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Financial Management: Principles and Applications, 11e (Titman) Chapter 1 Getting Started-Principles of Finance 1) Which of the following statements best represents what finance is about? A) How political, social, and economic forces affect corporations B) Maximizing profits C) Creation and […]

5) If managers are making decisions to maximize shareholder wealth, then they are primarily concerned with making decisions that should: A) positively affect profits. B) increase the market value of the firm’s common stock. C) either increase or have no […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 2 Firms and the Financial Market 1) Most businesses are considered to be savers. Answer: FALSE Diff: 1 Topic: 2.1 The Basic Structure of the U.S. Financial Markets Keywords: financial intermediaries Principles: […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 3 Understanding Financial Statements, Taxes, and Cash Flows 1) Which of the basic financial statements is best used to answer the question, “How profitable is the business?” A) Balance sheet B) Statement […]

19) Which of the following would be included in the calculation of net operating working capital? A) Accounts payable B) Accruals C) Short-term notes payable D) Both A and B E) All of the above Topic: 3.2 The Income Statement […]

2) Fixed assets includes which of the below? A) Inventory B) Patents C) Land Topic: 3.4 The Balance Sheet Keywords: balance sheet Principles: Principle 3: Cash Flows Are the Source of Value 4) Your firm has the following balance sheet […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 4 Financial Analysis-Sizing Up Firm Performance 1) Discuss why debt is considered a two-edged sword. Answer: Financing with debt can enhance the return to equity investors during good times. Even though interest […]

30) Snype, Inc. has an accounts receivable turnover ratio of 7.3. Stork Company has an accounts receivable turnover ratio of 5.0. Which of the following statements is correct? A) Snype’s average collection period is less than Stork’s. B) Stork’s average […]

Total stockholders’ equity 32,400 Total liabilities and equity $72,000 60) In 1995, ABC’s average collection period is: A) 30 days. B) 32.5 days. C) 25 days. D) 35 days. Topic: 4.3 Using Financial Ratios Keywords: financial ratios Principles: Principle 3: […]

Table 4 Hokie Corporation Comparative Balance Sheet For the Years Ending March 31, 1995 and 1996 (Millions of Dollars) Assets 1995 1996 Current assets: Cash $2 $10 Accounts receivable 16 10 Inventory 22 26 Total current assets $40 $46 Gross […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 5 Time Value of Money-The Basics 1) Financial managers use the time value of money to: A) make business decisions. B) compare cash flows of different projects. C) determine the price of […]

Use the following information to answer the following question(s). A Max, Inc. deposited $2,000 in a bank account that pays 12% interest annually. 19) What will the dollar amount be in four years, assuming that interest is paid annually? A) […]

8) If you want to have $875 in 32 months, how much money must you put in a savings account today? Assume that the savings account pays 16% and it is compounded monthly (round to the nearest $10). A) $630 […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 6 The Time Value of Money-Annuities and Other Topics 1) You wish to borrow $2,000 to be repaid in 12 monthly installments of $189.12. The annual interest rate is: A) 24%. B) […]

32) George and Barbara will be retiring in four years and would like to buy a lake house. They estimate that they will need $150,000 at the end of four years to buy this house. They want to make four […]

65) A compound annuity involves depositing or investing a single sum of money and allowing it to grow for a certain number of years. Topic: 6.1 Annuities Keywords: annuity Principles: Principle 1: Money Has a Time Value 66) When repaying […]

5) Jay Coleman just graduated. He plans to work for five years and then leave for the Australian “Outback” country. He figures that he can save $3,500 a year for the first three years and $5,000 a year for the […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 7 An Introduction to Risk and Return-History of Financial Market Returns 1) You purchased the stock of Sargent Motors at a price of $75.75 one year ago today. If you sell the […]

Use the following to answer the following question(s). Roddy Richards invested $12014.88 in Wolverine Meat Distributors (W.M.D.) five years ago. The investment had yearly arithmetic returns of -9.7%, -8.1%, 15%, 7.2%, and 15.4%. 3) What is the arithmetic average return […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 8 Risk and Return-Capital Market Theory 1) Which of the following investments is clearly preferred to the others? Return Risk A 14% 12% B 22% 20% C 18% 16% A) Investment A […]

33) Using the following information for McDonovan, Inc.’s stock, calculate their expected return and standard deviation. State Probability Return Boom 20% 40% Normal 60% 15% Recession 20% (20%) Topic: 8.1 Portfolio Returns and Portfolio Risk Keywords: expected return Principles: Principle […]

1) The risk-return relationship for each financial asset is shown on: A) the capital market line. B) the New York Stock Exchange market line. C) the security market line. D) none of the above. Answer: C Diff: 1 Topic: 8.3 […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 9 Debt Valuation and Interest Rates 1) The par value of a bond: A) never equals its market value. B) is determined by the investor. C) generally is $1,000. D) is never […]

