Correct Answer: present value of the cash flows expected to be received from the asset
Question 4: Which of the following financial assets is likely to have the highest required
rate of return based on risk?
Correct Answer: Common stock
Question 5: A bond that has a "yield to maturity" greater than its coupon interest rate will
sell for a price:
Correct Answer: below par.
, 2
Question 6: Which of the following is not one of the components included in the required
rate of return on a bond?
Correct Answer: Maturity payment
Question 7: A 20-year bond pays 6% on a face value of $1,000. If similar bonds are
currently yielding 5%, what is the market value of the bond? Use annual analysis.
Correct Answer: Over $1,100
Question 8: A 10-year bond, with a par value equaling $1,000, pays 7% annually. If similar
bonds are currently yielding 6% annually, what is the market value of the bond? Use semi-
annual analysis.
Correct Answer: $1,074.70
Question 9: A 10-year zero-coupon bond that yields 5% is issued with a $1,000 par value.
What is the issuance price of the bond? Round to the nearest dollar.
Correct Answer: $614
Question 10: A 15-year zero-coupon bond was issued with a $1,000 par value to yield 8%.
What is the approximate market value of the bond?
Correct Answer: $315
Question 11: In a general sense, "cash flow" can be said to equal
A. operating income less taxes plus depreciation.
B. operating income less taxes.
C. operating income before depreciation and taxes plus depreciation.
D. operating income after taxes minus depreciation.
Correct Answer: A. operating income less taxes plus depreciation.
Question 12: The reason cash flow is used in capital budgeting is because
A. cash rather than income is used to purchase new machines.
B. cash outlays need to be evaluated in terms of the present value of the resultant cash
inflows.
C. to ignore the tax shield provided from depreciation would ignore the cash flow provided
by the machine, which should be reinvested to replace older machines.
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D. All of these options
Correct Answer: D. All of these options
Question 13: The first step in the capital budgeting process is
A. collection of data.
B. idea development.
C. assign probabilities.
D. determine cash flows.
Correct Answer: B. idea development.
Question 14: Capital budgeting is primarily concerned with
A. capital formation in the economy.
B. planning future financing needs.
C. evaluating investment alternatives.
D. minimizing the cost of capital.
Correct Answer: C. evaluating investment alternatives.
Question 15: An appropriate capital budgeting process requires that the following steps be
taken in which order?
a) Collection of data
b) Reevaluation and adjustment
c) Evaluation and decision making
d) Search for and discovery of investment opportunities
A. d, a, c, b
B. d, a, b, c
C. d, b, a, c
D. b, d, a, c
Correct Answer: A. d, a, c, b
Question 16: Which of the following is not a time-adjusted method for ranking investment
proposals?
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A. The net present value method
B. The payback method
C. The internal rate of return method
D. All of these options are time-adjusted methods.
Correct Answer: B. The payback method
Question 17: Which of the following statements about the "payback method" is true?
A. The payback method considers cash flows after the payback has been reached.
B. The payback method does not consider the time value of money.
C. The payback method uses discounted cash-flow techniques.
D. The payback method generally leads to the same decision as other investment selection
methods.
Correct Answer: B. The payback method does not consider the time value of money.
Question 18: There are several disadvantages to the payback method, among them:
A. Payback ignores the time value of money.
B. Payback emphasizes receiving money back as fast as possible for reinvestment.
C. Payback is basic to use and understand.
D. Payback can be used in conjunction with time-adjusted methods of evaluation.
Correct Answer: A. Payback ignores the time value of money.
Question 19: The payback method has several disadvantages, among them:
A. Payback fails to choose the optimum or most economic solution to a capital budgeting
problem.
B. Payback ignores cash inflows after the payback period.
C. Payback fails to choose the optimum or most economic solution to a capital budgeting
problem, and it ignores cash inflows after the payback period.
D. None of these options
Correct Answer: C. Payback fails to choose the optimum or most economic solution to a
capital budgeting problem, and it ignores cash inflows after the payback period.
Financial Management Final-Chapter 10,
Chapter 12 Financial Management,
Chapter 11 Financial Management,
Chapter 10, Ch 8 Business Finance,
Financial Management Test 2,
Accounting Chapter 6, FIN2100, Finance,
Man Fin test 3, Finance Study Guide -
TESTBANK
Question 1: Valuation of financial assets requires knowledge of:
Correct Answer: future cash flows and an appropriate discount rate.
