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iii
CONTENTS
PREFACE
About This Edition iv
Acknowledgments v
Correspondence vi
AACSB Tags vii
TEST QUESTIONS
Chapter 1 An Overview of Financial Management 1
Chapter 2 Financial Markets and Institutions 23
Chapter 3 Financial Statements, Cash Flow, and Taxes 33
Chapter 4 Analysis of Financial Statements 89
Chapter 5 Time Value of Money 135
Chapter 6 Interest Rates 197
Chapter 7 Bonds and Their Valuation 227
Chapter 8 Risk and Rates of Return 263
Chapter 9 Stocks and Their Valuation 313
Appendix 9A Stock Market Equilibrium 349
Chapter 10 The Cost of Capital 353
Chapter 11 The Basics of Capital Budgeting 391
Chapter 12 Cash Flow Estimation and Risk Analysis 439
Appendix 12A Tax Depreciation 473
Chapter 13 Capital Structure and Leverage 475
Chapter 14 Distributions to Shareholders:
Dividends and Share Repurchases 511
Chapter 15 Working Capital Management 541
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Chapter 16 Financial Planning and Forecasting 587
Chapter 17 Multinational Financial Management 601
PREFACE
About This Edition
This Test Bank is designed for use with the 7th Edition of Fundamentals of
Financial Management: Concise. Below we list key observations about the test
bank based on our experience in the introductory course.
1. Questions and problems have been updated and revised as necessary due to
text revisions made in this edition.
2. The test bank is available in three forms: a paper book, a Word file, and
a computerized test bank (ExamView). The ExamView version is extremely
powerful yet easy to use, and it can algorithmically change the problems
and answers and thus generate a nearly unlimited number of versions of each
problem.
1
For example, a capital budgeting problem might give students
information and require them to calculate an NPV. The algorithmic generator
would make a random change in a variable to create as many versions as an
instructor desires. This feature can virtually eliminate the possibility
of cheating, and it can also be used to develop sample tests for student
practice.
2
3. All questions have just one correct and four incorrect answers. None of
the problems have those annoying “a and b,” or “none of the above”
responses, and the like that confuse students and make them think “trick
question.”
v
4. At the end of each major section in the text, there are some straightforward
self-test questions and problems that deal with the material in the section.
These are in addition to the end-of-chapter questions and problems.
Previously, we avoided including problems in the test bank that were similar
in form and wording to those in the text--the test bank problems covered
the same material, but they looked different and frequently required a
different thought process. For example, in the text we might give students
some data and then require them to find the days sales outstanding, while
in the test bank we might give them the DSO and ask them to determine the
firm’s sales. Thus, many of the test bank problems required students to
transform the DSO equation and then use the transformed version to answer
the question. This is a good way to see how well students understood the
material, but it makes the problems relatively difficult and different from
what students saw in the text. The test bank still contains some of these
“convoluted” problems, but now it now has a lot more straightforward and
therefore easier problems.
5. To help instructors make up their exams, we provide a more complete
description of what each question or problem is designed to test. We
designated each question or problem as EASY, EASY/MEDIUM, MEDIUM,
MEDIUM/HARD, or HARD, and then arranged them from easy to hard, and then
by topic within each difficulty category. Time requirements vary depending
on the type of calculator students use, what was stressed in class, and
whether students are allowed to use a formula sheet. However, as a general
rule the easy items can be worked in 2 to 3 minutes and the medium ones in
3 to 4 minutes. Instructors can look at our solutions to get a better idea
of how long it will take their specific students to work the various
problems. In addition, AACSB “tags” are included on each topic line. These
tags indicate general and specific skills required to answer each question.
A listing of the AACSB tags is shown at the end of the preface. This can
be useful in the accreditation process.
6. Virtually all of our students at Florida use financial calculators, and we
also allow them to use the formulas provided in Appendix C of the text. We
strongly recommend that students be allowed to use a formula sheet, and we
tell them that at the beginning of the course. Otherwise, they spend too
much time trying to memorize formulas; time that would be better spent
trying to understand the meaning of different results. Note, though, that
if students do not use financial calculators and/or formula sheets, the
questions and especially the problems will de facto be more difficult than
we indicated and require more time for students to solve. Instructors need
to consider this when developing their exams from the test bank.
7. ExamView permits instructors to make up exams that contain some of our
questions and problems along with some items of their own. We generally
use 10 T/F or multiple-choice conceptual questions and 10 multiple-choice
problems, with most taken from the test bank but a few new ones based on
things that came up in class or recent events reported in the news. The
number of items in a test obviously depends on how long students have to
take the test and the difficulty level of the items that are used.
8. In small classes, it might be preferable to give nonmultiple-choice exams.
It is easy to use conceptual questions and numerical problems from the test
bank to make up such an exam--just delete the set of answers and ask for
an essay answer or a worked-out problem solution. Unfortunately, the class
size in the introductory course at Florida rarely makes this feasible.
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9. Several years ago we developed an Excel grading procedure that a number of
professors still use. The program automatically averages students’ grades,
and it produces a weighted average (we generally weight the midterms 30%
each and the final 40%). This program also allows us to specify a mean
grade for each exam such that the grade distribution results in a specified
GPA. For example, if we want the class GPA to be 2.7, which at Florida is
a C+, the model will produce that result. The Excel program also makes it
easy to sort by students’ grades to obtain a listing of students in rank
order and to sort by social security number (or some other identifier) to
post grades without names. Since other instructors may find the model
useful, we have included it in the Instructors’ Section of the book’s
website.
Acknowledgments
First, we would like to thank Professor Jim Keys (Florida International
University), Professor Oliver Schnusenberg (University of North Florida),
Professor Craig Tapley (University of Florida), and Chris Buzzard for their
assistance with the previous edition’s algorithmic test bank. Dana Aberwald
Clark worked closely with us to ensure that changes in this edition of the text
and updates were integrated into the 7th edition Test Bank. Susan Whitman took
care of the typing and proofing; her care and dedication is much appreciated.
Finally, we really appreciate the work done by the Cengage Learning staff and
the Russians who put our updates and revisions into the algorithmic system.
Whoever said it takes teamwork to produce a good product surely knew what they
were talking about!
Correspondence
We would very much appreciate hearing from test bank users--what difficulties
are you having, and what can we do to improve it? If you have any complaints or
suggestions, please let us hear from you.
AACSB Tags
AACSB Tier 1 Tags
A Communications abilities
B Ethical understanding and reasoning
C Analytic skills
D Use of information technology
E Multicultural understanding
F Reflective thinking
Finance-Specific Tier 2 Tags
G Students will acquire an understanding of stocks and bonds.
H Students will acquire knowledge of financial markets, institutions, and
interest rates.
I Students will acquire knowledge of capital budgeting and the cost of
capital.
J Students will acquire an understanding of the time value of money.
K Students will acquire knowledge of financial statements, financial
analysis, financial forecasting, and cash flows.
L Students will lay out a finance application in a computer spreadsheet.
M Students will understand and be able to articulate the goals of the firm,
the role of the finance function in the enterprise’s organization, and as
an analyst using public information.
N Students will acquire an understanding of risk and return.
O Students will acquire an understanding of investments and hybrid
financing.
P Students will acquire an understanding of derivative markets.
Q Students will acquire an understanding of capital structure.
R Students will acquire an understanding of dividend policy.
S Students will acquire an understanding of working capital management.
T Students will acquire an understanding of international financial
management.
U Students will acquire an understanding of mergers and acquisitions
analysis.
