Deck 1: Finance in Business

Question 1

Financial markets include:

A) bond market.
B) cash market.
C) share market.
D) all of the above.

Answer 1

all of the above.

Question 2

The _____________ works out the best way to structure finances and make effective financial decisions.

A) Finance manager.
B) Controller.
C) CEO.
D) Risk manager.

Answer 2

Finance manager.

Question 3

Increased regulation and oversight of the finance sector:

A) encourage consumers to obtain independent advice.
B) protect consumers.
C) build consumer confidence in the system.
D) B and C

Answer 3

B and C

Question 4

Finances are of great economic and social importance. At the __________ level, they drive the operation and performance of the economy.

A) macro.
B) government.
C) micro.
D) all of the above.

Question 5

At the ___________ level, finances influence the fiscal position of the nation and influence living standards.

A) macro.
B) government.
C) micro.
D) business entity.

Question 6

For consumers, finance influences:

A) ability to make effective financial decisions.
B) accumulation of wealth over the long term.
C) profitability and living standards.
D) A and B

Question 7

Finance is used by businesses to:

A) operate on a daily basis.
B) start-up operations.
C) expand and grow the business.
D) all of the above.

Question 8

_________________ with standing in the community access financial markets and financial institutions for funds.

A) small partnerships.
B) sole traders.
C) large entities.
D) all of the above.

Question 9

Which party of a bond pays the repayment of the face value at maturity?

A) issuer.
B) owner.
C) financial intermediary.
D) none of the above.

Question 10

Why don't many small businesses employ a financial manager?

A) costs outweigh benefits.
B) high cost.
C) limited benefits.
D) none of the above.

Question 11

Business owners usually choose the structure of their business based on:

A) the taxation of profits.
B) the start-up size of its operations.
C) the legal liability of owners.
D) all of the above.

Question 12

Most start-up businesses operate as a ________________ because of their small operating scale and capital requirements.

A) company.
B) partnership.
C) sole trader.
D) B or C

Question 13

A ____________ is a business entity owned by one person, and typically consists of the trader and a small number of employees.

A) sole trader.
B) partnership.
C) public company.
D) private company.

Question 14

An advantage of forming as a sole trader is because:

A) it is the most complex type of business structure.
B) it is the most regulated form.
C) all profits from the business are kept by the owner.
D) the owner is exposed to limited liability.

Question 15

_________________ have access to more capital, and pooling of knowledge, experience and skills than sole traders.

A) Public companies.
B) Private companies.
C) Partnerships.
D) All of the above.

Question 16

A _______________ can sell its securities to the market.

A) public company.
B) sole trader.
C) private company.
D) partnership.

Question 17

All companies are registered with and regulated by the:

A) Corporations Act 2001.
B) ASX.
C) government.
D) ASIC.

Question 18

A major advantage of the company form of business structure is that:

A) directors are personally liable under the Corporations Act 2001.
B) shareholders have limited liability for company debts.
C) employees are personally liable under the Corporations Act 2001.
D) all of the above.

Question 19

The financial manager's goal is to:

A) grow the company.
B) minimise risk.
C) maximise the value of the company's shares.
D) maximise profit.

Question 20

Maximisation of the owners' wealth:

A) takes risk into consideration.
B) uses a short-term view.
C) relies on accounting numbers.
D) fails to consider the time value of money.

Question 21

The main financial goal of the firm is to:

A) increase revenue growth.
B) maximise profits.
C) maximise wealth.
D) increase market share.

Question 22

Which of the following statements regarding wealth maximisation is true?

A) Wealth maximisation uses a short-run perspective of the business.
B) Wealth maximisation ignores future cash flows.
C) Wealth maximisation considers the time value of money.
D) None of the above.

Question 23

Profit maximisation ignores:

A) the risk associated with cash flows.
B) the time value of money.
C) the amount of cash flows.
D) A and B

Question 24

The time value of money:

A) is one of the most important concepts in finance.
B) does not affect the value of cash flows.
C) means a dollar today is worth less than a dollar in the future.
D) none of the above.

Question 25

Which of the following is true?

A) Investors like taking on risk.
B) Investors expect to be compensated for bearing risk.
C) The less risky an investment's cash flows, the less it is worth.
D) The more risky an investment's cash flows, the more it is worth.

Question 26

The goal for unlisted companies and partnerships can be stated as:

A) maximise the current value of working capital.
B) maximise the current value of non-current assets.
C) minimise the current value of equity.
D) maximise the current value of non-current liabilities.

Question 27

The goal to maximise the value of the company's shares focuses on maximising the value of:

A) profits.
B) productive assets.
C) revenues.
D) cash flows.

Question 28

Management decisions that directly affect the company's expected cash flows include all of the following except:

A) product quality and cost.
B) corporate laws.
C) research and development.
D) marketing and sales.

Question 29

Share prices are affected by:

A) The business environment.
B) Management decisions.
C) Economic shocks.
D) all of the above.