5.25% is payable annually. Investors presently require a rate of return of 8.375%. What is the current market price (intrinsic value) of the bonds? Round off to the nearest $1. A) $1,050 B) $932 C) $681 D) $1,111 Answer: C […]

3) If current market interest rates fall, what will happen to the value of outstanding bonds? A) It will rise. B) It will fall. C) It will remain unchanged. D) There is no connection between current market interest rates and […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 10 Stock Valuation 1) The XYZ Company, whose common stock is currently selling for $40 per share, is expected to pay a $2.00 dividend in the coming year. If investors believe that […]

33) A share of common stock just paid a dividend of $3.25 per share. The expected long-run growth rate for this stock is 18%. If investors require a rate of return of 24%, what should the price of the stock […]

6) World Wide Interlink Corp. has decided to undertake a large project. Consequently, there is a need for additional funds. The financial manager plans to issue preferred stock with an annual dividend of $5 per share. The stock will have […]

28) The cumulative dividend feature is necessary to protect the rights of preferred stockholders. Topic: 10.3 Preferred Stock Keywords: market required yield Principles: Principle 3: Cash Flows Are the Source of Value 29) Preferred stock cannot be retired. Answer: FALSE […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 11 Investment Decision Criteria 1) Which of the following are typical consequences of good capital budgeting decisions? A) The firm increases in value. B) The firm gains knowledge and experience that may […]

21) A machine has a cost of $5,375,000. It will produce cash inflows of $1,825,000 (Year 1); $1,775,000 (Year 2); $1,630,000 (Year 3); $1,585,000 (Year 4); and $1,650,000 (Year 5). At a discount rate of 16.25%, what is the NPV? […]

17) Which of the following series of cash flows could have more than one IRR? (Negative cash flows are in parentheses.) A) $(XX,XXX), $X,XXX , $X,XXX, $X,XXX B) $(XX,XXX), $X,XXX , $X,XXX, $X,XXX, $(XX,XXX) C) $X,XXX, $X,XXX , $X,XXX, $X,XXX, […]

Principles: Principle 1: Money Has a Time Value 38) What is the payback period for a $20,000 project that is expected to return $6,000 for the first two years and $3,000 for Years 3 through 5? A) 3 1/2 B) […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 12 Analyzing Project Cash Flows 1) Incremental cash flows from a project = A) Firm cash flows without the project plus or minus changes in net income. B) Firm cash flows with […]

3) Incremental cash flows include all of the following EXCEPT: A) research and development costs . B) increased labor costs from the project. C) advertising costs . D) both B and C. Topic: 12.2 Forecasting Project Cash Flows Keywords: incremental […]

35) SpaceTech is considering a new project with the following projections for Year 2. Year 2 Projections EBIT $400,000 Interest Expense $20,000 Depreciation Expense $40,000 Tax Rate 40% Net Working Capital Needs $200,000 If the projected net working capital needs […]

2) In 2010, Sunny Electronics expects to sell 100,000 3-D television sets for an average price of 10%, while inflation will increase both the sales price and the cost per unit by 3%. In real dollars, expected gross profit for […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 13 Risk Analysis and Project Evaluation 1) Which of the following is a reason why risk analysis is an important part of capital budgeting? A) The people who propose projects have no […]

21) What is the expected net operating profit after tax (NOPAT) if the most likely estimates are used? A) $493,500 B) $330,000 C) $300,000 D) $124,500 Topic: 13.2 Tools for Analyzing the Risk of Project Cash Flows Keywords: scenario analysis […]

12) In the 4th year of project M, expected revenues will be $4,750,000, variable costs will be $4,000,000, depreciation expense $180,000, and fixed cash costs $570,000. Which of the following is true? A) Accounting income equals $0.00 B) Free cash […]

32) Year 0 Year 0 Year 1 Year 2 Revenue $15,000 $15,000 Variable Cost ($5,000) ($5,000) Depreciation ($200) ($200) Fixed Cost ($350) ($350) Operating Income $9,450 $9,450 Taxes at 30% ($2,835) ($2,835) NOPAT $6,615 $6,615 Capital Investment ($5,753) Free Cash […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 14 The Cost of Capital 1) In order to maximize firm value, management should invest in new assets when cash flows from the assets are discounted at the firm’s ________ and result […]

Principles: Principle 1: Money Has a Time Value Use the following information to answer the following question(s). The current market price of an existing debt issue is $1,125. The bonds have a $1,000 par value, pay interest annually at a […]

49) Explain why the investor’s required return on debt is not equal to the corporation’s cost of debt, and explain why the investor’s required return on equity is not equal to the corporation’s cost of equity. Topic: 14.3 Estimating the […]

1) Pilgrim’s WACC is 12%. It has one opportunity to invest in a high risk project with an expected rate of return of 25%. It has another opportunity to lease a building to a government agency. The expected rate of […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 15 Capital Structure Policy 1) The firm’s optimal capital structure is the mix of financing sources that: A) minimizes the risk of financial distress. B) maximizes after-tax earnings. C) maximizes the total […]

