Deck 1: The Role of Managerial Finance

Question 1

Financial managers actively manage the financial affairs of many types of business-financial and non-financial, private and public, for-profit and not-for-profit.

Answer 1

True

Question 2

Financial services are concerned with the duties of the financial manager.

Answer 2

False

Question 3

Finance can be defined as

A) the system of debits and credits.
B) the science of the production, distribution, and consumption of wealth.
C) the art and science of managing money.
D) the art of merchandising products and services.

Answer 3

the art and science of managing money.

Question 4

Which of the following is a career opportunity in managerial finance?

A) Investment.
B) Real Estate and Insurance.
C) Capital Expenditures Management.
D) Personal Financial Planning.

Question 5

In large companies, the project finance manager is responsible for coordinating the assets and liabilities of the employees' pension fund.

Question 6

The part of finance concerned with design and delivery of advice and financial products to individuals, business, and government is called

A) Managerial Finance.
B) Financial Manager.
C) Financial Services.
D) none of the above.

Question 7

Financial service

A) is concerned with the duties of the financial manager.
B) involves the design and delivery of advice and financial products.
C) provides guidelines for the efficient operation of the business.
D) handles accounting activities related to data processing.

Question 8

The corporate controller typically handles the accounting activities, such as tax management, data processing, and cost and financial accounting.

Question 9

Career opportunities in financial services include all of the following EXCEPT

A) investments.
B) real estate and insurance.
C) capital expenditures management.
D) personal financial planning.

Question 10

The corporate treasurer's focus tends to be more external, while the controller's focus is more internal.

Question 11

The corporate treasurer is the officer responsible for the firm's accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting.

Question 12

The financial analyst administers the firm's credit policy by analyzing or managing the evaluation of credit applications, extending credit, and monitoring and collecting accounts receivable.

Question 13

The corporate treasurer typically handles the both cost accounting and financial accounting.

Question 14

The corporate controller is the officer responsible for the firm's financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange.

Question 15

Managerial finance is concerned with design and delivery of advice and financial products to individuals, business, and government.

Question 16

________ is concerned with the duties of the financial manager in the business firm.

A) Financial Services
B) Financial Manager
C) Managerial Finance
D) None of the above

Question 17

Finance is concerned with the process institutions, markets, and instruments involved in the transfer of money among and between individuals, businesses and government.

Question 18

A financial analyst is responsible for maintaining and controlling the firm's daily cash balances. Frequently manages the firm's short-term investments and coordinates short-term borrowing and banking relationships.

Question 19

The capital expenditures analyst/manager is responsible for the evaluation and recommendation of proposed asset investments and may be involved in the financial aspects of implementation of approved investments.

Question 20

Managerial finance

A) involves tasks such as budgeting, financial forecasting, cash management, and funds procurement.
B) involves the design and delivery of advice and financial products.
C) recognizes funds on an accrual basis.
D) devotes the majority of its attention to the collection and presentation of financial data.

Question 21

Which of the following legal forms of organization's income is NOT taxed under individual income tax rate?

A) Sole proprietorships.
B) Partnerships.
C) Limited partnership.
D) Corporation.

Question 22

The sole proprietor has unlimited liability; his or her total investment in the business, but not his or her personal assets, can be taken to satisfy creditors.

Question 23

In limited partnerships, all partners' liabilities are limited to their investment in the partnership.

Question 24

The officer responsible for the firm's financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange is

A) treasurer.
B) controller.
C) foreign exchange manager.
D) none of the above.

Question 25

In partnerships, a partner can readily transfer his/her wealth to other partners.

Question 26

In a(n) ________, owners have limited liability with regard to the business. They are not personally liable for the malpractice of other owners.

A) limited partnership
B) S-corporation
C) partnership
D) limited liability partnership

Question 27

In partnerships, owners have unlimited liability and may have to cover debts of other less financially sound partners.

Question 28

When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to increase the firm's profitability.

Question 29

The officer responsible for the firm's accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting is the

A) treasurer.
B) controller.
C) foreign exchange manager.
D) none of the above.

Question 30

Under which of the following legal forms of organization, is ownership readily transferable?

