1. Which one is true about today financial managers?

A. Their function is only raising of fund.

B. They not participate in fund allocation.
C. Planning, organizing, raising, allocating and controlling of fund is their function.
D. Controlling of the allotted fund is out of their scope.
2. Which one is false about the responsibility of financial staff?
A. Finance people should help in deciding optimal sales growth, viable investment and
proper means of financing the investments.
B. Interact with others in promoting financial efficiency and operational efficiency.
C. They shall engage and be active on the financial markets and transactions.
D. Maximizing or less diversify firm risks using different mechanisms.
3. The only viable goal of financial management is
A. Profit maximization
B. Sales maximization
C. Wealth maximization
D. Assets maximization
4. The goal of profit maximization takes in to consideration
A. Risk related to uncertainty of returns
B. Timing of expected returns
C. Efficient management of every business
D. Wealth maximization of the firm
5. Financial management is mainly concerned with
A. Arrangement of funds
B. All aspects auguring and utilizing means of financial resources for firm's activities
C. Efficient management of every business
D. Rising funds only

6. Which of the following ratios measures the efficiency of a company’s management and
use of its assets?
A. Accounts payable turnover ratio
B. Debt service coverage ratio
 C. Asset turnover ratio
D. Quick ratio
7. Which of the following statements is true about the price-to-earnings (P/E) ratio?
A. It measures how much investors are willing to pay for each dollar of earnings
B. It measures a company’s liquidity
C. It measures a company’s ability to pay off its debts
D. It measures a company’s ability to generate sales from its assets
8. Which of the following statement is not correct about ratio analysis?
A. Ratios recognize the symbiotic relationships of various items of the financial
statements.
B. Ratios allow for better comparison through time or between companies.
C. Ratios analysis is just a conclusive evidence.
D. Effective financial analysis begins with analyzing the industries to which belongs.
9. Challa Company has current ratio of 2.6 times, acid test ratio of 1.6 times and inventories
of birr 60,000. What will be its current assets?
A. Br. 60,000
B. Br. 156,000
C. Br. 96,000
D. Br. 216,000
10. The gross profit margin is unchanged, but the net profit margin declined over the same
period. This could have happened if
A. Cost of goods sold increased relative to sales.
B. Sales increased relative to expenses.
C. The Ethiopian Government increased the tax rate.
D. Dividends were decreased.
11. This is the uncertainty regarding the earnings of a firm as a result of changes in demand,
input prices, and technological obsolescence.
A. Liquidity risk
B. Inflation risk
C. Credit risk
D. Market risk
12. One of the following condition must be fulfill to classify the cash flow as an annuity.
A. The cash flow must be equal.
B. The interval between any two cash flows must be fixed.
C. The interest rate applied for each period must be constant.
D. All of the above
13. Which one of the following is used to compare investments with different compounding
periods on a common basis?
A. Nominal rate
B. Effective rate
C. Real rate
D. Coupon rate
14. Calculate how much you would have in a savings account 6 years from now if you invest
Br. 10,000 today, given that the interest paid is 9 percent compounded quarterly.
A. Br. 10,000
B. Br. 18,058
C. Br. 16,771
D. Br. 17,058
15. Your father is about to retire. His firm has given him the option of retiring with a lump
sum of Br. 2,000,000 or an annuity of Br. 250,000 for 10 years. Which is worth more
now, if an interest rate of 6 percent is used for the annuity?
A. Lump sum of Br. 2,000,000 is worth more now.
B. The annuity payment Br. 250,000 is worth more than lump sum.
C. Lump sum is not worth more than annuity.
D. Indifferent decision in both cases.
16. The relationship between risk and return is such that:
A. investors decrease their required rates of return as perceived risk increases
B. investors increase their required rates of return as perceived risk decreases
C. investors decrease their required rates of return as perceived risk decreases
D. investors increase their required rates of return as perceived risk increases
17. A statistical measure of the variability of a distribution around its mean is referred to as
__________.
 A. A probability distribution
B. The expected return
C. The standard deviation
D. Coefficient of variation
18. Total portfolio risk is __________.
A. Equal to systematic risk plus non diversifiable risk
B. Equal to avoidable risk plus diversifiable risk
C. Equal to systematic risk plus unavoidable risk
D. Equal to systematic risk plus diversifiable risk
19. Which one of the following is wrong statement?
A. Risk and return are most important concepts in finance.
B. Risk is the quantifiable likelihood of loss.
C. Risk is not considered as an indicator of threat.
D. The probability is assessed by the frequency of past similar events.
20. One of the following statement is correct about risk and return.
A. Coefficient variation measures the standard deviation in relation to expected return.
B. The relationship among risk and return is positive.
C. Risk premium is a potential reward that an investor expects to receive when making a
risky investment.
D. All of the above
21. Which one is represent profits available for common stockholders that the corporation
chooses to reinvest in itself rather than payout as a dividend?
A. Retained earning
B. Common stock
C. Preferred stock
D. Debt
22. One of the following is the reason for specific cost of debt is lowest than other capital
financing.
A. Debt suppliers assume the lowest risk among all suppliers of capital.
B. Debt holders receive interest payments before stock dividends are paid.
C. Rising capital through debt sources entails interest expense.
 D. All are reasons
23. Which one of the following specific cost of capital needs tax adjustment?
A. Cost of capital of debt
B. Cost of capital of preferred stock
C. Cost of capital of common stock
D. Cost of capital of retained earning
24. Find the dividend growth rate for a stock given that the current dividend is Br. 3.62 per
share, the required return is 4.5%, and the stock price is Br. 122.06 per share.
A. 0.92%
B. 1.49%
C. 1.86%
D. 2.41%
25. Find the Expected Return on Stock i given that the Expected Return on the Market
Portfolio is 11.5%, the Risk-Free Rate is 4.8%, and the Beta for Stock i is 2.8.
A. 22.02%
B. 23.02%
C. 23.56%
D. 23.98%
26. A project whose present value of the benefits are more than from the present value of cost
then Net Present Value will be
A. Indifference
B. Negative
C. Positive
D. Zero
27. One of the following statement is correct, except.
A. If the payback period is less than the maximum acceptable payback period accept the
project.
B. If projects were mutually exclusive, Project A would be ranked over Project B
because Project A has the longer payback period.
C. NPV>0 the investment is expected to increase shareholder wealth so, should accept
the project.
 D. The investment decisions are the vehicles of a company to reach the desired destiny
of the company.
28. Purpose-Black Ethiopia S.C. is dedicated to maximizing the wealth of its shareholders.
Given this investment goal, which of the following investment appraisal methods is
suitable for the firm activity?
A. Profitability Index
B. Net Present Value
C. Payback Period
D. Accounting Rate of Return
29. The Zemen Corporation is considering an investment that will cost Br.80, 000 and have a
useful life of 4 years. During the first 2 years, the net incremental after-tax cash flows are
Br.25, 000 per year and for the last two years they are Br.20, 000 per year. What is the
payback period for this investment?
A. 3.2 Years
B. 3.5 Years
C. 4.0 Years
D. 3.8 Years
Consider the following capital budgeting projects and answer question #30
Project PV of all cash inflows profitability index
A Birr 210,000 1.40
B Birr 405,000 1.35
30. Net present values of the projects are:
A. Br 10,000 for A, and Br 5,000 for B,
B. Br 20,000 for A, and Br 10,000 for B
C. Br 50,000 for A, and Br 100,000 for B
D. Br 60,000 for A, and Br 105,000 for B