CONTENTS

PREFACE
About This Edition v

Acknowledgments vii

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 137

Web Appendix 5A Continuous Compounding and Discounting 203

Chapter 6 Interest Rates 207

Chapter 7 Bonds and Their Valuation 237

Web Appendix 7A Zero Coupon Bonds 275

Web Appendix 7B Bankruptcy and Reorganization 291

Chapter 8 Risk and Rates of Return 295

Web Appendix 8A Calculating Beta Coefficients 349

Chapter 9 Stocks and Their Valuation 357

Appendix 9A Stock Market Equilibrium 393

Chapter 10 The Cost of Capital 397

Chapter 11 The Basics of Capital Budgeting 437

Chapter 12 Cash Flow Estimation and Risk Analysis 487

Appendix 12A Tax Depreciation 521

Web Appendix 12C Using the CAPM to Estimate the Risk-Adjusted

Cost of Capital 523

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Web Appendix 12D Techniques for Measuring Beta Risk 527

Web Appendix 12E Comparing Mutually Exclusive Projects

with Unequal Lives 531

Chapter 13 Capital Structure and Leverage 533

Web Appendix 13A Degree of Leverage 569

Chapter 14 Distributions to Shareholders:

Dividends and Share Repurchases 585

Chapter 15 Working Capital Management 615

Chapter 16 Financial Planning and Forecasting 663

Chapter 17 Multinational Financial Management 677

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PREFACE

About This Edition

This Test Bank is designed for use with the 6th Edition of Fundamentals of
Financial Management: Concise, and it differs from the previous test bank in
many significant ways. Indeed, when we are asked to name the most important
changes that were made to the new text and ancillary package, we always list
improvements in the test bank as one of the top two. Here are the key
changes, along with some observations about the test bank based on our
experience in the introductory course.

1. We reviewed each question and problem carefully for writing style and
clarity, and this led to many significant improvements. The “quality” of
the writing in the test bank now matches that in the text itself.

2. For each chapter we have true/false questions, conceptual multiple choice

questions, and problems that have numerical answers. For the multiple
choice questions and the problems we show 5 answer choices, one of which
is correct.

3. 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

4. The old test bank was heavily weighted toward relatively long and complex
problems. We added some more long problems, but mainly we added new and
shorter problems that a reasonably well-prepared student can work in 2 to
3 minutes. Again, the algorithmic generator can expand these problems
indefinitely.

5. In this test bank all questions have just one correct and four incorrect
answers. None of those annoying “a and b,” or “none of the above,” and
the like that confuse students and make them think “trick question.”

1 Note that the true/false and multiple-choice conceptual questions in the test bank do not have
this feature.
2 We 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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6. In the text we added, at the end of each major section, 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.

7. To help instructors make up their exams, we now 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 3 to 4 minutes. Instructors can look at our worked out
answers to get a better idea of how long it will take their specific
students to work the various problems. In addition, we added AACSB
“tags” to 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.

8. 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.

9. 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 problems, with
most taken from the test bank but a few new ones based on things that
came up in class or are being 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.

10. In small classes, it might be preferable to give non-multiple 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.

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 Unfortunately, the class size in the introductory course at Florida
rarely makes this feasible.

11. 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 web site.

Acknowledgments
First, we would like to thank Professor Jim Keys (Florida International
University) and others at the 2004 Southern Finance Association Conference at
Naples, Florida, who convinced us that the test bank needed a top-to-bottom
revision. Jim, Chris Buzzard, and Dana Clark then worked closely with us and
the Cengage people to set up the algorithmic versions of the problems. Also,
Professor Craig Tapley permitted us to use some of his old exam questions and
also gave us many insights into the examination process, especially in
classes with very large enrollments. In addition, Professor Oliver
Schnusenberg of the University of North Florida checked all of the problems
for accuracy and clarity. Susan Whitman took care of the massive typing job;
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
problems 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: concise@joelhouston.com

October 2008

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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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