Test Bank to Accompany

Financial Management: Theory and Practice
Twelfth Edition
Eugene F. Brigham University of Florida Michael C. Ehrhardt University of Tennessee

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............................................................................. and Taxes.............................................443 Financial Planning and Forecasting Financial Statements........................................................................................................................................................ Bond Valuation............. and Corporate Governance....................................................315 The Basics of Capital Budgeting: Evaluating Cash Flows............189 Risk......................471 iii .............................................x Correspondence.......................1 Time Value of Money.....................455 Corporate Valuation.....147 Zero Coupon Bonds.....................................................................vii Student Preparation for a Test Bank Exam............................................... and Stock Market Equilibrium......................................................... Cash Flow............................103 Bonds.................................................................201 Portfolio Theory and Other Asset Pricing Models.......................................................................vii Computerized Test Banks................... Stock Valuation............................................................................71 Analysis of Financial Statements....................................................................................................................................................x TEST QUESTIONS Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Extension 5A Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 An Overview of Financial Management and the Financial Environment................ix Acknowledgments...............vii Answers to Questions and Solutions to Problems...v Debugging the Questions...351 Cash Flow Estimation and Risk Analysis...................................407 Real Options. Return..................................................................271 Financial Options and Applications in Corporate Finance........ Value-Based Management..................................................................................19 Financial Statements..............................251 Stocks..............................................................................................................................303 The Cost of Capital.............................................ix Other Uses of the Test Bank............................................. and the Capital Asset Pricing Model.............................................CONTENTS PREFACE Overview of the Test Bank............. and Interest Rates............................................

.....561 iv .......... and Liquidation....................................................... Warrants.....515 Distributions to Shareholders: Dividends and Repurchases.............................. Reorganization.....................................................................577 Working Capital Management........................................................... and Holding Companies....................................................567 Hybrid Financing: Preferred Stock.................667 Extension 19A Rights Offerings...............................547 Lease Financing...............639 Bankruptcy..Chapter 16 Chapter 17 Chapter 18 Chapter 19 Chapter 20 Chapter 21 Chapter 22 Chapter 23 Chapter 24 Chapter 25 Chapter 26 Capital Structure Decisions: The Basics............. and Financial Restructuring.................................................................... LBOs................................................................ Divestitures......589 Derivatives and Risk Management............. Investment Banking..................................645 Mergers..................................................... and Convertibles.............................649 Multinational Financial Management.481 Capital Structure Decisions: Extensions...525 Initial Public Offerings............................................

each of the procedures allows professors to edit our questions and/or add questions of their own. which allows professors to algorithmically generate alternative versions of the problems and automatically record grades in a grade book. machine grading. Of course. Overview of the Test Bank When we first taught the introductory finance course. our publisher was working to improve their computer system for constructing. because if students perceive the testing system as being even slightly unfair. and Thomson’s computerized procedures (as discussed below) permits one to expand the problem set almost infinitely. Also. The Test Bank contains enough questions and problems to make up exams for six semesters without having to repeat questions. we were receiving more and more requests from professors for a really first-rate test bank. However. and automatically posting test scores to a grade book. unambiguous questions and problems. our exams consisted of open-ended problems and essay questions. v . (2) In a second computerized package within the ThomsonNow course management program. and with Thomson’s computerized grading system. More will be said about the computerized versions of the Test Bank later in this preface. the questions and problems must be unambiguous (or very close to it). with the ThomsonNow algorithmic system one can create unique. relatively detailed answers are provided for all of the problems as well as for all questions that are not definitional in nature. Today. we began experimenting with multiple choice exams. as textbook authors. Moreover. Also. (3) In Microsoft Word® for professors who find it easier to construct their exams from Word files. we are so well satisfied with the Test Bank. Simultaneously. plus more difficult questions and problems to test the depth of their understanding. that we would use multiple choice exams even if our classes had only 25 students.PREFACE This Test Bank is designed for use with the 12th Edition of Financial Management: Theory and Practice. With all three procedures. Also. straightforward questions to test students’ basic knowledge of a broad range of topics. as class sizes and demands on our time increased. This Test Bank provides a very large set of clear. The Test Bank is available in three forms: (1) As a computerized test bank in ExamView. individualized problems where the basic questions are the same but inputs such as interest rates or cash flows are changed randomly so that the answers are different for each student’s exam. this will lead to discontent. the test bank should contain a mix of easy.

