FIN 325 Financial Management Exam
Practice Questions And Correct Answers
(Verified Answers) Plus Rationales 2027
Q&A | Instant Download Pdf
1. What is the primary goal of financial management in a corporation?
A. Maximizing accounting income
B. Maximizing market share
C. Maximizing shareholder wealth
D. Minimizing taxes
Answer: C. Maximizing shareholder wealth
Rationale: The primary objective of financial management is to maximize
the current value of shareholders’ investment, generally reflected in the
firm’s stock price.
2. Which financial decision involves determining the mix of debt and
equity used to finance a firm?
,A. Capital budgeting
B. Capital structure
C. Working capital management
D. Dividend policy
Answer: B. Capital structure
Rationale: Capital structure refers to the combination of debt, preferred
stock, and common equity used to finance a company's assets and
operations.
3. Which of the following is a capital budgeting decision?
A. Determining how much cash to keep in a checking account
B. Choosing whether to purchase a new production machine
C. Deciding when to pay suppliers
D. Setting the firm's credit policy
Answer: B. Choosing whether to purchase a new production machine
Rationale: Capital budgeting evaluates long-term investments such as
equipment, facilities, and expansion projects.
4. What does the time value of money principle state?
A. Money loses all value over time
B. A dollar today is generally worth more than a dollar received in the future
,C. Future money is always worth more than current money
D. Inflation has no effect on financial decisions
Answer: B. A dollar today is generally worth more than a dollar received in
the future
Rationale: Money available today can be invested to earn a return, making
it more valuable than the same nominal amount received later.
5. What is the future value of $1,000 invested for one year at 8% interest?
A. $920
B. $1,008
C. $1,080
D. $1,800
Answer: C. $1,080
Rationale: Future value = $1,000 × (1.08) = $1,080.
6. What is the present value of $1,080 received one year from now if the
required return is 8%?
A. $900
B. $1,000
C. $1,080
D. $1,166
, Answer: B. $1,000
Rationale: Present value = $1,080 ÷ 1.08 = $1,000.
7. An annuity is best described as:
A. A single cash flow occurring at an uncertain date
B. A series of equal payments occurring at regular intervals
C. A series of unequal payments
D. A perpetual stock dividend
Answer: B. A series of equal payments occurring at regular intervals
Rationale: An annuity consists of equal cash flows made at consistent
intervals for a specified number of periods.
8. Which type of annuity makes payments at the beginning of each period?
A. Ordinary annuity
B. Deferred annuity
C. Annuity due
D. Perpetuity
Answer: C. Annuity due
Rationale: An annuity due makes payments at the beginning of each
period, whereas an ordinary annuity makes payments at the end.
Practice Questions And Correct Answers
(Verified Answers) Plus Rationales 2027
Q&A | Instant Download Pdf
1. What is the primary goal of financial management in a corporation?
A. Maximizing accounting income
B. Maximizing market share
C. Maximizing shareholder wealth
D. Minimizing taxes
Answer: C. Maximizing shareholder wealth
Rationale: The primary objective of financial management is to maximize
the current value of shareholders’ investment, generally reflected in the
firm’s stock price.
2. Which financial decision involves determining the mix of debt and
equity used to finance a firm?
,A. Capital budgeting
B. Capital structure
C. Working capital management
D. Dividend policy
Answer: B. Capital structure
Rationale: Capital structure refers to the combination of debt, preferred
stock, and common equity used to finance a company's assets and
operations.
3. Which of the following is a capital budgeting decision?
A. Determining how much cash to keep in a checking account
B. Choosing whether to purchase a new production machine
C. Deciding when to pay suppliers
D. Setting the firm's credit policy
Answer: B. Choosing whether to purchase a new production machine
Rationale: Capital budgeting evaluates long-term investments such as
equipment, facilities, and expansion projects.
4. What does the time value of money principle state?
A. Money loses all value over time
B. A dollar today is generally worth more than a dollar received in the future
,C. Future money is always worth more than current money
D. Inflation has no effect on financial decisions
Answer: B. A dollar today is generally worth more than a dollar received in
the future
Rationale: Money available today can be invested to earn a return, making
it more valuable than the same nominal amount received later.
5. What is the future value of $1,000 invested for one year at 8% interest?
A. $920
B. $1,008
C. $1,080
D. $1,800
Answer: C. $1,080
Rationale: Future value = $1,000 × (1.08) = $1,080.
6. What is the present value of $1,080 received one year from now if the
required return is 8%?
A. $900
B. $1,000
C. $1,080
D. $1,166
, Answer: B. $1,000
Rationale: Present value = $1,080 ÷ 1.08 = $1,000.
7. An annuity is best described as:
A. A single cash flow occurring at an uncertain date
B. A series of equal payments occurring at regular intervals
C. A series of unequal payments
D. A perpetual stock dividend
Answer: B. A series of equal payments occurring at regular intervals
Rationale: An annuity consists of equal cash flows made at consistent
intervals for a specified number of periods.
8. Which type of annuity makes payments at the beginning of each period?
A. Ordinary annuity
B. Deferred annuity
C. Annuity due
D. Perpetuity
Answer: C. Annuity due
Rationale: An annuity due makes payments at the beginning of each
period, whereas an ordinary annuity makes payments at the end.
