Financial Management: Principles and Applications 11th Edition

Financial Management: Principles and Applications, 11e (Titman) Chapter 1 Getting Started-Principles of Finance 1.1 Finance: An Overview 1.1 Finance: An Overview 1.1 Finance: An Overview 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 maintenance of

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 effect on the value of the firm's common stock. D)

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

Financial Management: Principles and Applications, 11e (Titman) Chapter 3 Understanding Financial Statements, Taxes, and Cash Flows 3.1 An Overview of the Firm's Financial Statements 3.1 An Overview of the Firm's Financial Statements 3.1 An Overview of the Firm's Financial Statements 1) Which of the basic financial statements is best used to answer the question,

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 Answer: DDiff: 2 Answer: DDiff: 2 Answer: D Diff: 2 Topic: 3.2 The Income Statement Keywords: net operating working capital Principles:

2) Fixed assets includes which of the below? A) Inventory B) Patents C) Land D) CopyrightsAnswer: CDiff: 1Topic: 3.4 The Balance SheetKeywords: balance sheetPrinciples: Principle 3: Cash Flows Are the Source of Value3) Your firm has the following balance sheet statement items: total current liabilities of $805,000;total assets of $2,655,000; fixed and other

Financial Management: Principles and Applications, 11e (Titman) Chapter 4 Financial Analysis-Sizing Up Firm Performance 4.1 Why Do We Analyze Financial Statements? 4.1 Why Do We Analyze Financial Statements? 4.1 Why Do We Analyze Financial Statements? 1) Discuss why debt is considered a two-edged sword. Answer: Financing with debt can enhance the return to equity

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 collection period is less than Snype's. C) Snype has a

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. Answer: BDiff: 1 Answer: BDiff: 1 Answer: B Diff: 1 Topic: 4.3 Using Financial Ratios Keywords: financial ratios Principles: Principle 3: Cash Flows Are the Source of Value 61) In

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 fixed assets: $120 $124 Less accumulated depreciation 60 64 Net fixed assets 60 60 Total assets $100 $106 Liabilities

Financial Management: Principles and Applications, 11e (Titman) Chapter 5 Time Value of Money-The Basics 5.1 Using Timelines to Visualize Cash Flows 5.1 Using Timelines to Visualize Cash Flows 5.1 Using Timelines to Visualize Cash Flows 1) Financial managers use the time value of money to: A) make business decisions. B) compare cash flows 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) $2,800 B) $3,100 C) $3,111 D) $3,148 Answer: DDiff: 2 Answer: DDiff: 2 Answer:

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 B) $570 C) $650 D) $660 Answer: BDiff: 2 Answer: BDiff:

Financial Management: Principles and Applications, 11e (Titman) Chapter 6 The Time Value of Money-Annuities and Other Topics 6.1 Annuities 6.1 Annuities 6.1 Annuities 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) 8%. C) 18%. D) 12%. Answer: ADiff: 2 Answer:

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 equal annual payments into an account at the end of

65) A compound annuity involves depositing or investing a single sum of money and allowing it to grow for a certain number of years. Answer: FALSEDiff: 1 Answer: FALSEDiff: 1 Answer: FALSE Diff: 1 Topic: 6.1 Annuities Keywords: annuity Principles: Principle 1: Money Has a Time Value 66) When repaying an amortized loan, the interest payments increase

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 next two years. These savings will start one year from

Financial Management: Principles and Applications, 11e (Titman) Chapter 7 An Introduction to Risk and Return-History of Financial Market Returns 7.1 Realized and Expected Rates of Return and Risk 7.1 Realized and Expected Rates of Return and Risk 7.1 Realized and Expected Rates of Return and Risk 1) You purchased the stock of Sargent Motors

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 of Roddy Richard's investment? A) 2.42% B) 3.96% C) 5.18% D) 15.1% Answer: BDiff: 2 Answer: BDiff:

Financial Management: Principles and Applications, 11e (Titman) Chapter 8 Risk and Return-Capital Market Theory 8.1 Portfolio Returns and Portfolio Risk 8.1 Portfolio Returns and Portfolio Risk 8.1 Portfolio Returns and Portfolio Risk 1) Which of the following investments is clearly preferred to the others? Return Risk A 14% 12% B 22% 20% C 18%

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%) Answer: Ki = (Ki)(Pi) = (.20)(40%) + (.60)(15%) + (.20)(-20%) = 8% + 9% - 4% = 13% i = ((Ki K)2Pi).5 i

8.3 The Security Market Line and the CAPM 8.3 The Security Market Line and the CAPM 8.3 The Security Market Line and the CAPM 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.