Also. plus explanations for true/false and conceptual questions where the answers are not obvious to anyone who has studied the chapter. Finally. Without those sheets. Also. and the numerical problems cover all of the quantitative aspects of the chapter. where students have the formula sheet. that our exams are like the SATs or GMATs in that not all students will be able to complete all the questions within the allotted time. Further. so scores will be higher. We provide formula sheets so students won’t spend too much time memorizing things that they could easily look up in the real world. We make it clear to the class. difficulty depends on what information students have access to when they are taking the exam. students can look things up and also work on problems until they get a solution that matches one of the indicated answers. but we decided that due to the differences noted above. each question or problem indicates the topic and relevant section number within the chapter. Indeed. However. and then a set of numerical problems. we give exams at night. we recommend that instructors consider our assigned level as a starting point but then make up their own minds after looking over the questions and answers. and most of our questions can’t be answered from snippets of information anyway. 1 The question number is actually a Word end note reference. The true/false questions provide a broad coverage of all the topics in the chapter. For larger classes. the harder questions and problems will require the most time. we generally give timed exams.1 The assigned difficulty level is somewhat subjective. We schedule them for two hours. We don’t worry about students storing a lot of material in their calculators or laptops for use on the exams. 2 Our students all use financial calculators for in-class exams and either calculators or Excel for online quizzes and exams. we provide worked-out solutions to all problems. arranged from easiest to hardest. and the end note itself contains details regarding the answer to the question. and a set amount of time to take the exam. and we try to make them end on schedule. therefore.If you look through the print Test Bank you will quickly see that each chapter begins with a set of true/false questions. look at the questions and our worked-out solutions and then decide for themselves how long it will take their students to take the exam. though. and the perceived difficulty level will also depend on what was emphasized in class and in review sessions.2 If the exams are given online. and we use them to ensure that students have a basic knowledge of all the assigned topics. this might do more harm than good. and finally the answers to the questions and problems. again from easy to hard. We thought about indicating approximately how long it would take to answer the various questions. vi . The conceptual multiple choice questions test students’ knowledge at a deeper level. the some conceptual multiple choice questions. the exams would definitely be harder. entering such information is actually a good way to study. Generally. we always make up an exam. Instructors should. a calculator. we will extend the time for an extra 15 or 20 minutes. and then make adjustments until it seems feasible for a two-hour exam. Also. if it is obvious early on that the exam is too long for even our best students. have one or more student assistants take it. Therefore. This ensures that the answers follow the questions if they are cut and pasted or otherwise shuffled around.

and online testing is increasing. Adopters may obtain these test banks by contacting their local sales representative. The worked-out solution that’s provided is for the “base case” problem as given in the print Test Bank. Still. It’s easy. as a Microsoft Word® file that is available on a CD-ROM or as a download from the book’s Web site. if a students asks about a question and it becomes clear that it is ambiguous. it does not generate new worked-out solutions. Our students have no trouble seeing where they went wrong if they worked the problems incorrectly. However. and some students might not see why the indicated answer is correct. vii . though.Debugging the Questions The questions and problems have all been used in class. test bank accuracy is increasingly important. the Test Bank comes as a printed book. so students can just substitute in data for their version of the problem to get the correct answer. we would never give an exam without first taking it. We post the answers. and as a computerized test bank in both ExamView and ThomsonNow. Since classes are getting larger and larger. and they are in sufficient detail so that students don’t have to ask us why their answers were wrong. and the unmodified ExamView and ThomsonNow Test Banks. the "quality control" procedures used for the Test Bank were at least as strenuous as those for the text per se. and we also tried to make sure that they are generic in the sense that they can be answered on the basis of material found in the text rather than requiring instructor-specific information. and students who have read the text carefully can identify the correct answers. and in a large class we try to have several teaching assistants also take it. we took care to ensure that they are accurate. Indeed. both to check for errors and to get an idea of how long it will take. This is much more difficult in a large class. a few of the true/false questions and many of the conceptual multiple choice questions are a bit subtle and require critical thinking. 3 In a small class. Computerized Test Banks As noted above.3 Answers to Questions and Solutions to Problems No explanation is needed for most of the true/false questions and some of the conceptual multiple choice questions—one answer is correct and the others are false. the Word Test Bank. Note that while ThomsonNow algorithmically generates new final answers to problems after randomly changing inputs. for students to see how the answers are found—we provide formulas in the answers. and that the correct answer is listed in the set of possible answers. We tried to make them unambiguous. especially if it is being given in different rooms. because of the severe consequences of giving an exam that contains errors. one can simply announce to the class how it should be interpreted. It’s also more difficult in online testing situations. Obviously.

