Week 5 Final Exam Study Guide

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FIN/370 Final Examination Study Guide

This study guide prepares you for the Final Examination you complete in the last week of the course. It contains practice questions, which are related to each week’s objectives. Highlight the correct response, and then refer to the answer key at the end of this Study Guide to check your answers.

Use each week’s questions as a self-test at the start of a new week to reflect on the previous week’s concepts. When you come across concepts that you are unfamiliar with, refer to the Student Guide for that particular week. The Student Guide provides a breakdown of the readings that align to the Final Examination questions.

Week One: Introduction to Finance and Analysis

Objective: Define basic financial terminology.

1.In terms of organizational costs, which of the following sequences is correct, moving from lowest to highest cost? a.General partnership, sole proprietorship, limited partnership, corporation b.Sole proprietorship, general partnership, limited partnership, corporation c.Corporation, limited partnership, general partnership, sole proprietorship d.Sole proprietorship, general partnership, corporation, limited partnership

2.The true owners of the corporation are the
a.holders of debt issues of the firm
b.preferred stockholders
c.board of directors of the firm
d.common stockholders

Objective: Explain how financial markets work in the United States.

3.__________ refer to all institutions and procedures that facilitate transactions in long-term financial securities. a.Currency markets
b.Capital markets
c.Commodity markets
d.Money markets

4.__________ is a method of offering securities to a limited number of investors. a.Initial public offering
b.Private placement
c.Public offering
d.Syndicated underwriting

5.When public corporations decide to raise cash in the capital markets, what type of financing vehicle is most favored? a.Retained earnings
b.Preferred stock
c.Common stock
d.Corporate bonds

6.Which of the following would increase the need for external equity? a.Inadequate investment opportunities
b.A slowdown in economic growth
c.A reduction in corporate profits
d.A seasonal reduction in sales revenues

7.Money market instruments include
a.bankers’ acceptances
b.preferred stock
c.corporate bonds
d.common stock

Objective: Assess the role of ethics and compliance in the finance environment.

8.Difficulty in finding profitable projects is due to
a.social responsibility
b.competitive markets
c.ethical dilemmas
d.opportunity costs

Objective: Evaluate financial performance using financial ratios.

9.Which of the following statements is true?
a.Current assets consist of cash, accounts receivable, inventory, and net plant, property, and equipment. b.The quick ratio is a more restrictive measure of a firm’s liquidity than the current ratio. c.For the average firm, inventory is considered to be more liquid than accounts receivable. d.A successful firm’s current liabilities should always be greater than its current assets.

Week Two: Financial Planning

Objective: Describe the relationship between strategic planning and financial planning.

10.You have $10,000 to invest. You do not want to take any risk, so you will put the funds in a savings account at the local bank. Of the following choices, which one will produce the largest sum at the end of 22 years? a.An account that compounds interest annually

b.An account that compounds interest daily
c.An account that compounds interest quarterly
d.An account that compounds interest monthly

Objective: Prepare a cash budget.

11.Which of the following statements about the percent-of-sales method of financial forecasting is true? a.It is the least commonly used method of financial forecasting. b.It is a much more precise method of financial forecasting than a cash budget would be. c.It involves estimating...
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