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Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 1 An Introduction to the Foundations of Financial Management 1.1 Learning Objective 1 1) Financial management deals with the maintenance and creation of economic value or wealth. Answer: TRUE Keywords: Financial Management AACSB: Reflective […]

47) Assume that an investor is offered a choice of a risk-free government bond or a high-risk corporate stock. Further assume that the expected return is the same for both. According to one of the axioms of finance, which investment […]

Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 10 Capital-Budgeting Techniques and Practice 10.1 Learning Objective 1 1) Free cash flows represent the benefits generated from accepting a capital-budgeting proposal. Answer: TRUE Keywords: Capital Budgeting, Free Cash Flow AACSB: Reflective thinking skills […]

91) Compute the discounted payback period for a project with the following cash flows received uniformly within each year and with a required return of 8%: Initial Outlay = $100 Cash Flows: Year 1 = $40 Year 2 = $50 […]

Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 11 Cash Flows and Other Topics in Capital Budgeting 11.1 Learning Objective 1 1) Accounting profits are used to make capital budgeting decisions because generally accepted accounting principles ensure that profits are the best […]

66) Which of the following should be excluded in an analysis of a new project’s cash flows? A) Additional investment in fixed assets B) Additional investment in accounts receivable C) Additional investment in inventory D) Additional interest expenses on debt […]

Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 12 Determining the Financing Mix 12.1 Learning Objective 1 1) Business risk refers to the relative dispersion of a firm’s earnings before interest and taxes. Answer: TRUE Keywords: Business Risk AACSB: Reflective thinking skills […]

19 23) Bob’s Baked Goods Company reported the following income statement for 2009: Sales $2,500,000 Variable Costs 900,000 Fixed Operating Costs 700,000 EBIT 900,000 Interest Expense 200,000 EBT 700,000 Taxes (30%) 210,000 Net Income $490,000 Earnings Per Share $4.90 If […]

Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 13 Dividend Policy and Internal Financing 13.1 Learning Objective 1 1) Dividends per share divided by earnings per share equal the dividend payout ratio. Answer: TRUE Keywords: Dividends Per Share, Earnings Per Share, Dividend […]

11) A corporation has been paying out $1 million per year in dividends for the past several years. This year, the company wants to pay the $1 million dividend, but can’t. All of the following are reasons the company cannot […]

1 Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 14 Short-Term Financial Planning 14.1 Learning Objective 1 1) The key ingredient in a firm’s financial planning is an accurate sales forecast. 2) Financial forecasting is the process of attempting to estimate a […]

12) Mercer, Inc. had the following sales for the past six months. Mercer collects its credit sales 30% in the month of sale, 60% one month after the sale, and 10% two months after the sale. Cash Sales Credit Sales […]

42) Which of the following would not be found in a cash budget? A) interest expense B) taxes C) depreciation D) cash sales Answer: C Keywords: Cash Budget, Depreciation AACSB: Reflective thinking skills 43) Is it possible for the cash […]

Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 15 Working-Capital Management 15.1 Learning Objective 1 1) Management of a firm’s liquidity involves management of the firm’s investment in current assets as well as its mix of long-term capital. Answer: FALSE Keywords: Liquidity, […]

32) Penn Inc. needs to borrow $250,000 for the next 6 months. The company has a line of credit with a bank that allows the company to borrow funds with an 8% interest rate subject to a 20% of loan […]

Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 16 Current Asset Management 16.1 Learning Objective 1 1) Near-cash assets consist of marketable securities and accounts receivable. Answer: FALSE Keywords: Near-cash Assets AACSB: Reflective thinking skills 2) Marketable securities are purchased when excess […]

18) U.S. Treasury Bills are extremely liquid due to excellent secondary markets. Answer: TRUE Keywords: U.S. Treasury Bills, Liquidity AACSB: Reflective thinking skills 19) Commercial paper is much more liquid than money-market mutual funds because commercial paper is available to […]

Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 17 International Business Finance 17.1 Learning Objective 1 1) Compared with other developed countries, the U.S. is particularly reliant on foreign trade for self-subsistence. Answer: FALSE Keywords: Foreign Trade, Self-subsistence AACSB: Reflective thinking skills […]

7) The spot exchange rate in New York is 1.600 dollars per British pound. The 360-day forward exchange rate is 1.680 dollars per pound. The one-year interest rate in Great Britain is 2% while the one-year interest rate in the […]

Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 2 The Financial Markets and Interest Rates 2.1 Learning Objective 1 1) Common stock is considered a short-term security because it has no maturity date and a long- term security is one with a […]

27) The investment banker performs what three basic functions? A) underwriting, distributing, and regulating B) underwriting, advising, and price-pegging C) underwriting, distributing, and advising D) underwriting, distributing, and negotiating Answer: C Keywords: Investment Banker AACSB: Reflective thinking skills 28) When […]

Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 3 Understanding Financial Statements and Cash Flows 3.1 Learning Objective 1 1) An income statement reports a firm’s cumulative revenues and expenses from the inception of the firm through the income statement date. Answer: […]

47) Prepare a balance sheet using the information given below. Make sure to identify current assets, net fixed assets, total assets, current liabilities, long-term debt, total equity, and total liabilities and equity. Gross fixed assets $40,000 Cash $18,000 Other assets […]

Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 4 Evaluating a Firm’s Financial Performance 4.1 Learning Objective 1 1) When the present financial ratios of a firm are compared with similar ratios for another firm in the same industry it is called […]

21 77) Which of the following financial ratios is the best measure of the operating effectiveness of a firm’s management? A) times interest earned B) net profit margin C) operating return on assets D) operating efficiency quotient Please refer to […]

Please refer to Table 4-6 for the following question. Table 4-6 Financial Data for Springfield Power Co. as of December 31, 2010: Inventory $300,000 Long-term debt 500,000 Interest expense 25,000 Accumulated depreciation 450,000 Cash 280,000 Net sales (all credit) 1,800,000 […]

1 Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 5 The Time Value of Money 5.1 Learning Objective 1 1) The time value of money is the opportunity cost of passing up the earning potential of a dollar today. 2) A rational […]

51) Congratulations! You have been accepted to study gourmet cooking at the Cordon-Bleu Cooking School in Paris. You will need $10,000 every 6 months (beginning today) for the next three years to cover tuition and living expenses. Mom and Dad […]

Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 6 The Meaning and Measurement of Risk and Return 6.1 Learning Objective 1 1) Accounting profits is the most relevant variable the financial manager uses to measure returns. Answer: FALSE Keywords: Accounting Profits, Cash […]

32) You are considering buying some stock in Continental Grain. Which of the following are examples of non-diversifiable risks? I. Risk resulting from a general decline in the stock market. II. Risk resulting from a possible increase in income taxes. […]

Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 7 The Valuation and Characteristics of Bonds 7.1 Learning Objective 1 1) Subordinated debentures are more risky than unsubordinated debentures because the claims of subordinated debenture holders are less likely to be honored in […]

7.6 Learning Objective 6 1) John and Karen are both considering buying a corporate bond with a coupon rate of 8%, a face value of $1,000, and a maturity date of January 1, 2025. Which of the following statements is […]

1 Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 8 The Valuation and Characteristics of Stock 8.1 Learning Objective 1 1) Preferred stock is referred to as a hybrid security because it has many characteristics of both common stock and bonds. 2) […]

14) Baseheart, Inc. expects its current annual $2.50 per share common stock dividend to remain the same for the foreseeable future. Therefore, the value of the stock to an investor with a required return of 12% is: A) $3.00 B) […]

Foundations of Finance, 7e (Keown/Martin/Petty) Chapter 9 The Cost of Capital 9.1 Learning Objective 1 1) In order to create value a corporation must earn a rate of return on its invested capital that is higher than the market’s required […]

70) A company is going to issue a $1,000 par value bond that pays a 7% annual coupon. The company expects investors to pay $942 for the 20-year bond. The expected flotation cost per bond is $42, and the firm […]