FIN 325 Corporate Finance 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 profits
B. Maximizing sales revenue
C. Maximizing shareholder wealth
D. Minimizing employee compensation
Answer: C. Maximizing shareholder wealth
Rationale: The primary objective of corporate finance is to maximize the
value of the firm to its shareholders, generally reflected in the market
value of its common stock.
2. Which financial statement reports a company's assets, liabilities, and
shareholders' equity at a specific point in time?
,A. Income statement
B. Statement of cash flows
C. Statement of retained earnings
D. Balance sheet
Answer: D. Balance sheet
Rationale: The balance sheet provides a snapshot of a company's financial
position by reporting assets, liabilities, and shareholders' equity at a
particular date.
3. Which of the following is an example of a current asset?
A. Long-term debt
B. Common stock
C. Accounts receivable
D. Property, plant, and equipment
Answer: C. Accounts receivable
Rationale: Accounts receivable are normally expected to be converted into
cash within the firm's operating cycle or one year, making them current
assets.
4. What does the time value of money principle state?
,A. Money loses all value over time
B. Future money is always worth more than current money
C. A dollar today is generally worth more than a dollar received in the
future
D. Inflation has no effect on money
Answer: C. A dollar today is generally worth more than a dollar received in
the future
Rationale: Money available today can be invested and earn a return, so a
dollar today generally has greater economic value than a dollar received
later.
5. What is the future value of $1,000 invested for one year at an annual
interest rate of 8%?
A. $920
B. $1,008
C. $1,080
D. $1,800
Answer: C. $1,080
Rationale: Future value equals present value multiplied by one plus the
interest rate: $1,000 × 1.08 = $1,080.
, 6. What is the present value of $1,100 to be received one year from now if
the discount rate is 10%?
A. $900
B. $1,000
C. $1,010
D. $1,210
Answer: B. $1,000
Rationale: Present value is calculated as $1,100 ÷ 1.10, which equals
$1,000.
7. Which factor would increase the present value of a future cash flow, all
else being equal?
A. A higher discount rate
B. A longer time period
C. A lower discount rate
D. Greater uncertainty
Answer: C. A lower discount rate
Rationale: A lower discount rate reduces the amount by which a future
cash flow is discounted, thereby increasing its present value.
8. What is an annuity?
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 profits
B. Maximizing sales revenue
C. Maximizing shareholder wealth
D. Minimizing employee compensation
Answer: C. Maximizing shareholder wealth
Rationale: The primary objective of corporate finance is to maximize the
value of the firm to its shareholders, generally reflected in the market
value of its common stock.
2. Which financial statement reports a company's assets, liabilities, and
shareholders' equity at a specific point in time?
,A. Income statement
B. Statement of cash flows
C. Statement of retained earnings
D. Balance sheet
Answer: D. Balance sheet
Rationale: The balance sheet provides a snapshot of a company's financial
position by reporting assets, liabilities, and shareholders' equity at a
particular date.
3. Which of the following is an example of a current asset?
A. Long-term debt
B. Common stock
C. Accounts receivable
D. Property, plant, and equipment
Answer: C. Accounts receivable
Rationale: Accounts receivable are normally expected to be converted into
cash within the firm's operating cycle or one year, making them current
assets.
4. What does the time value of money principle state?
,A. Money loses all value over time
B. Future money is always worth more than current money
C. A dollar today is generally worth more than a dollar received in the
future
D. Inflation has no effect on money
Answer: C. A dollar today is generally worth more than a dollar received in
the future
Rationale: Money available today can be invested and earn a return, so a
dollar today generally has greater economic value than a dollar received
later.
5. What is the future value of $1,000 invested for one year at an annual
interest rate of 8%?
A. $920
B. $1,008
C. $1,080
D. $1,800
Answer: C. $1,080
Rationale: Future value equals present value multiplied by one plus the
interest rate: $1,000 × 1.08 = $1,080.
, 6. What is the present value of $1,100 to be received one year from now if
the discount rate is 10%?
A. $900
B. $1,000
C. $1,010
D. $1,210
Answer: B. $1,000
Rationale: Present value is calculated as $1,100 ÷ 1.10, which equals
$1,000.
7. Which factor would increase the present value of a future cash flow, all
else being equal?
A. A higher discount rate
B. A longer time period
C. A lower discount rate
D. Greater uncertainty
Answer: C. A lower discount rate
Rationale: A lower discount rate reduces the amount by which a future
cash flow is discounted, thereby increasing its present value.
8. What is an annuity?
