FINC 340 Financial Management
Sample Exam I
1.
The goal of the firm should be:
a. maximization of profits
b. maximization of shareholder wealth
c. maximization of consumer satisfaction
d. maximization of sales
2.
Why is maximizing shareholder wealth a better goal than maximizing profits?
a. Maximizing shareholder wealth places greater emphasis on the short term.
b. Maximizing profits ignores the uncertainty that is related to expected profits.
c. Maximizing shareholder wealth gives superior consideration to the entire portfolio of
shareholder investments.
d. Maximizing profits gives too much weight to the tax position of shareholders.
3.
Which of the following types of business forms is the most ideal in terms of attracting new
capital?
a. Sole proprietorship.
b. Limited partnership
c. General partnership.
d. A public corporation.
4.
What does an IPO refer to?
a. An Initial Principal Offering.
b. The first time a company's stock is sold to the public.
c. An International Public Organization.
d. Whenever shares of a company's stock are traded in the secondary markets.
5.
What does the Agency Problem refer to?
a. The conflict that exists between the Board of Directors and the employees of the firm.
b. The problem associated with financial managers and Internal Revenue Agents.
c. The conflict that exists between stockbrokers and investors.
d. The problem that results from potential conflicts of interest between the manager of a
business and the stockholders.
e. None of the above.
6.
Which of the following streams of income is not affected by how a firm is financed
(whether with debt or equity)?
a. Net profit after tax but before dividends.
b. Net working capital.
c. Operating income.
d. Income before tax.
7.
Who owns the retained earnings of a public firm?
a. The IRS.
b. Common stockholders.
c. Bondholders.
d. Preferred stockholders.
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FINC 340 Financial Management
Sample Exam I
8.
How does "free cash flow" differ from net profit?
a. It is determined by accrual basis accounting.
b. It takes into consideration a firm's ongoing investment in working capital and fixed
assets.
c. It ignores depreciation and taxes.
d. It is less expensive.
9.
Which of the following items is part of the computation of net operating working capital
for purposes of determining free cash flow?
a. Accounts payable.
b. Fixed assets.
c. Interest expense.
d. Dividend payments.
10.
Your firm has the following income statement items. Sales of $52,000,000, income tax of
$1,880,000, operating expenses of $9,000,000, cost of goods sold of $36,000,000,
depreciation and amortization of $1,500,000, and interest expense of $800,000. For
purposes of determining free cash flow, what is the amount of the firm's after-tax cash flow
from operations?
a. $1,008,000
b. $3,600,000
c. $5,120,000
d. $750,000
11.
Which of the following are tax deductible expenses for a business?
a. common stock dividends
b. interest
c. preferred stock dividends
d. none of the above
12.
Which of the following is not a tax deductible expense for a corporation?
a. Interest.
b. Depreciation.
c. Dividends.
d. Administrative expenses.
e. Cost of raw materials.
13.
All of the following represent cash expenditures to the firm except which of the following?
a. Taxes.
b. Interest payments.
c. Dividends.
d. Depreciation.
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FINC 340 Financial Management
Sample Exam I
14.
If a company's average collection period is higher than the industry average, then the
company may be:
a. enforcing credit conditions upon its customers which are too stringent
b. allowing its customers too much time to pay their bills
c. too tough in collecting its accounts
d. too liquid
15.
Which of the following will help an analyst determine how well a firm is able to meet it
debt obligations?
a. Total liability turnover
b. Times interest earned
c. Return on debt
d. Asset ratio
16.
An inventory turnover ratio of 5.2 compared to an industry average of 4.1 indicates that:
a. The firm has higher sales than the industry average.
b. The firm is investing less in inventory per dollar of sales than the industry average.
c. The firm is investing heavily in inventories.
d. The firm is investing heavily in receivables.
17.
Increased financial leverage refers to all of the following forms of acquiring capital except:
a. debt financing
b. lease financing
c. common stock
d. preferred stock
18.
Assume that a particular firm has a total asset turnover ratio lower than the industry norm.
In addition, this firm's current ratio and fixed asset turnover ratio also meet industry
standards. Based on this information, we can conclude that this firm must have excessive
a. accounts receivable.
b. fixed assets.
c. debt.
d. inventory.
19.
Which of the following is not a driving force of the operating profit margin?
a. The average selling price for each product.
b. The ability to control all of the firm's expenses.
c. The ability to control general and administrative expenses.
d. The number of units of product sold.
20.
What is the most important ingredient in developing a firm's financial plan?
a. A forecast of sales revenues
b. Determining the amount of dividends to pay shareholders
c. Projecting the rate of interest on proposed new debt
d. Deciding upon which method of depreciation a firm should utilize
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FINC 340 Financial Management
Sample Exam I
21.
Which of the following is the correct method of determining Discretionary Financing
Needed (DFN)?
a. Projected change in assets, divided by projected change in liabilities, plus projected
change in owner's equity
b. Projected change in assets, times projected change in owner's equity, minus projected
change in liabilities
c. Projected change in owner's equity, minus projected change in liabilities, plus projected
change in assets
d. Projected change in assets, minus projected change in liabilities, minus projected
change in owner's equity
22.
A discretionary form of financing would be:
a. notes payable
b. accounts payable
c. accrued expenses
d. none of the above
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