FINANCIAL MANAGEMENT 2023 with verified questions and answers

Managerial finance helps managers make decisions related to cash management, capital investments, and risk reduction. True Managerial finance helps managers make decisions related to cash management, capital investments, and risk reduction. Which one of the following statements correctly identifies a group that supplies money to the financial markets? *Individuals saving for retirement provide money to the financial markets.* -banks provide money to the financial markets. -Young, start-up firms provide money to the financial markets. -The research and development departments of major corporations provide money to the financial markets. What role does a financial institution play in a financial system? -Financial institutions must decide which projects to fund. -Financial institutions must asses which investment opportunities are right for their needs. *Financial institutions must distribute capital in an efficient manner.* -Financial institutions must decide how much capital to return to investors. Which firm is a borrower of funds in the financial markets? -Lew's is very successful and has excess cash available so is expanding its product line. -JKL Co. has developed a new product but has discovered there is no market demand for it. *Ken's has a new product that it is ready to market to the public as soon as financing can be arranged.* -Sid's has been in business for three years but is now closing its doors. Money that firms either retain or pay to the government are sources of friction that reduce cash flows to investors in the financial markets. True Both taxes and retained earning are sources of friction that reduce cash flows from firms to their investors. Which one of these is an investments activity? *Sue has $200 a month deposited into a stock mutual fund.* -Kristie pays $200 a month on her credit card. -Kate pays $800 a month on her mortgage. -Mark spent $800 on a new TV. The subarea of finance known as financial management addresses which of these decisions? Select all that apply. *How can corporate taxes be minimized?* -How might foreign political risk affect the value of a new project? *Should a firm issue debt (bonds) or equity (stocks)?* *How can a firm attract more capital financing?* What is the primary function of a financial institution? -A financial institution provides a means of saving for retirement. -A financial institution provides credit cards to consumers. -A financial institution provides checking accounts to facilitate payments. *A financial institution facilitates cash flows between investors and companies.* Which of these decisions help define the role of international finance? Assume the firms are U.S. firms. *Exports LTD. decides to open a warehouse in Europe.* -Imports Ltd. decides to open a new distribution center in Iowa. -Exports Ltd. decides to open a new domestic retail outlet. -Imports Ltd. decides to invest its excess cash in U.S. Treasury bills. A discussion of risk in which of the following terms best serves as an overall definition of risk? -Risk is best defined in terms of all expected future cash flows. -Risk is best defined in terms of the percentage of a future cash flow that is guaranteed. *Risk is best defined in terms of the probability of a loss and the expected magnitude of that loss.* -Risk is best defined in terms of future expected rewards. You are comparing four stocks of equal risk. Which stock should have the highest price in today's market? -Stock D currently pays $2 a year in dividends and expects to increase that amount by $.10 every other year. *Stock A currently pays $2 a year in dividends and increases that amount by $.50 annually.* -Stock C pays a constant $2 a year dividend and has no plans to change that amount. -Stock B currently pays $2 a year in dividends and is decreasing the dividend by $.20 each year. Which one of these examples best illustrates the definition of time value of money? -A new convertible that you would like to buy costs $36,800 today. *A gift of $10,000 to be received in two years is worth $8,900 today.* -You have $4,500 saved while your sister has $5,600 saved. -Your grandmother promised to give you $15,000 upon your graduation from college. Finance is more concerned about the past while accounting is more concerned about the future. False Which group has individual investors as participants and is a lender of funds to the financial markets? -People with both money and ideas lend funds to the financial markets. -People with ideas and no money lend funds to the financial markets. *People with money and no ideas lend funds to the financial markets.* -People with no ideas and no money lend funds to the financial markets. Which of these best illustrates how funds flow in a financial system? -An individual analyzes a project and receives financing from a company. -A company retains earnings that flow to financial institutions. *An individual invests in a bank savings account and the bank lends money to companies.* -A financial institution offers both checking and savings accounts. Financial management relates to which of the following? -Financial management relates to the analysis and process of choosing securities and other assets to purchase. -Financial management relates to the use of finance theory in a global business environment. *Financial management relates to a firm's decisions regarding the acquisition and use of funds.* -Financial management relates to the facilitation of capital flows between investors and firms. Which of the following are finance functions that fall under the supervision of the treasurer? *Capital spending* *Managing cash* -Managing taxes *Interest rate hedging* Which one of these is a function assigned to the company treasurer? -tax reporting *management of cash* -management of accounting records -data processing management Which of these is an example of how finance is used throughout a firm? *Finance can be used for cost/benefit analysis.