Financial Management: Principles and Applications, 11e (Titman) Chapter 9 Debt Valuation and Interest Rates 9.1 Overview of Corporate Debt 9.1 Overview of Corporate Debt 9.1 Overview of Corporate Debt 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

22) Six years ago, Colt, Inc. sold an issue of 30-year, $1,000 par value bonds. The coupon rate of 22) Six years ago, Colt, Inc. sold an issue of 30-year, $1,000 par value bonds. The coupon rate of 22) Six years ago, Colt, Inc. sold an issue of 30-year, $1,000 par value

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 the value of outstanding bonds. Answer: ADiff: 2 Answer: ADiff: 2 Answer:

Financial Management: Principles and Applications, 11e (Titman) Chapter 10 Stock Valuation 10.1 Common Stock 10.1 Common Stock 10.1 Common Stock 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 the expected rate of return on

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 be? A) $57.51 B) $62.25 C) $71.86 D) $63.92 E)

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 a par value of $30. If investors' required rate of

28) The cumulative dividend feature is necessary to protect the rights of preferred stockholders. Answer: TRUEDiff: 2 Answer: TRUEDiff: 2 Answer: TRUE Diff: 2 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: FALSEDiff: 2 Answer: FALSEDiff: 2 Answer: FALSE Diff: 2 Topic: 10.3 Preferred

Financial Management: Principles and Applications, 11e (Titman) Chapter 11 Investment Decision Criteria 11.1 An Overview of Capital Budgeting 11.1 An Overview of Capital Budgeting 11.1 An Overview of Capital Budgeting 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

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? A) $81,724 B) $257,106 C) $416,912 D) $190,939 Answer: DDiff:

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, $(XX,XXX) D) $XX,XXX, $X,XXX , $X,XXX, $X,XXX Answer: BDiff: 2 Answer: BDiff: 2 Answer: B Diff:

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) 4 1/2 C) 4 2/3 D) 5 Answer: CDiff: 2 Answer: CDiff:

Financial Management: Principles and Applications, 11e (Titman) Chapter 12 Analyzing Project Cash Flows 12.1 Identifying Incremental Cash Flows 12.1 Identifying Incremental Cash Flows 12.1 Identifying Incremental 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 the

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. Answer: ADiff: 2 Answer: ADiff: 2 Answer: A Diff: 2 Topic: 12.2 Forecasting Project Cash Flows Keywords: incremental cash flow Principles: Principle 3: Cash Flows Are the

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 for Year 1 was $150,000, calculate the free cash flow for

2) In 2010, Sunny Electronics expects to sell 100,000 3-D television sets for an average price of $1,000. Expected production costs are $600 per unit. In 2011, volume is expected to increase by $1,000. Expected production costs are $600 per unit. In 2011, volume is expected to increase by $1,000.

Financial Management: Principles and Applications, 11e (Titman) Chapter 13 Risk Analysis and Project Evaluation 13.1 The Importance of Risk Analysis 13.1 The Importance of Risk Analysis 13.1 The Importance of Risk Analysis 1) Which of the following is a reason why risk analysis is an important part of capital budgeting? A) The people who propose

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 Answer: CDiff: 2 Answer: CDiff: 2 Answer: C Diff: 2 Topic: 13.2 Tools for Analyzing the Risk of Project Cash Flows Keywords: scenario analysis Principles: Principle 2: There Is a Risk-Return Tradeoff 22) What is the

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 flow equals $180,000 C) Free cash flow equals 0 D) Both A and B

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 Flow $6,815 $6,815 NPV $6,074.69 Forecasts for project ST are shown above. Using a discount rate of 10%, the project has a

Financial Management: Principles and Applications, 11e (Titman) Chapter 14 The Cost of Capital 14.1 The Cost of Capital: An Overview 14.1 The Cost of Capital: An Overview 14.1 The Cost of Capital: An Overview 1) In order to maximize firm value, management should invest in new assets when cash flows from the assets are