A) Sole proprietorships.
B) Partnerships.
C) Limited partnership.
D) Corporation.

Question 31

The controller is commonly responsible for

A) managing cash.
B) financial accounting.
C) managing credit activities.
D) financial planning.

Question 32

A major weakness of a partnership is

A) limited liability.
B) difficulty liquidating or transferring ownership.
C) access to capital markets.
D) low organizational costs.

Question 33

Which of the following legal forms of organization is most expensive to organize?

A) Sole proprietorships.
B) Partnerships.
C) Corporations.
D) Limited partnership.

Question 34

All of the following are key strengths of a corporation EXCEPT

A) access to capital markets.
B) limited liability.
C) low organization costs.
D) readily transferable ownership.

Question 35

Which of the following legal forms of organization is characterized by limited liability?

A) Sole proprietorship.
B) Partnership.
C) Corporation.
D) Professional partnership.

Question 36

High cash flow is generally associated with a higher share price whereas higher risk tends to result in a lower share price.

Question 37

The dominant form of organization with respect to receipts and net profits is the

A) sole proprietorship.
B) partnership.
C) corporation.
D) S-corporation.

Question 38

About 75 percent of all business firms are

A) sole proprietorships.
B) partnerships.
C) corporations.
D) S-corporations.

Question 39

The ________ is responsible for evaluating and recommending proposed asset investments.

A) Financial Manager
B) Credit Manager
C) Pension Fund Manager
D) Capital Expenditures Manager

Question 40

The treasurer is commonly responsible for

A) taxes.
B) data processing.
C) making capital expenditures.
D) cost accounting.

Question 41

Risk and the magnitude and timing of cash flows are the key determinants of share price, which represents the wealth of the owners in the firm.

Question 42

A high earnings per share (EPS) does not necessarily translate into a high stock price.

Question 43

The wealth of corporate owners is measured by the share price of the stock.

Question 44

The profit maximization goal ignores the timing of returns, does not directly consider cash flows, and ignores risk.

Question 45

The primary goal of the financial manager is

A) minimizing risk.
B) maximizing profit.
C) maximizing wealth.
D) minimizing return.

Question 46

Dividend payments change directly with changes in earnings per share.

Question 47

Cash flow and risk are the key determinants in share price. Increased cash flow results in ________, other things remaining the same.

A) a lower share price
B) a higher share price
C) an unchanged share price
D) an undetermined share price

Question 48

When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to maximize shareholder value.

Question 49

The goal of ethics is to motivate business and market participants to adhere to both the letter and the spirit of laws and regulations in all aspects of business and professional practice.

Question 50

Stockholders expect to earn higher rates of return on investments of lower risk and lower rates of return on investments of higher risk.

Question 51

An increase in firm risk tends to result in a higher share price since the stockholder must be compensated for the greater risk.

Question 52

The goal of profit maximization would result in priority for

A) cash flows available to stockholders.
B) risk of the investment.
C) earnings per share.
D) timing of the returns.

Question 53

Profit maximization fails because it ignores all EXCEPT

A) the timing of returns.
B) earnings per share.
C) cash flows available to stockholders.
D) risk.

Question 54

Corporate owner's receive realizable return through

A) earnings per share and cash dividends.
B) increase in share price and cash dividends.
C) increase in share price and earnings per share.
D) profit and earnings per share.

Question 55

Wealth maximization as the goal of the firm implies enhancing the wealth of

A) the Board of Directors.
B) the firm's employees.
C) the federal government.
D) the firm's stockholders.

Question 56

Profit maximization as the goal of the firm is not ideal because

A) profits are only accounting measures.
B) cash flows are more representative of financial strength.
C) profit maximization does not consider risk.
D) profits today are less desirable than profits earned in future years.

Question 57

The key variables in the owner wealth maximization process are

A) earnings per share and risk.
B) cash flows and risk.
C) earnings per share and share price.
D) profits and risk.

Question 58

Profit maximization as a goal is not ideal because it does NOT directly consider

A) risk and cash flow.
B) cash flow and stock price.
C) risk and EPS.
D) EPS and stock price.

Question 59

To achieve the goal of profit maximization for each alternative being considered, the financial manager would select the one that is expected to result in the highest monetary return.