* -Finance can be used to determine which applicant to hire. -Finance can be used to determine the accounting value of an asset being used in any department of a firm. -Finance can be used to determine how taxes are to be allocated to a firm's various divisions. Which of these are personal financial decisions? *Marie decided that leasing a car was cheaper for her than buying a car.* *Kendyll moved money from her checking account to her savings account to earn interest.* -Jessica decided to spend her morning mowing the yard rather than cleaning the house. *Samantha financed her mortgage for 20 rather than 30 years to save on interest.* Which one of these functions is a treasury function? -Overseeing the accounting functions -Overseeing the data processing functions *Managing the firm's pension plan* -Managing the firm's taxes Which one of the following is an advantage of a sole proprietorship? -limited liability -unlimited liability limited operational control *ease of formation* Which one of the following best illustrates the definition of a sole proprietorship? -Alberto received 60 percent of the income from a business and had that income taxed as personal income. *Ted was forced to sell his personal home in order to pay the debts of a business he owned in entirety.* -Ido's portion of a firm's debts was $38,000 but he only lost the $20,000 investment he had in the company when it went bankrupt. -The income Maria received from her business interest was taxed twice as income. Which one of these is commonly considered the greatest disadvantage of a sole proprietorship? -government regulation -cost of formation -taxes *unlimited liability* Which one of these best defines a general partnership? -a brother and sister forma a business. The firm goes bankrupt but neither owner has to repay the firm's debt. -four sisters form a business which goes bankrupt. Only one sister is liable for all the firm's debts. -three brothers form a business. None of the brothers are liable for the firm's debts. *A brother and sister form a business. The brother incurs all the firm's debts and both of them are personally liable to repay all the debt.* Which of these are characteristics of a general partnership? *profits split among the partners.* *limited access to capital* -limited personal liability -double taxation of profits Which one of these features would be considered the most advantageous benefit of a general partnership? -personal liability limited to percentage of ownership -substantial growth obtainable without changing the form of ownership *increased capital financing as compared to a sole proprietorship* -management control spread amongst the partners Which of these features could accurately be included in the definition of a corporation? *separate legal entity* *division of ownership and control* *double taxation* -limited access to capital Which proposed firm goal is best? *The primary goal is to maximize the value of the current shareholders' stock.* -The primary firm goal is to maximize the total satisfaction of the firms stakeholders. -The primary firm goal is to maximize current profits. -The primary firm goal is to maximize the value of the invisible hand defined by Adam Smith. What should be the primary goal of a firm? -Maximize sales -Maximize stakeholders' welfare -Maximize market share *Maximize shareholder wealth* Which three decisions have the most effect on shareholder wealth? *Deciding which project to accept* *deciding how to return profits to owners* -deciding which charity should receive a $1,000 donation **deciding between debt and equity financing The use of excess cash to do which of these is most apt to increase shareholder wealth? -investing in unprofitable projects *paying dividends to shareholders* -paying excessive bonuses to managers -lowering prices below costs Travis owns a bakery and Mia is a baker. How could an agency relationship exist between these two individuals? -Travis could sell part of the business to Mia creating a partnership. Mia would then be the principal and Travis be the agent. -Travis could hire Mia to work for him. Travis would be the agent and Mia would be the principal *Travis could hire Mia to work for him. Travis would be the principal and Mia would be the agent.* -Travis could sell part of the business to Mia creating a partnership. Mia could then be the agent and Travis would be the principal. An agency problem is defined as a situation where a firm's managers fail to put the interests of which one of these parties first when making decisions? *shareholders* -government -community -employees Which form of executive compensation is most apt to reduce agency problems? -Increase in base pay *employee stock options* -reduction in perks -reduced monitoring Why is corporate governance so important? *corporate governance helps align managers' goals with shareholders' goals* -Corporate governance eliminates the need for external monitors. -corporate governance ensures managers control the board of directors -corporate governance ensures a firm is abiding by all governmental regulations Which one of these best defines corporate governance? **corporate governance is the ongoing process of monitoring managers and aligning their incentives with shareholder goals -corporate governance is the compilation and production of a document which outlines acceptable corporate behavior -corporate governance ensures all decision makers within a firm are also shareholders of that firm -corporate governance is the official chain of command within an organization Which of these parties monitor corporate activities as part of corporate governance? *credit analysis-examines a firm's financial strength* *auditors-monitor a firm's accounting systems* *investment analysts-monitor a firms business activities* -chief financial officer The fiduciary duty is violated in which one of these examples? -a financial adviser tells a client she should sell her shares of stock as the price per share is expected to decline -a bank lending officer refuses to loan bank money to a family member with poor credit -a corporate treasurer instructs his staff to pay a tax payment the day before the payment is due to ensure the payment is processed by the due date. *a corporate treasurer invests company funds in a friend's bank at a lower interest rate than that offered by other comparable banks* Which of these best defines ethics? *Ethics is the study of values, morals, and morality.