BUSI 320
Finance Principles
Finals Exam (Qns & Ans)
2025
General Instructions
1. Read All Questions Carefully: Make sure you understand each question.
2. Time Management: You have a specific amount of time to complete the exam.
Keep an eye on the clock and pace yourself.
3. Allowed Materials: Only use materials that are explicitly allowed. Unauthorized
materials can lead to disqualification.
4. ANS Format: Follow the required format for your ANS. For example, multiple-choice
questions might need you to select the best ANS, while essay questions require
detailed responses.
5. Academic Integrity: Adhere to the university's honor code. Any form of cheating or
plagiarism is strictly prohibited.
6. Technical Requirements: Ensure your computer and internet connection are
stable. For online exams, you might need a webcam and microphone for proctoring
purposes.
7. Submission: Submit your ANS before the time expires. Late submissions might not
be accepted.
©2024/2025
,1. What is the primary goal of financial management?
A) Risk minimization
B) Profit maximization
C) Wealth maximization
D) Revenue maximization
Correct ANS: C
Rationale: The primary goal of financial management is to
maximize the wealth of shareholders, which encompasses long-
term value creation.
2. Which model is used to estimate the cost of equity?
A) Capital Asset Pricing Model (CAPM)
B) Gordon Growth Model
C) Arbitrage Pricing Theory
D) Modigliani-Miller Theorem
Correct ANS: A
Rationale: The Capital Asset Pricing Model (CAPM) is
widely utilized to derive the expected return of an asset based
on its systematic risk.
©2024/2025
,3. What does the term “beta” measure in finance?
A) Market volatility
B) Company performance
C) Stock liquidity
D) Risk exposure relative to the market
Correct ANS: D
Rationale: Beta measures the sensitivity of an asset's
returns relative to the returns of the market, indicating its risk
exposure.
4. Which financial instrument typically has the highest risk?
A) Government Bonds
B) Corporate Bonds
C) Common Stocks
D) Savings Accounts
Correct ANS: C
Rationale: Common stocks tend to have the highest risk
compared to the other instruments listed due to their exposure
to market fluctuations and company performance.
5. When should a company consider using leverage?
A) When interest rates are high
©2024/2025
, B) When the firm has stable cash flows
C) In a recession
D) When pursuing a conservative growth strategy
Correct ANS: B
Rationale: Companies are more likely to use leverage when
they have stable cash flows to service the debt comfortably.
Fill-in-the-Blank Questions
6. The ________ Ratio is calculated by dividing a company's
total debt by its total equity.
Correct ANS: Debt-to-Equity
Rationale: The Debt-to-Equity Ratio measures a company's
financial leverage.
7. The ___________ Model considers the impact of tax
shields in evaluating the cost of debt.
Correct ANS: Modigliani-Miller
Rationale: The Modigliani-Miller Theorem incorporates
tax shields to afford a more accurate assessment of capital
costs.
©2024/2025
Finance Principles
Finals Exam (Qns & Ans)
2025
General Instructions
1. Read All Questions Carefully: Make sure you understand each question.
2. Time Management: You have a specific amount of time to complete the exam.
Keep an eye on the clock and pace yourself.
3. Allowed Materials: Only use materials that are explicitly allowed. Unauthorized
materials can lead to disqualification.
4. ANS Format: Follow the required format for your ANS. For example, multiple-choice
questions might need you to select the best ANS, while essay questions require
detailed responses.
5. Academic Integrity: Adhere to the university's honor code. Any form of cheating or
plagiarism is strictly prohibited.
6. Technical Requirements: Ensure your computer and internet connection are
stable. For online exams, you might need a webcam and microphone for proctoring
purposes.
7. Submission: Submit your ANS before the time expires. Late submissions might not
be accepted.
©2024/2025
,1. What is the primary goal of financial management?
A) Risk minimization
B) Profit maximization
C) Wealth maximization
D) Revenue maximization
Correct ANS: C
Rationale: The primary goal of financial management is to
maximize the wealth of shareholders, which encompasses long-
term value creation.
2. Which model is used to estimate the cost of equity?
A) Capital Asset Pricing Model (CAPM)
B) Gordon Growth Model
C) Arbitrage Pricing Theory
D) Modigliani-Miller Theorem
Correct ANS: A
Rationale: The Capital Asset Pricing Model (CAPM) is
widely utilized to derive the expected return of an asset based
on its systematic risk.
©2024/2025
,3. What does the term “beta” measure in finance?
A) Market volatility
B) Company performance
C) Stock liquidity
D) Risk exposure relative to the market
Correct ANS: D
Rationale: Beta measures the sensitivity of an asset's
returns relative to the returns of the market, indicating its risk
exposure.
4. Which financial instrument typically has the highest risk?
A) Government Bonds
B) Corporate Bonds
C) Common Stocks
D) Savings Accounts
Correct ANS: C
Rationale: Common stocks tend to have the highest risk
compared to the other instruments listed due to their exposure
to market fluctuations and company performance.
5. When should a company consider using leverage?
A) When interest rates are high
©2024/2025
, B) When the firm has stable cash flows
C) In a recession
D) When pursuing a conservative growth strategy
Correct ANS: B
Rationale: Companies are more likely to use leverage when
they have stable cash flows to service the debt comfortably.
Fill-in-the-Blank Questions
6. The ________ Ratio is calculated by dividing a company's
total debt by its total equity.
Correct ANS: Debt-to-Equity
Rationale: The Debt-to-Equity Ratio measures a company's
financial leverage.
7. The ___________ Model considers the impact of tax
shields in evaluating the cost of debt.
Correct ANS: Modigliani-Miller
Rationale: The Modigliani-Miller Theorem incorporates
tax shields to afford a more accurate assessment of capital
costs.
©2024/2025