then you can use the Microsoft Word® files. and then give a similar real exam that has different answers. open a blank Word document. a web-based course management system. one must install it on their computer and then read through the documentation. If you are familiar with Microsoft Word® and do not want to invest the time needed to learn how to use ExamView or ThomsonNow. and this reduces the possibility of cheating. the product is worth the time invested—it really is good. delete. Word makes the change for all text in "Times New Roman. and then select "Courier New" and "Size 10" before clicking "OK". As noted earlier.To use ExamView. including constructing exams from the Test Bank similarly to the way this is done with ExamView. with Blackboard grading the assignment and recording the grades in a format that may be exported as an Excel file. viii . let students practice on them. and then go back and study those areas where they need help. Be sure not to copy the problem’s header row with the answer—it’s embarrassing to include the answer with the question!4 We generally use 20 questions on an exam. different students’ exams are different. be sure not to include the section of Endnotes at the end of the exam because these include the worked-out solutions. this requires a couple of hours. Other parts of the ThomsonNow system allows students to take practice exams. and then click "OK". and it can be used for a number of things. it is straightforward to create a web-based test or homework assignment. and paste the question into the blank document. and it takes us about 30 minutes to do the cutting and pasting to construct an exam once the questions have been selected. Then click "Find Next" button. One especially nice feature of ThomsonNow is its algorithmic problem generator. Repeat this process for all the questions you want on the exam. Student Preparation for a Test Bank Exam There are far more questions and problems in the Test Bank than at the ends of the chapters. select “Insert” from the Word menu. This can be corrected by selecting "Replace" from the "Edit" pull-down menu. Select "Times New Roman" as the "Find Font". screen down to the first question to be taken from that chapter. The algorithmic feature also makes it relatively easy to make up sample exams. copy the question (do not cut the question as this will alter the original test bank file) except for the first line that contains the answer. However. Click "Font". When the text is highlighted.” Select “Endnotes” in the dialog box and choose the format for numbers. When printing the exam. Therefore. If they appear as Roman numerals instead of Arabic numbers. Like all sophisticated software. Many universities use Blackboard." Because the problem “numbers” are actually endnote indicators. see how they did. so some of the items in the bank are different from those at the ends of the chapters. clicking on “more” and then the "Format" button at the bottom of the "Dialog" box and clicking on "Font". if a 4 The font may change when the question is pasted into the blank Word document. and this changes the correct answer. if you plan to use the Test Bank and will be making up a number of exams. Thus. With the appropriate chapter file retrieved. then “Reference. ThomsonNow is our publisher’s new web-based course management platform. One powerful feature of ExamView is that the test bank questions may be exported as pools that can be imported into Blackboard. they will automatically renumber as you add. click "Replace All". or move problems in your exam.” then “Footnote. and then click the "Format" button again. one or more key input variables can be changed randomly. Once the questions are in a Blackboard pool. Click in the "Replace With" field.

data in the problems.” non-multiple choice. including how it is used in practice. ix . Also. To make up a “regular. he or she might be thrown for a loop even if they worked all of the end-of-chapter problems. whereas the test bank questions are designed to test how much knowledge they have attained. and the like. For example. from what would normally be the answer to what would normally be an input. that ThomsonNow can automatically change the numbers and simultaneously generate a new answer. The computerized versions of the Test Bank make it easy to create new problems and questions.student goes cold into an exam taken from the Test Bank. though. Also. Other Uses of the Test Bank The primary use of the Test Bank is to make up objective exams for use in large classes where it is simply not feasible to grade papers in the traditional way. betas. et cetera. we always put some of our old exams in a "Course Pack" which students can purchase from an off-campus copy center to get an idea of what the exams will be like. Our students tell us that working through the Study Guide is particularly useful in getting ready for the exams. or statements in different multiple choice questions can be shuffled to create new questions. It is easy to use the questions and problems to make up an open-ended exam—just delete the set of answers and ask for an essay answer or a worked-out solution to a problem. One could also use them for make-up exams. Acknowledgments We would like to thank Professors Craig Tapley and Joel Houston for permitting us to use some of their old exam questions. and for giving us many insights into the whole examination process. For additional problems. growth rates. such as years to maturity. However. We draw from the Test Bank to make up problems that our TAs use in their pre-exam review sessions. four "false" true/false questions can be combined with one "true" question to make a "which of the following is correct" multiple choice question. 3. some of the test bank questions are convoluted. Also. Similarly. Note. meaning that students must work backwards. students generally do not have severe time constraints when they work on the end-of-chapter problems. To create new multiple choice test questions. can be changed. and wording can be altered. exam. extra-credit work. The end-of-chapter problems were designed primarily to help students learn the material. we included a number of test-bank-type questions into the Study Guide. With all this in mind. to expand the Test Bank to an almost unlimited size. This requires transforming equations from the form given in the text to one that solves for a different value. we go over some test-type questions in our pre-exam review sessions. Finally. coupon rates. 2. and this makes the test bank questions seem more difficult. the questions can be used for several other purposes: 1.

over many years. Ehrhardt ehrhardt@utk. who helped us develop and debug the test questions. and make suggestions for improving things. Please address your correspondence to Mike Ehrhardt at the address given below. Correspondence We would very much appreciate hearing from test bank users—please tell us of any difficulties you are having. Brigham 3030 SW 70th Lane Gainesville. We would also like to thank Steve Bouchard and Chris Buzzard. and Amelia Bell did a great job of getting the final manuscript ready. SMC 424 University of Tennessee Knoxville. We also appreciate the help we got from a whole host of TAs and graduate students. Two who provided especially useful information were Oliver Schnusenberg of the University of North Florida. FL 32608 Michael C. and Henry Oppenheimer of the University of Rhode Island. Eugene F. We also received some very useful reports of errors and ambiguities from professors who were using the last edition of the Test Bank. Dana Aberwald Clark did her usual good job of riding herd on all of us. TN 37996-0540 March 2007 x .especially with large classes and in online programs.edu Finance Department. Susan Purcell Whitman. and Rob Clayton. who actually went through the entire earlier Test Bank.

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