Question 60

The wealth of the owners of a corporation is represented by

A) profits.
B) earnings per share.
C) share value.
D) cash flow.

Question 61

The financial manager places primary emphasis on cash flows, the inflow and outflow of cash.

Question 62

An effective ethics program can have all of the following positive benefits, EXCEPT

A) reduce potential litigation and judgment costs.
B) maintain a positive corporate image and build shareholder confidence.
C) gain the loyalty, commitment, and respect of the firm's stakeholders.
D) making sure violations are penalized, while at the same time not subjecting the employee to publicity.

Question 63

As the risk of a stock investment increases, investors'

A) return will increase.
B) return will decrease.
C) required rate of return will decrease.
D) required rate of return will increase.

Question 64

Using certain standardized and generally accepted principles, the accountant prepares financial statements that recognize revenue at the point of sale and expenses when incurred.

Question 65

Corporate ethics policies typically apply to ________ in dealing with ________.

A) employee actions; customers and creditors
B) employee actions; customers, vendors, and regulators
C) management actions; all corporate constituents
D) employee actions; all corporate constituents

Question 66

A financial manager must choose between three alternative investments. Each asset is expected to provide earnings over a three-year period as described below. Based on the wealth maximization goal, the financial manager would

A) choose Asset 1.
B) choose Asset 2.
C) choose Asset 3.
D) be indifferent between Asset 1 and Asset 2.

Question 67

Cash flow and risk are the key determinants in share price. Increased risk, other things remaining the same, results in

A) a lower share price.
B) a higher share price.
C) an unchanged share price.
D) an undetermined share price.

Question 68

The accrual method recognizes revenue at the point of sale and recognizes expenses when incurred.

Question 69

An effective ethics program can

A) weakened corporate value.
B) had no effect on a corporation's value
C) enhance a corporation's value.
D) be thought of as unimportant to corporate owners.

Question 70

Marginal cost-benefit analysis states that financial decisions should be made and actions taken only when added benefits exceed added costs.

Question 71

The financial manager prepares financial statements that recognize revenue at the point of sale and expenses when incurred.

Question 72

All of the following as considered stakeholders EXCEPT

A) consumers
B) suppliers
C) employees
D) competitors

Question 73

Financial managers evaluating decision alternatives or potential actions must consider

A) only risk.
B) only return.
C) both risk and return.
D) risk, return, and the impact on share price.

Question 74

A more recent issue that is causing major problems in the business community is

A) the privatization of ownership.
B) short-term versus long-term financial goals of management.
C) ethical problems.
D) environmental concerns.

Question 75

The implementation of a pro-active ethics program is expected to result in

A) a positive corporate image and increased respect, but is not expected to affect cash flows.
B) an increased share price resulting from a decrease in risk, but is not expected to affect cash flows.
C) a positive corporate image and increased respect, but is not expected to affect share price.
D) a positive corporate image and increased respect, a reduction in risk, and enhanced cash flow resulting in an increase in share price.

Question 76

The accountant evaluates financial statements, develops additional data, and makes decisions based on his or her assessment of the associated returns and risks.

Question 77

If Steve Jobs, the CEO of Apple, were to pass away, what do you think would happen to price of Apple's stock?

A) It would decrease because of the perceived increased risk because of lack of near-term leadership.
B) It would increase because of the perceived increased risk because of lack of near-term leadership.
C) It would decrease because of the perceived decreased risk because of lack of near-term leadership.
D) It would increase because of the perceived decreased risk because of lack of near-term leadership.

Question 78

Higher cash flow and greater risk

A) have no effect on share price.
B) have an inverse effect on share price.
C) adversely affect share price.
D) have the same effect on share price.

Question 79

An ethics program is expected to have a ________ impact on the firm's share price.

A) positive
B) negative
C) no impact
D) undetermined

Question 80

A financial manager must choose between four alternative Assets: 1, 2, 3, and 4. Each asset costs $35,000 and is expected to provide earnings over a three-year period as described below. Based on the profit maximization goal, the financial manager would choose

A) Asset 1.
B) Asset 2.
C) Asset 3.
D) Asset 4.