Finance for Non-Financial Managers (FIN2603)
Exam Prep Test Bank 2025–2026 | Complete Study
Guide with Practice Questions, Detailed Rationales
& Answers | University & Business Management
Students Resource
Question 1:
A company has a current ratio of 1.5. If the current liabilities are $200,000, what are the
current assets?
A) $100,000
B) $200,000
C) $300,000
D) $400,000
Correct Answer: C) $300,000
Rationale: The current ratio formula is Current Assets / Current Liabilities. Rearranging
gives us Current Assets = Current Ratio × Current Liabilities. Thus, Current Assets = 1.5
× $200,000 = $300,000.
Question 2:
A company’s return on equity (ROE) is calculated as 20%, and the equity is $500,000.
What is the net income?
A) $50,000
B) $100,000
C) $150,000
D) $200,000
Correct Answer: B) $100,000
Rationale: ROE is calculated as Net Income / Equity. Rearranging the formula, we find
Net Income = ROE × Equity. Thus, Net Income = 20% × $500,000 = $100,000.
Question 3:
If a company has total assets of $1,000,000 and total liabilities of $600,000, what is the
equity?
A) $200,000
B) $400,000
C) $600,000
D) $1,000,000
Correct Answer: B) $400,000
,Rationale: The equity can be calculated using the accounting equation: Assets =
Liabilities + Equity. Rearranging gives us Equity = Assets - Liabilities. Thus, Equity =
$1,000,000 - $600,000 = $400,000.
Question 4:
A company is considering a project that requires an initial investment of $250,000 and is
expected to generate cash flows of $75,000 annually for 5 years. What is the net present
value (NPV) if the discount rate is 10%?
A) $25,000
B) $50,000
C) $75,000
D) $100,000
Correct Answer: A) $25,000
Rationale: NPV is calculated as the present value of cash inflows minus the initial
investment. The present value of cash inflows can be calculated using the formula:
PV = Cash Flow × [(1 - (1 + r)^-n) / r]
Where Cash Flow = $75,000, r = 0.10, and n = 5.
PV = $75,000 × [(1 - (1 + 0.10)^-5) / 0.10] ≈ $75,000 × 3.7908 ≈ $284,310.
NPV = $284,310 - $250,000 = $34,310.
Question 5:
If a company's price-to-earnings (P/E) ratio is 15 and the earnings per share (EPS) is $4,
what is the market price per share?
A) $20
B) $30
C) $60
D) $80
Correct Answer: B) $60
Rationale: The market price per share can be calculated using the formula:
Market Price = P/E Ratio × EPS.
Thus, Market Price = 15 × $4 = $60.
Question 6:
A firm has fixed costs of $150,000 and variable costs of $20 per unit. If the selling price
per unit is $50, how many units must the company sell to break even?
A) 1,000 units
B) 2,500 units
,C) 3,000 units
D) 4,000 units
Correct Answer: B) 2,500 units
Rationale: The break-even point in units is calculated using the formula:
Break-even Point = Fixed Costs / (Selling Price - Variable Cost)
Thus, Break-even Point = $150,000 / ($50 - $20) = $150,000 / $30 = 5,000 units.
Question 7:
If a company has a gross margin of 40% and total sales of $500,000, what is the cost of
goods sold (COGS)?
A) $200,000
B) $300,000
C) $350,000
D) $400,000
Correct Answer: B) $300,000
Rationale: Gross margin is calculated as (Sales - COGS) / Sales. Rearranging gives us
COGS = Sales - (Gross Margin × Sales).
Thus, COGS = $500,000 - (0.40 × $500,000) = $500,000 - $200,000 = $300,000.
Question 8:
A company’s total liabilities are $1,200,000, and its total assets are $1,500,000. What is
the debt ratio?
A) 0.60
B) 0.75
C) 0.80
D) 0.85
Correct Answer: A) 0.80
Rationale: The debt ratio is calculated as Total Liabilities / Total Assets.
Thus, Debt Ratio = $1,200,000 / $1,500,000 = 0.80 or 80%.
Question 9:
What is the impact on the weighted average cost of capital (WACC) if a company issues
more equity?
A) WACC decreases
B) WACC increases
, C) WACC remains unchanged
D) WACC becomes negative
Correct Answer: A) WACC decreases
Rationale: Issuing more equity generally lowers the WACC since equity typically has a
lower cost than debt due to the tax shield benefits of interest payments on debt.
Question 10:
If a project has an internal rate of return (IRR) of 12% and the cost of capital is 10%,
what should the company do?
A) Reject the project
B) Accept the project
C) Re-evaluate the project
D) Delay the decision
Correct Answer: B) Accept the project
Rationale: When the IRR exceeds the cost of capital, the project is expected to
generate a return greater than the cost of financing, thus it should be accepted.
Question 11:
A company’s net income is $120,000, and its total equity is $800,000. What is the return
on equity (ROE)?
A) 10%
B) 15%
C) 20%
D) 25%
Correct Answer: B) 15%
Rationale: ROE is calculated as Net Income / Total Equity. Thus, ROE = $120,000 /
$800,000 = 0.15 or 15%.
Question 12:
If a business has a cash conversion cycle of 50 days, inventory turnover of 12 times, and
accounts receivable turnover of 8 times, what is the accounts payable turnover?
