CONTENTS

PREFACE
About This Edition v

Acknowledgments vi

Correspondence vii

AACSB Tags viii

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

Chapter 10 The Cost of Capital 351

Chapter 11 The Basics of Capital Budgeting 389

Chapter 12 Cash Flow Estimation and Risk Analysis 437

Chapter 13 Real Options and Other Topics in Capital Budgeting 475

Chapter 14 Capital Structure and Leverage 495

Chapter 15 Distributions to Shareholders:

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 Dividends and Share Repurchases 531

Chapter 16 Working Capital Management 559

Chapter 17 Financial Planning and Forecasting 605

Chapter 18 Derivatives and Risk Management 619

Chapter 19 Multinational Financial Management 633

Chapter 20 Hybrid Financing: Preferred Stock, Leasing, Warrants,

and Convertibles 653

Chapter 21 Mergers and Acquisitions 679

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PREFACE

About This Edition

This Test Bank is designed for use with the 13 th Edition of Fundamentals of
Financial Management. 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.”

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 has a lot more straightforward and therefore easier problems.

1Note that the true/false and multiple-choice conceptual questions in the test bank do not have
this feature.
2We wrote the test bank problems, used a financial calculator to get the answers, and then used
Excel to check the answers. Next, we specified ranges for the inputs in the algorithmic versions
and then sent everything off to be put into ExamView. A lot of programming was required to set up
the algorithmic procedure, and guess where this programming was actually done--Moscow! When we
heard this, we were afraid things would get lost in the translation. After we reviewed the
Russian programmers’ work, we started worrying about the U.S. holding its own in the world
economy. Our students need to keep their noses to the grindstone!

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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 indicate 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.

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.

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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 13 th 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.

Eugene F. Brigham
Joel F. Houston

4723 NW 53rd Ave., Suite A

Gainesville, FL 32653
(352)392-7546
e-mail address: fundamentals@joelhouston.com

November 2011

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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.

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© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.