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CFMS Exam Practice Test & Answers

The document is a practice test for the Certified Financial Management Specialist (CFMS 1) certification, consisting of 50 questions divided into multiple choice and true/false formats. It covers various financial management concepts, including capital structure, valuation methods, and market types. An answer key is provided for both sections to facilitate self-assessment.

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2K views5 pages

CFMS Exam Practice Test & Answers

The document is a practice test for the Certified Financial Management Specialist (CFMS 1) certification, consisting of 50 questions divided into multiple choice and true/false formats. It covers various financial management concepts, including capital structure, valuation methods, and market types. An answer key is provided for both sections to facilitate self-assessment.

Uploaded by

kupalkababoss71
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Certified Financial Management

Specialist (CFMS 1) – Practice Test


Total Items: 50 | Type: 25 Multiple Choice + 25 True/False | Time: 45–60 minutes

Name: ______________________________________ Date: _______________

A. Multiple Choice (1–25)


Encircle the letter of the correct answer.

1. 1. What is the main goal of financial managers?


2. 2. Which market type involves a tangible location for securities trading?
3. 3. The OTC market is:
4. 4. A dealer market includes all of the following EXCEPT:
5. 5. Physical location stock exchanges:
6. 6. The comparables approach compares equity value to:
7. 7. Which method uses projected cash flows and NPV?
8. 8. Precedent transactions analysis depends on:
9. 9. Asset-based valuation focuses on:
10. 10. Book-value approach is best used for companies with:
11. 11. What does WACC stand for?
12. 12. Which is NOT included as investor-supplied capital?
13. 13. Optimal capital structure is one that:
14. 14. Brokers in a dealer market:
15. 15. In capital markets, 'capital' includes all EXCEPT:
16. 16. Tangible trading floors are a feature of:
17. 17. Capital structure refers to:
18. 18. Which method is least useful for firms with no comparable companies?
19. 19. The main assumption of fundamental valuation techniques is:
20. 20. A firm's capital excludes:
21. 21. Dealers in a market are responsible for:
22. 22. Over-the-Counter (OTC) refers to:
23. 23. WACC is minimized when:
24. 24. Discounted Cash Flow valuation is strongest when:
25. 25. The main function of stock markets is to:

B. True or False (26–50)


Write T if the statement is True, F if it is False.
26. 26. The OTC market operates without a physical trading floor.
27. 27. Physical exchanges rely heavily on electronic trading platforms only.
28. 28. Capital structure includes both long-term debt and equity.
29. 29. Brokers in a dealer market act as intermediaries.
30. 30. The comparables approach does not require peer company data.
31. 31. Discounted cash flow valuation ignores net present value.
32. 32. Asset-based valuation focuses on tangible assets and liabilities.
33. 33. Precedent transaction valuation is useful when similar deals exist.
34. 34. Book-value approach is ideal for high-growth tech firms.
35. 35. The goal of capital structure is to minimize WACC and maximize value.
36. 36. Accounts payable is considered part of investor-supplied capital.
37. 37. Common stock is a type of investor-supplied capital.
38. 38. The board of governors oversees physical exchanges.
39. 39. A dealer “makes a market” by holding an inventory of securities.
40. 40. Physical exchanges are examples of dealer markets.
41. 41. The comparables approach uses ratios and peer metrics.
42. 42. Capital can come from suppliers or taxing authorities.
43. 43. Broker-dealers exist only in the OTC market.
44. 44. Asset-based valuation is commonly used for going concerns.
45. 45. DCF works best with reliable future projections.
46. 46. A firm’s capital structure is always 50% debt and 50% equity.
47. 47. The stock market helps establish firm value through pricing.
48. 48. Precedent transactions valuation is based on current stock price.
49. 49. Equity valuation only considers past performance.
50. 50. Retained earnings are part of investor-supplied capital.
Answer Key

Multiple Choice
1. C

2. C

3. B

4. B

5. C

6. C

7. D

8. B

9. C

10. C

11. A

12. C

13. C

14. B

15. C

16. C

17. B

18. D

19. C

20. B

21. C

22. C

23. B
24. C

25. C

True or False
26. T

27. F

28. T

29. T

30. F

31. F

32. T

33. T

34. F

35. T

36. F

37. T

38. T

39. T

40. F

41. T

42. F

43. F

44. T

45. T

46. F

47. T

48. F
49. F

50. T

Common questions

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Asset-based valuation focuses on the firm's tangible assets and liabilities, making it ideal for asset-heavy companies or those in liquidation, rather than for going concerns like high-growth tech firms where future cash flows hold more value .

DCF valuation depends on accurate future cash flow projections to determine the net present value. Reliable forecasts ensure that the valuation reflects the expected business performance and contributes to investment appraisal decisions .

Dealers in a market maintain inventories of securities and 'make a market' by buying and selling from their own account, which enables liquidity. In contrast, brokers act as intermediaries between buyers and sellers and do not hold inventory .

The OTC market operates without a physical trading floor, which distinguishes it from markets like the NYSE that have tangible locations for trading. It often relies on electronic networks for trading securities .

The main goal of financial managers is to maximize shareholder wealth, which involves making decisions that increase the firm's value through strategic planning and efficient management of resources .

A firm's capital structure is composed of debt and equity. The optimal balance minimizes the WACC and maximizes firm value, since the cost of capital directly impacts the firm's profitability and decision-making .

Fundamental valuation techniques assume that the market value of a security reflects its true intrinsic value, which can be determined by analyzing the firm's financial statements, industry conditions, economic indicators, and business fundamentals .

Stock markets establish firm value through pricing mechanisms that reflect investors' perceptions and sentiments, enhancing liquidity and providing a platform for price discovery based on available information, company performance, and broader economic factors .

Accounts payable is not considered part of investor-supplied capital because it represents short-term liabilities arising from operational activities, rather than funds provided by equity or long-term debt investors with the expectation of a return on their investment .

The comparables approach is least useful for firms with no comparable companies because it relies heavily on peer data to estimate a firm's equity value. Without similar companies to compare against, this method becomes unreliable .

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