Question 2: The market allocates capital to companies based on:
Correct Answer: (All of these options) risk, efficiency, expected returns
Question 3: In a general sense, the value of any asset is the:
Correct Answer: present value of the cash flows expected to be received from the asset
Question 4: Which of the following financial assets is likely to have the highest required
rate of return based on risk?
Correct Answer: Common stock
Question 5: A bond that has a "yield to maturity" greater than its coupon interest rate will
sell for a price:
Correct Answer: below par.
, 2
Question 6: Which of the following is not one of the components included in the required
rate of return on a bond?
Correct Answer: Maturity payment
Question 7: A 20-year bond pays 6% on a face value of $1,000. If similar bonds are
currently yielding 5%, what is the market value of the bond? Use annual analysis.
Correct Answer: Over $1,100
Question 8: A 10-year bond, with a par value equaling $1,000, pays 7% annually. If similar
bonds are currently yielding 6% annually, what is the market value of the bond? Use semi-
annual analysis.
Correct Answer: $1,074.70
Question 9: A 10-year zero-coupon bond that yields 5% is issued with a $1,000 par value.
What is the issuance price of the bond? Round to the nearest dollar.
Correct Answer: $614
Question 10: A 15-year zero-coupon bond was issued with a $1,000 par value to yield 8%.
What is the approximate market value of the bond?
Correct Answer: $315
Question 11: In a general sense, "cash flow" can be said to equal
A. operating income less taxes plus depreciation.
B. operating income less taxes.
C. operating income before depreciation and taxes plus depreciation.
D. operating income after taxes minus depreciation.
Correct Answer: A. operating income less taxes plus depreciation.
Question 12: The reason cash flow is used in capital budgeting is because
A. cash rather than income is used to purchase new machines.
B. cash outlays need to be evaluated in terms of the present value of the resultant cash
inflows.
C. to ignore the tax shield provided from depreciation would ignore the cash flow provided
by the machine, which should be reinvested to replace older machines.
, 3
D. All of these options
Correct Answer: D. All of these options
Question 13: The first step in the capital budgeting process is
A. collection of data.
B. idea development.
C. assign probabilities.
D. determine cash flows.
Correct Answer: B. idea development.
Question 14: Capital budgeting is primarily concerned with
A. capital formation in the economy.
B. planning future financing needs.
C. evaluating investment alternatives.
D. minimizing the cost of capital.
Correct Answer: C. evaluating investment alternatives.
Question 15: An appropriate capital budgeting process requires that the following steps be
taken in which order?
a) Collection of data
b) Reevaluation and adjustment
c) Evaluation and decision making
d) Search for and discovery of investment opportunities
A. d, a, c, b
B. d, a, b, c
C. d, b, a, c
D. b, d, a, c
Correct Answer: A. d, a, c, b
Question 16: Which of the following is not a time-adjusted method for ranking investment
proposals?
, 4
A. The net present value method
B. The payback method
C. The internal rate of return method
D. All of these options are time-adjusted methods.
Correct Answer: B. The payback method
Question 17: Which of the following statements about the "payback method" is true?
A. The payback method considers cash flows after the payback has been reached.
B. The payback method does not consider the time value of money.
C. The payback method uses discounted cash-flow techniques.
D. The payback method generally leads to the same decision as other investment selection
methods.
Correct Answer: B. The payback method does not consider the time value of money.
Question 18: There are several disadvantages to the payback method, among them:
A. Payback ignores the time value of money.
B. Payback emphasizes receiving money back as fast as possible for reinvestment.
C. Payback is basic to use and understand.
D. Payback can be used in conjunction with time-adjusted methods of evaluation.
Correct Answer: A. Payback ignores the time value of money.
Question 19: The payback method has several disadvantages, among them:
A. Payback fails to choose the optimum or most economic solution to a capital budgeting
problem.
B. Payback ignores cash inflows after the payback period.
C. Payback fails to choose the optimum or most economic solution to a capital budgeting
problem, and it ignores cash inflows after the payback period.
D. None of these options
Correct Answer: C. Payback fails to choose the optimum or most economic solution to a
capital budgeting problem, and it ignores cash inflows after the payback period.
