Question 1

Which one of the following is a working capital decision?
A)How should the firm raise additional capital to fund its expansion?
B)What debt-equity ratio is best suited to the firm?
C)What is the cost of debt financing?
D)Should the firm borrow money for five or for ten years?
E)How much cash should the firm keep in reserve?

Accepted Answer

Working capital decisions refer to short-term operational decisions that involve managing current assets and current liabilities, such as cash, inventory, accounts receivable, and accounts payable. Out of the options given, only "How much cash should the firm keep in reserve?" is a working capital decision. The other options are related to capital structure decisions and financing decisions.

Question 2

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis.Which type of entity did they create if they have no personal liability for the firm's debts?
A)Limited partnership
B)Corporation
C)Sole proprietorship
D)General partnership
E)Public company

Accepted Answer

Matt and Alicia created a corporation, which is a separate legal entity and allows them to share ownership on a 75/25 basis without personal liability for the firm's debts. A limited partnership would require at least one general partner with personal liability, a sole proprietorship is not a separate legal entity, and a general partnership would also require personal liability for at least one of the partners. A public company refers to a corporation that has publicly traded shares, which is not specified in this scenario.

Question 3

Which one of the following functions is generally a responsibility assigned to the corporate treasurer?
A)Cost accounting
B)Data processing
C)Corporate taxes
D)Financial accounting
E)Capital expenditures

Accepted Answer

Capital expenditures are generally a responsibility assigned to the corporate treasurer. The treasurer manages the company's cash, investments, and capital expenditures in order to maximize shareholder value. They also oversee the company's financing activities, such as issuing stocks and bonds, and managing relationships with banks and other financial institutions. Cost accounting, data processing, corporate taxes, and financial accounting are typically handled by other departments or teams within the organization.

Question 4

Will and Bill both enjoy sunshine,water,and surfboards.Thus,the two friends decided to create a business together renting surfboards,paddle boats,and inflatable devices in California.Will and Bill will equally share in the decision making and in the business profits or losses.Which type of business did they create if they both have full personal liability for the firm's debts?
A)Sole proprietorship
B)Limited partnership
C)Corporation
D)Joint stock company
E)General partnership

Accepted Answer

Will and Bill have created a general partnership, where both partners have equal rights in the decision-making process and share equally in the profits or losses of the business. However, in a general partnership, each partner also has full personal liability for the firm's debts, which is indicated in the scenario.

Question 5

Which one of the following is a capital structure decision?
A)Determining the optimal inventory level
B)Establishing the preferred debt-equity level
C)Selecting new equipment to purchase
D)Setting the terms of sale for credit sales
E)Determining when suppliers should be paid

Accepted Answer

Establishing the preferred debt-equity level is a capital structure decision as it involves determining the optimal mix of debt and equity financing for a company. The other options listed are not related to capital structure decisions.

Question 6

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities.Decisions related to these accounts as referred to as:
A)capital structure decisions.
B)capital budgeting decisions.
C)working capital management.
D)operating management.
E)fixed account structure.

Accepted Answer

Working capital management involves managing the short-term assets and liabilities of a company, such as current assets and current liabilities, to ensure the company can continue its operations and meet its short-term obligations.

Question 7

Uptown Markets is financed with 45 percent debt and 55 percent equity.This mixture of debt and equity is referred to as the firm's:
A)capital structure.
B)capital budget.
C)asset allocation.
D)working capital.
E)risk structure.

Accepted Answer

The mixture of debt and equity used by Uptown Markets is referred to as their capital structure.

Question 8

When conducting a financial analysis of a firm,financial analysts:
A)cannot use accounting information as it is historical.
B)rely solely on accounting information.
C)frequently use accounting information.
D)ignore accounting information but do use marketing information.
E)assume the future will be a repeat of the past as reflected in the firm?s accounting reports.

Accepted Answer

Financial analysts frequently use accounting information in conducting a financial analysis of a firm as it provides important information about the firm's financial performance, position, and cash flows. However, they may also use other sources of information such as market trends, industry benchmarks, and economic indicators to supplement their analysis.

Question 9

The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods.However,Weil's board of directors rejects the acquisition offer.This is an example of:
A)a corporate takeover.
B)a capital structure issue.
C)a working capital decision.
D)an agency conflict.
E)a compensation issue.

Accepted Answer

This situation represents an agency conflict, where the interests of the shareholders and the board of directors (as agents) do not align. The shareholders would benefit from the acquisition, but the board of directors (as stewards of the company) may perceive it as not being in the best interest of the firm overall.

Question 10

Jenna has been promoted and is now in charge of all external financing.In other words,she is in charge of:
A)capital structure management.
B)asset allocation.
C)risk management.
D)capital budgeting.
E)working capital management.

Accepted Answer

Jenna being in charge of external financing means that she is responsible for the composition of the company's capital structure, which includes the proportion of debt and equity used to finance the organization's activities.