13) Which of the following is a reasonable conclusion from the Tradeoff theory of capital structure? A) A high debt ratio will result in a maximum price of a firm’s common stock. B) A firm’s common stock price will not […]

8) List and briefly explain at least two important reasons why capital structures tend to differ between industries and even companies within the same industry. Topic: 15.3 Why Do Capital Structures Differ across Industries? Keywords: capital structure Principles: Principle 2: […]

Use the following information to answer the following question(s). Your firm is trying to determine whether it should finance a project requiring $800,000 with new common stock or with debt. The firm is faced with the following financing alternatives: I: […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 16 Dividend Policy 1) In response to a temporary decline in earnings per share, most companies would: A) decrease their cash dividend. B) not decrease their cash dividend. C) suspend their cash […]

41) Kelly owns 10,000 shares in McCormick Spices, which currently has 500,000 shares outstanding. The stock sells for $86 on the open market. McCormick’s management has decided on a 2-1 split. a. Will Kelly’s financial position alter after the split, […]

27) Fred Handel owns 2000 shares of Haydn Inc. stock which is currently selling for $18 per share. If the company repurchases 10% of its outstanding shares at $18 per share and Fred chooses not to sell any shares back […]

7) A justification for stable dividends could be: A) satisfaction of guaranteed current income. B) satisfaction for stockholders’ informational needs. C) existence of legal listing. D) all of the above. Topic: 16.3 Cash Distribution Policies in Practice Keywords: stable dividend […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 17 Financial Forecasting and Planning 1) Types of plans that businesses typically use to guide their operations include: A) strategic plans. B) long-range financial plans. C) short-range financial plans. D) all of […]

25) Assume all else remains the same. Which of the following statements is true? A) The lower a firm’s profit margin, the more discretionary financing a firm will require. B) The higher a firm‘s profit margin, the more discretionary financing […]

61) Amalgamated Enterprises is planning to purchase some new equipment. With this new equipment, the company expects sales to increase from $8,000,000 to $10,000,000. A portion of the financing for the purchase of the equipment will come from a $1,000,000 […]

1, 2004? A) $32,000 B) $4,300 C) $25,000 D) None of the above Answer: C Diff: 2 Topic: 17.3 Developing a Short-Term Financial Plan Keywords: cash budgets Principles: Principle 3: Cash Flows Are the Source of Value 20) The primary […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 18 Working Capital Management 1) An increase in ________ would increase net working capital. A) plant and equipment B) accounts payable C) accounts receivable D) both B and C Answer: C Diff: […]

2nd quarter $1.7 million, 3rd quarter $1.5 million and 4th quarter $2.2 million. The best estimate for North Pole’s permanent current assets is: A) $2.2 million. B) $1.675 million. C) $1.3 million. D) $0.9 million. Answer: C Diff: 2 Topic: […]

1) A firm buys on terms of 3/10, net 30. What is the cost of trade credit under these terms? A) 55.7% B) 47.4% C) 31.5% D) 23.2% Answer: A Diff: 2 Topic: 18.4 Managing Current Liabilities Keywords: trade credit […]

34) A major risk in using commercial paper for short-term financing is the inflexible repayment schedule. Topic: 18.4 Managing Current Liabilities Keywords: commercial paper Principles: Principle 3: Cash Flows Are the Source of Value 35) Prior to establishing trade credit, […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 19 International Business Finance 1) Trading in foreign exchange markets is dominated by: A) Russian rubles, Indian rupees and Indonesian rupeas. B) Spanish pesetas, German marks, French francs. C) Chinese renminbis, Indian […]

36) The exchange rate that represents the number of units of a home currency that is required to purchase one unit of a foreign currency is referred to as a(n) ________ quote. A) forward B) direct C) market D) indirect […]

15) The nominal rate of interest in Russia is 9.5% and the inflation rate is 8%. The nominal rate of interest in Canada is 2.5% and the inflation rate is zero. We would expect: A) the ruble to strengthen against […]

Principles: Principle 3: Cash Flows Are the Source of Value 10) Exchange rate risk: A) exists when the contract is written in terms of the foreign currency. B) exists also in direct foreign investments and foreign portfolio investments. C) does […]

Financial Management: Principles and Applications, 11e (Titman) Chapter 20 Corporate Risk Management 1) The major risks assumed by firms include: A) demand risk. B) foreign-exchange risk. C) operational risk. D) all of the above. Answer: D Diff: 1 Topic: 20.1 […]

7) Swenson Oil & Gas allows its customers to prepurchase heating oil in June for the coming winter. Customers who took advantage of the offer prepurchased 400,000 gallons of oil at $3.00 per gallon. Swenson hedged its position by contracting […]

21) A call option: A) gives its owner the right to sell a given number of shares or some other asset at a specified price over a given period. B) purchaser makes money if the price of the underlying stock […]

53) Annika has purchased put options on 1000 shares of Amazon stock with a striking price of $170 per share. The option premium was $6.00 per share. a. Compute Annika’s profit or loss if the market value of Amazon’s stock […]