* -Ethics is the process of changing people's behavior to match your own ideals. -Ethics is the study of how people behave when they are monitored. -Ethics is the study of how people act when they are not being monitored. Which one of these relationships best fits the definition of a fiduciary relationship? -Sid gave Fred cash in exchange for his used motorcycle. *Al's retirement funds are managed by the trust department at the local bank.* -Harry keeps all his cash in a safety deposit box at the bank. -Marti donated some used items to the local thrift store to help the needy. Which of these is most apt to lessen the probability of an agency problem with an employee? -offering no employee benefits *paying a bonus for good performance* -minimizing the number of vacation days -paying a flat salary with no bonus Which of these are advantages of the corporate form of business ownership? *limited liability* *legal status* -double taxation *easy access to capital* The profitability of financial market intermediaries depends upon which of these? *successful execution of unique professional services* -questionable business practices -aggressive sales and advertising staff -market domination within a firm's industry What are the two key characteristics of a hybrid organization? *single taxation and limited liability* -limited size and double taxation -shared control and unlimited size -unlimited capital and limited liability Which type of business organization has multiple owners, profits divided by percentage of ownership, single taxation, and limited liability for some owners but not for others? *limited partnership* -general partnership -limited liability partnership -public corporation Which characteristic is an advantage of a hybrid organization? *owners' liability* -investment capital -firm size -government restrictions The primary disadvantages of a hybrid organization are associated with which one of the following parties? -managers -employees *government* -owners Which one of the following is a disadvantage of the corporate form of business? -limited liability for owners *separation of management and ownership* -access to capital markets -legal status Which of the following is an advantage offered by a hybrid organization? -limited size -limited capital -limited lines of business *single taxation* Financial decision making compares which of the following factors? -financial decision making compares financial assets with real assets -financial decision making compares a projects cost to the risks. *financial decision making compares rewards with risks.* -financial decision making compares the timing of a cash flow to its size. What is the best definition of a financial market? *A financial market is defined as the places and processes that facilitate the trading of financial assets between investors.* -a financial market is defined as an institution, such as a bank from which money can be borrowed. -a financial market is a place where institutions gain ideas for using excess funds. -a financial market is defined as a place where people with money earn more money Which statement best describes how finance is dependent upon accounting? -financial decisions are based solely upon the information contained in the financial statements prepared by accountants -financial decisions only affect the finance department and require the accounting statements to review the entire firm -financial decisions eventually appear in the accounting statements **financial decisions require an understanding of a firm's past transactions in order to plan for the future Which one of there features would be considered the most advantageous benefit of a general partnership? -personal liability limited to percentage of ownership -management control spread amongst the partners -substantial growth obtainable without changing the form of ownership **increased capital financing as compared to a sole proprietorship Which two groups participate in the financial markets? -people with money but no ideas and people with both money and ideas -people with no money and no ideas and people with both money and ideas *people with money but no ideas and people with ideas but no money* -people with money but no ideas and people with no money and no ideas Finance and its functions affect which aspects of business and personal life? *finance affects all levels of a business organization as well as many areas of personal life.* -finance affects all levels of a business organization but only affect the savings aspect of personal lives -finance functions affect some aspects of personal life and only the treasury functions of a business organization Which one of these is NOT a sub-area of finance? *financial assets* -investors -financial management -financial institutions and markets Which one of these is an advantage of a general partnership? -tax-free profits -limited liability *single taxation* -Unlimited capital