A) 10 times
B) 12 times
C) 15 times
D) 20 times
Correct Answer: C) 15 times
Exam Prep Test Bank 2025–2026 | Complete Study
Guide with Practice Questions, Detailed Rationales
& Answers | University & Business Management
Students Resource
Question 1:
A company has a current ratio of 1.5. If the current liabilities are $200,000, what are the
current assets?
A) $100,000
B) $200,000
C) $300,000
D) $400,000
Correct Answer: C) $300,000
Rationale: The current ratio formula is Current Assets / Current Liabilities. Rearranging
gives us Current Assets = Current Ratio × Current Liabilities. Thus, Current Assets = 1.5
× $200,000 = $300,000.
Question 2:
A company’s return on equity (ROE) is calculated as 20%, and the equity is $500,000.
What is the net income?
A) $50,000
B) $100,000
C) $150,000
D) $200,000
Correct Answer: B) $100,000
Rationale: ROE is calculated as Net Income / Equity. Rearranging the formula, we find
Net Income = ROE × Equity. Thus, Net Income = 20% × $500,000 = $100,000.
Question 3:
If a company has total assets of $1,000,000 and total liabilities of $600,000, what is the
equity?
A) $200,000
B) $400,000
C) $600,000
D) $1,000,000
Correct Answer: B) $400,000
,Rationale: The equity can be calculated using the accounting equation: Assets =
Liabilities + Equity. Rearranging gives us Equity = Assets - Liabilities. Thus, Equity =
$1,000,000 - $600,000 = $400,000.
Question 4:
A company is considering a project that requires an initial investment of $250,000 and is
expected to generate cash flows of $75,000 annually for 5 years. What is the net present
value (NPV) if the discount rate is 10%?
A) $25,000
B) $50,000
C) $75,000
D) $100,000
Correct Answer: A) $25,000
Rationale: NPV is calculated as the present value of cash inflows minus the initial
investment. The present value of cash inflows can be calculated using the formula:
PV = Cash Flow × [(1 - (1 + r)^-n) / r]
Where Cash Flow = $75,000, r = 0.10, and n = 5.
PV = $75,000 × [(1 - (1 + 0.10)^-5) / 0.10] ≈ $75,000 × 3.7908 ≈ $284,310.
NPV = $284,310 - $250,000 = $34,310.
Question 5:
If a company's price-to-earnings (P/E) ratio is 15 and the earnings per share (EPS) is $4,
what is the market price per share?
A) $20
B) $30
C) $60
D) $80
Correct Answer: B) $60
Rationale: The market price per share can be calculated using the formula:
Market Price = P/E Ratio × EPS.
Thus, Market Price = 15 × $4 = $60.
Question 6:
A firm has fixed costs of $150,000 and variable costs of $20 per unit. If the selling price
per unit is $50, how many units must the company sell to break even?
A) 1,000 units
B) 2,500 units
,C) 3,000 units
D) 4,000 units
Correct Answer: B) 2,500 units
Rationale: The break-even point in units is calculated using the formula:
Break-even Point = Fixed Costs / (Selling Price - Variable Cost)
Thus, Break-even Point = $150,000 / ($50 - $20) = $150,000 / $30 = 5,000 units.
Question 7:
If a company has a gross margin of 40% and total sales of $500,000, what is the cost of
goods sold (COGS)?
A) $200,000
B) $300,000
C) $350,000
D) $400,000
Correct Answer: B) $300,000
Rationale: Gross margin is calculated as (Sales - COGS) / Sales. Rearranging gives us
COGS = Sales - (Gross Margin × Sales).
Thus, COGS = $500,000 - (0.40 × $500,000) = $500,000 - $200,000 = $300,000.
Question 8:
A company’s total liabilities are $1,200,000, and its total assets are $1,500,000. What is
the debt ratio?
A) 0.60
B) 0.75
C) 0.80
D) 0.85
Correct Answer: A) 0.80
Rationale: The debt ratio is calculated as Total Liabilities / Total Assets.
Thus, Debt Ratio = $1,200,000 / $1,500,000 = 0.80 or 80%.
Question 9:
What is the impact on the weighted average cost of capital (WACC) if a company issues
more equity?
A) WACC decreases
B) WACC increases
, C) WACC remains unchanged
D) WACC becomes negative
Correct Answer: A) WACC decreases
Rationale: Issuing more equity generally lowers the WACC since equity typically has a
lower cost than debt due to the tax shield benefits of interest payments on debt.
Question 10:
If a project has an internal rate of return (IRR) of 12% and the cost of capital is 10%,
what should the company do?
A) Reject the project
B) Accept the project
C) Re-evaluate the project
D) Delay the decision
Correct Answer: B) Accept the project
Rationale: When the IRR exceeds the cost of capital, the project is expected to
generate a return greater than the cost of financing, thus it should be accepted.
Question 11:
A company’s net income is $120,000, and its total equity is $800,000. What is the return
on equity (ROE)?
A) 10%
B) 15%
C) 20%
D) 25%
Correct Answer: B) 15%
Rationale: ROE is calculated as Net Income / Total Equity. Thus, ROE = $120,000 /
$800,000 = 0.15 or 15%.
Question 12:
If a business has a cash conversion cycle of 50 days, inventory turnover of 12 times, and
accounts receivable turnover of 8 times, what is the accounts payable turnover?
A) 10 times
B) 12 times
C) 15 times
D) 20 times
Correct Answer: C) 15 times