Question 30

Economic shocks that affect share prices include:

A) environmental regulations.
B) natural disasters.
C) corporate laws.
D) taxation.

Question 31

The business environment that affects share prices excludes:

A) corporate laws.
B) environmental regulations.
C) capital budgeting decisions.
D) procedural and safety regulations.

Question 32

The only corporate objective that maximises the economic interests of all stakeholders over a long-term horizon is for management to:

A) expand business operations.
B) make decisions that maximise the wealth of shareholders.
C) maintain financial strength.
D) retain financial flexibility.

Question 33

Which of the following statement(s) is (are) correct?

A) Any residual cash flow is reinvested in the firm or paid as dividends.
B) Managers and other employees receive salaries and wages.
C) Cash is king.
D) All of the above.

Question 34

The decision-making process through which managers choose long-term productive assets is known as:

A) productive decisions.
B) financing decisions.
C) capital budgeting decisions.
D) all of the above.

Question 35

The decision-making process through which managers choose to finance productive assets is known as:

A) financing decision.
B) investing decision.
C) capital budgeting.
D) operating decision.

Question 36

Financial managers invest in capital projects where:

A) net cash flows exceed the initial outlay.
B) expected sales are high.
C) the expected profit exceeds their target profit.
D) cash inflows are less than the cost of the project.

Question 37

In the financing decision process, managers decide whether to use:

A) equity.
B) debt and equity.
C) debt.
D) none of the above.

Question 38

A working capital manager's role is to manage:

A) inventory and accounts receivable only.
B) cash and inventory only.
C) cash, inventory, accounts receivable, accounts payable and risk management.
D) accounts receivable and payable only.

Question 39

Which of the following has the final decision-making authority among all the company's executives?

A) CEO.
B) CFO.
C) Audit committee.
D) Board of directors.

Question 40

The CFO reports directly to the:

A) Board of directors.
B) Audit committee.
C) CEO.
D) External auditor.

Question 41

The _____________ reports directly to the CFO.

A) External auditor.
B) CEO.
C) Risk manager.
D) Audit committee.

Question 42

Which of the following looks after the collection and disbursement of cash?

A) Internal auditor.
B) Risk manager.
C) Controller.
D) Treasurer.

Question 43

Which of the following is responsible for performing audits to determine where the company might incur substantial losses?

A) Controller.
B) Risk manager.
C) Internal auditor.
D) Treasurer.

Question 44

The ___________ prepares the financial statements and tax returns.

A) Treasurer.
B) Risk manager.
C) Controller.
D) Internal auditor.

Question 45

Which of the following monitors and manages the company's risk exposure in financial and commodity markets?

A) Controller.
B) Risk manager.
C) Treasurer.
D) Internal auditor.

Question 46

Which of the following manages the company's relationships with insurance providers?

A) Internal auditor.
B) Risk manager.
C) Treasurer.
D) Controller.

Question 47

Which of the following does not require independent audits to be performed for large public companies?

A) Creditors.
B) Investors.
C) Debtors.
D) ASIC.

Question 48

Which of the following conducts investigations of significant fraud in the company when senior managers are involved?

A) Controller.
B) Internal auditor.
C) Treasurer.
D) Audit committee.

Question 49

During the global financial crisis, risk managers had to:

A) manage insurance portfolio.
B) design strategies for limiting risk.
C) monitor the company's risk exposure.
D) all of the above.

Question 50

In our society, ethical rules do not include:

A) realising that we must follow the same rules we expect others to follow.
B) considering the impact of our actions on others.
C) being unwilling to sometimes put the interest of others ahead of our own interests.
D) all of the above.

Question 51

Most ethical problems that arise in business dealings are related to:

A) agency obligations.
B) conflicts of interest.
C) information asymmetry.
D) all of the above.

Question 52

Which of the following would have the biggest impact on the share price?

A) Revelations of honesty.
B) A product recall.
C) An environmental offence.
D) Revelations of deception and fraud.

Question 53

Typically, conflicts of interest are resolved by:

A) complete disclosure.
B) nondisclosure.
C) withdrawing from serving one of the parties.
D) A and C

Question 54

Information asymmetry occurs when:

A) both parties have access to the same information.
B) the seller has more information than the buyer.
C) insider trading.
D) B and C

Question 55

Insider trading occurs when trading shares based on:

A) private information.
B) public information.
C) information readily available.
D) none of the above.

Question 56

Incentives to foster ethical behaviour in the business community include:

A) solvency.
B) legal fines.
C) financial gains.
D) all of the above.

Question 57

An unethical business culture can lead to adverse consequences for:

A) general public.
B) investors.
C) management.
D) all of the above

Question 58

Incentives provided by law and market forces to foster ethical behaviour:

A) are not enough to ensure ethical behaviour.
B) make an ethical business culture unnecessary.
C) are sufficient to ensure ethical behaviour.
D) none of the above.