FIN 306 Final Exam Study Guide (Practice
Version)
Below is a university-style practice study guide for a typical FIN 306 course (Corporate Finance
/ Managerial Finance). It includes conceptual questions, computational problems, correct
answers, and explanations.
FIN 306 Practice Exam – Part 1 (Questions
1–25)
1. What is the primary goal of financial management?
A. Maximizing sales
B. Minimizing taxes
C. Maximizing shareholder wealth
D. Increasing employee salaries
Answer: C. Maximizing shareholder wealth
Explanation:
Corporate finance focuses on increasing the value of the firm for its owners through sound
investment, financing, and dividend decisions.
2. Which financial statement reports a company’s revenues
and expenses over a period of time?
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. Statement of Retained Earnings
Answer: B. Income Statement
Explanation:
The income statement summarizes operational performance during a specific accounting period.
,3. Current assets minus current liabilities equals:
A. Net income
B. Working capital
C. Operating cash flow
D. Gross profit
Answer: B. Working capital
Explanation:
Working capital measures short-term liquidity and operational efficiency.
Working Capital=Current Assets−Current Liabilities\text{Working Capital} = \text{Current
Assets} - \text{Current Liabilities}Working Capital=Current Assets−Current Liabilities
4. A firm has current assets of $120,000 and current
liabilities of $80,000. What is the current ratio?
A. 0.67
B. 1.0
C. 1.5
D. 2.0
Answer: C. 1.5
Explanation:
Current Ratio=120,00080,000=1.5\text{Current
Ratio}=\frac{120{,}000}{80{,}000}=1.5Current Ratio=80,000120,000=1.5
A ratio above 1 generally indicates the company can cover short-term obligations.
5. Which ratio measures profitability relative to
shareholders’ equity?
A. Current ratio
B. Debt ratio
C. Return on Equity (ROE)
D. Inventory turnover
Answer: C. Return on Equity (ROE)
, Explanation:
ROE measures how efficiently a company generates profits from shareholders’ investments.
6. The time value of money suggests that:
A. Money today is worth less than money tomorrow
B. Money today is worth more than money tomorrow
C. Inflation never affects investments
D. Interest rates are irrelevant
Answer: B. Money today is worth more than money tomorrow
Explanation:
Money available today can be invested to earn returns.
7. What is the future value of $1,000 invested at 5% annual
interest for 3 years?
A. $1,050
B. $1,102.50
C. $1,157.63
D. $1,200
Answer: C. $1,157.63
Explanation:
FV=1000(1+0.05)3=1157.63FV=1000(1+0.05)^3=1157.63FV=1000(1+0.05)3=1157.63
8. Which of the following is considered a capital budgeting
decision?
A. Hiring employees
B. Choosing dividend policy
C. Purchasing new machinery
D. Paying utility bills
Answer: C. Purchasing new machinery
Version)
Below is a university-style practice study guide for a typical FIN 306 course (Corporate Finance
/ Managerial Finance). It includes conceptual questions, computational problems, correct
answers, and explanations.
FIN 306 Practice Exam – Part 1 (Questions
1–25)
1. What is the primary goal of financial management?
A. Maximizing sales
B. Minimizing taxes
C. Maximizing shareholder wealth
D. Increasing employee salaries
Answer: C. Maximizing shareholder wealth
Explanation:
Corporate finance focuses on increasing the value of the firm for its owners through sound
investment, financing, and dividend decisions.
2. Which financial statement reports a company’s revenues
and expenses over a period of time?
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. Statement of Retained Earnings
Answer: B. Income Statement
Explanation:
The income statement summarizes operational performance during a specific accounting period.
,3. Current assets minus current liabilities equals:
A. Net income
B. Working capital
C. Operating cash flow
D. Gross profit
Answer: B. Working capital
Explanation:
Working capital measures short-term liquidity and operational efficiency.
Working Capital=Current Assets−Current Liabilities\text{Working Capital} = \text{Current
Assets} - \text{Current Liabilities}Working Capital=Current Assets−Current Liabilities
4. A firm has current assets of $120,000 and current
liabilities of $80,000. What is the current ratio?
A. 0.67
B. 1.0
C. 1.5
D. 2.0
Answer: C. 1.5
Explanation:
Current Ratio=120,00080,000=1.5\text{Current
Ratio}=\frac{120{,}000}{80{,}000}=1.5Current Ratio=80,000120,000=1.5
A ratio above 1 generally indicates the company can cover short-term obligations.
5. Which ratio measures profitability relative to
shareholders’ equity?
A. Current ratio
B. Debt ratio
C. Return on Equity (ROE)
D. Inventory turnover
Answer: C. Return on Equity (ROE)
, Explanation:
ROE measures how efficiently a company generates profits from shareholders’ investments.
6. The time value of money suggests that:
A. Money today is worth less than money tomorrow
B. Money today is worth more than money tomorrow
C. Inflation never affects investments
D. Interest rates are irrelevant
Answer: B. Money today is worth more than money tomorrow
Explanation:
Money available today can be invested to earn returns.
7. What is the future value of $1,000 invested at 5% annual
interest for 3 years?
A. $1,050
B. $1,102.50
C. $1,157.63
D. $1,200
Answer: C. $1,157.63
Explanation:
FV=1000(1+0.05)3=1157.63FV=1000(1+0.05)^3=1157.63FV=1000(1+0.05)3=1157.63
8. Which of the following is considered a capital budgeting
decision?
A. Hiring employees
B. Choosing dividend policy
C. Purchasing new machinery
D. Paying utility bills
Answer: C. Purchasing new machinery
