# Top 10 Managerial Finance Questions With Answers

Managerial finance involves making financial decisions that are critical to the success of an organization. These decisions revolve around managing funds, assets, and investments to achieve the company’s goals and maximize its value. In this dynamic field, professionals are often confronted with a myriad of questions related to financial management. To help you navigate this complex landscape, we’ve compiled the top 10 managerial finance questions along with concise answers, offering valuable insights into key financial concepts, strategies, and practices. Whether you’re a student looking to ace your finance exam or a finance professional seeking to sharpen your knowledge, these questions and answers will serve as a valuable resource to enhance your understanding of managerial finance.

Now, let’s move on to the Top 10 Managerial Finance Questions With Answers

### Q1. Which of the following statements is CORRECT? Assume that the project beingconsidered has normal cash flows, with one outflow followed by a series of inflows.

a. The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business.
b. If a project has normal cash flows and its IRR exceeds its cost of capital, then the project’s NPV must be positive.
c. The IRR calculation implicitly assumes that all cash flows are reinvested at the cost of capital.
d. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.
e. If Project A has a higher IRR than Project B, then Project A must have the lower NPV.

a. -651.16
b. -534.38
c. -562.50
d. -590.63
e. -620.16

### Q3. A U.S. Treasury bond will pay a lump sum of \$1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the followingstatements is CORRECT?

a.The periodic interest rate is greater than 3%.
b.The present value would be greater if the lump sum were discounted back for more periods.
c.The periodic rate is less than 3%.
d.The present value of the \$1,000 would be larger if interest were compounded monthly rather than semiannually.
e.The PV of the \$1,000 lump sum has a smaller present value than the PV of a 3-year, \$333.33 ordinary annuity.

a. \$20,251
b. \$21,264
c. \$18,369
d. \$19,287
e. \$22,327

a. \$2.81
b. \$3.82
c. \$3.12
d. \$4.20
e. \$3.47

a. 3.21%
b. 2.89%
c. 3.38%
d. 2.75%
e. 3.05%

### Q7. The LeMond Corporation just purchased a new production line. Assume that thefirm planned to depreciate the equipment over 5 years on a straight-line basis, butCongress then passed a provision that requires the company to depreciate theequipment on a straight-line basis over 7 years. Other things held constant, which ofthe following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reportingpurposes.

a. LeMond’s cash position will improve (increase).
b. LeMond’s net fixed assets as shown on the balance sheet will be higher at the end of the year.
c. LeMond’s reported net income after taxes for the year will be lower.
d. LeMond’s tax liability for the year will be lower.
e. LeMond’s taxable income will be lower.

### Q8. Which of the following statements is CORRECT? Assume that the project beingconsidered has normal cash flows, with one outflow followed by a series of inflows.

a. One drawback of the regular payback for evaluating projects is that this method does not properly account for the time value of money.
b. The longer a project’s payback period, the more desirable the project is normally considered to be by this criterion.
c. If a company uses the same payback requirement to evaluate all projects, say it requires a payback of 4 years or less, then the company will tend to reject projects with relatively short lives and accept long- lived projects, and this will cause its risk to increase over time.
d. The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem.
e. If a project’s payback is positive, then the project should be rejected because it must have a negative NPV.

### Q9. Which of the following bank accounts has the highest effective annual return?

a. An account that pays 8% nominal interest with monthly compounding.
b. An account that pays 7% nominal interest with monthly compounding.
c. An account that pays 8% nominal interest with annual compounding.
d. An account that pays 8% nominal interest with daily (365-day) compounding.
e. An account that pays 7% nominal interest with daily (365-day) compounding.

a. 8.76%
b. 9.68%
c. 8.98%
d. 9.21%
e. 9.44%