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 12% coupon rate, and mature in 10 years. The firm has

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. Answer: Interest expense is a deduction from the firm's taxable income. The firm can

14.5 Estimating Project Costs of Capital 14.5 Estimating Project Costs of Capital 14.5 Estimating Project Costs of Capital 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

Financial Management: Principles and Applications, 11e (Titman) Chapter 15 Capital Structure Policy 15.1 A Glance at Capital Structure Choices in Practice 15.1 A Glance at Capital Structure Choices in Practice 15.1 A Glance at Capital Structure Choices in Practice 1) The firm's optimal capital structure is the mix of financing sources that: A) minimizes the

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 be affected by the amount of debt a firm uses.

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. Answer: There are several reasons why firms use more or less debt in their capital structure. Firms facing high tax burdens may find the tax shield

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: Issue new common stock. Sale price of the common stock is expected

Financial Management: Principles and Applications, 11e (Titman) Chapter 16 Dividend Policy 16.1 How Do Firms Distribute Cash to Their Shareholders? 16.1 How Do Firms Distribute Cash to Their Shareholders? 16.1 How Do Firms Distribute Cash to Their Shareholders? 1) In response to a temporary decline in earnings per share, most companies would: A) decrease their

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, assuming that the stocks will fall proportionately? b. Assuming only

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 to the company, A) the value of his shares will stay

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. Answer: DDiff: 2 Answer: DDiff: 2 Answer: D Diff: 2 Topic: 16.3 Cash Distribution Policies in Practice Keywords: stable dividend Principles: Principle 3: Cash Flows Are

Financial Management: Principles and Applications, 11e (Titman) Chapter 17 Financial Forecasting and Planning 17.1 An Overview of Financial Planning 17.1 An Overview of Financial Planning 17.1 An Overview of Financial 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 a firm will require. C) The lower a firm's profit

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 new common stock issue. The company knows that current assets, fixed

19) Based on the information in Table 3, what is Thompson's projected cash balance as of April 19) Based on the information in Table 3, what is Thompson's projected cash balance as of April 19) Based on the information in Table 3, what is Thompson's projected cash balance as of

Financial Management: Principles and Applications, 11e (Titman) Chapter 18 Working Capital Management 18.1 Working Capital Management and the Risk-Return Tradeoff 18.1 Working Capital Management and the Risk-Return Tradeoff 18.1 Working Capital Management and the Risk-Return Tradeoff 1) An increase in ________ would increase net working capital. A) plant and equipment B) accounts payable C)

10) Current assets of NorthPole.com at the end of each quarter were: 1st quarter $1.3 million, 10) Current assets of NorthPole.com at the end of each quarter were: 1st quarter $1.3 million, 10) Current assets of NorthPole.com at the end of each quarter were: 1st quarter $1.3 million, 2nd quarter

18.4 Managing Current Liabilities 18.4 Managing Current Liabilities 18.4 Managing Current Liabilities 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: ADiff: 2 Answer: ADiff: 2 Answer: A Diff: 2 Topic: 18.4 Managing Current Liabilities Keywords: trade credit Principles:

34) A major risk in using commercial paper for short-term financing is the inflexible repayment schedule. Answer: TRUEDiff: 2 Answer: TRUEDiff: 2 Answer: TRUE Diff: 2 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, the firm is required to make extended

Financial Management: Principles and Applications, 11e (Titman) Chapter 19 International Business Finance 19.1 Foreign Exchange Markets and Currency Exchange Rates 19.1 Foreign Exchange Markets and Currency Exchange Rates 19.1 Foreign Exchange Markets and Currency Exchange Rates 1) Trading in foreign exchange markets is dominated by: A) Russian rubles, Indian rupees and Indonesian rupeas. B) Spanish pesetas,

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 E) arbitrage Answer: BDiff: 2 Answer: BDiff: 2 Answer: B Diff: 2 Topic: 19.1

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 the dollar. B) the exchange rate between the Canadian dollar and the

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 not exist if the international trade contract is written in terms

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

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 to purchase 400,000 gallons of oil for November delivery at

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 or asset decreases. C) gives its owner the right to

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 is $180 at expiration. b. Compute Annika's profit or loss if