Question 11

Margie opened a used bookstore and is both the 100 percent owner and the store's manager.Which type of business entity does Margie own if she is personally liable for all the store's debts?
A)Sole proprietorship
B)Limited partnership
C)Corporation
D)Joint stock company
E)General partnership

Accepted Answer

Margie is personally liable for all the store's debts which is a characteristic of a sole proprietorship. In this type of business entity, the owner has complete control and responsibility for the business's operations and finances.

Question 12

Capital budgeting includes the evaluation of which of the following?
A)Size of future cash flows only
B)Size and timing of future cash flows only
C)Timing and risk of future cash flows only
D)Risk and size of future cash flows only
E)Size, timing, and risk of future cash flows

Accepted Answer

Capital budgeting involves evaluating investment opportunities with respect to their size, timing, and risk, and making decisions that maximize shareholder value. Therefore, the best choice is E, which includes all three factors.

Question 13

Jamie is employed as a currency trader in the Japanese yen market.Her job falls into which one of the following areas of finance?
A)International finance
B)Financial institutions
C)Corporate finance
D)Capital management
E)Personal finance

Accepted Answer

Currency trading involves the exchange of currencies across different countries, which falls under the umbrella of international finance.

Question 14

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?
A)Organizational
B)Structural
C)Formative
D)Agency
E)Territorial

Accepted Answer

The potential conflict of interest between a firm's owners and its managers is referred to as agency conflict. This is because the managers are the agents of the owners, but they may have differing goals and incentives, leading to conflicts.

Question 15

If you accept a job as a domestic security analyst for a brokerage firm,you are most likely working in which one of the following financial areas?
A)International finance
B)Private placements
C)Corporate finance
D)Capital management
E)Investments

Accepted Answer

The answer of If you accept a job as a...

Question 16

Which one of the following occupations best fits into the corporate area of finance?
A)Mortgage broker
B)Treasury bill analyst
C)Chief financial officer
D)Insurance risk manager
E)Local bank manager

Accepted Answer

Chief financial officer is the highest-ranking finance position within a corporation and is responsible for overseeing all financial activities and decisions.

Question 17

Working capital management includes which one of the following?
A)Deciding which new projects to accept
B)Deciding whether to purchase a new machine or fix a currently owned machine
C)Determining which customers will be granted credit
D)Determining how many new shares of stock should be issued
E)Establishing the target debt-equity ratio

Accepted Answer

Working capital management involves managing a company's short-term assets and liabilities, including credit-granting decisions to customers. Decisions about new projects, purchasing new machines, issuing new shares of stock, and establishing the target debt-equity ratio are more related to capital budgeting and capital structure decisions, which involve long-term financing decisions rather than short-term working capital management.

Question 18

Which one of the following functions should be assigned to the corporate treasurer rather than to the controller?
A)Data processing
B)Cost accounting
C)Tax management
D)Cash management
E)Financial accounting

Accepted Answer

Cash management is usually the responsibility of the treasurer in a company, whereas the controller is more involved in financial accounting, cost accounting, tax management, and data processing.

Question 19

An employee has a claim on the cash flows of Martin's Machines.This claim is defined as a claim by one of the firm's:
A)residual owners.
B)shareholders.
C)financiers.
D)provisional partners.
E)stakeholders.

Accepted Answer

The answer of An employee has a claim on the...

Question 20

Which one of the following correctly defines a common chain of command within a corporation?
A)The controller reports directly to the corporate treasurer.
B)The treasurer reports directly to the board of directors.
C)The chief financial officer reports directly to the board of directors.
D)The credit manager reports directly to the controller.
E)The controller reports directly to the chief financial officer.

Accepted Answer

The controller is typically responsible for the accounting department and reports directly to the chief financial officer. The chief financial officer then reports directly to the board of directors or CEO. Therefore, the correct chain of command for a corporation is: Controller -> Chief Financial Officer -> Board of Directors/CEO.

Quiz 1: Introduction to Financial Management

Which one of the following is a working capital decision?

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis.Which type of entity did they create if they have no personal liability for the firm's debts?

Which one of the following functions is generally a responsibility assigned to the corporate treasurer?

Which one of the following is a capital structure decision?

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities.Decisions related to these accounts as referred to as:

Uptown Markets is financed with 45 percent debt and 55 percent equity.This mixture of debt and equity is referred to as the firm's:

When conducting a financial analysis of a firm,financial analysts:

The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods.However,Weil's board of directors rejects the acquisition offer.This is an example of:

Jenna has been promoted and is now in charge of all external financing.In other words,she is in charge of:

Margie opened a used bookstore and is both the 100 percent owner and the store's manager.Which type of business entity does Margie own if she is personally liable for all the store's debts?

Capital budgeting includes the evaluation of which of the following?

Jamie is employed as a currency trader in the Japanese yen market.Her job falls into which one of the following areas of finance?

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

If you accept a job as a domestic security analyst for a brokerage firm,you are most likely working in which one of the following financial areas?

Which one of the following occupations best fits into the corporate area of finance?

Working capital management includes which one of the following?

Which one of the following functions should be assigned to the corporate treasurer rather than to the controller?

An employee has a claim on the cash flows of Martin's Machines.This claim is defined as a claim by one of the firm's:

Which one of the following correctly defines a common chain of command within a corporation?