Question 1

The smaller the current ratio, the easier it is for a firm to pay its short­term debts.

Accepted Answer

The smaller the current ratio, the more difficult it is for a firm to pay its short-term debts as it indicates that the firm has fewer current assets to cover its current liabilities. A higher current ratio is generally preferred as it indicates better liquidity and ability to meet short-term obligations.

Question 2

A commitment to meeting social responsibilities eventually results in a decrease in shareholder value.

Accepted Answer

This statement is not necessarily true. While there may be short-term costs associated with fulfilling social responsibilities, such as investing in sustainable practices or supporting local communities, research has shown that over the long-term, companies that prioritize social responsibility tend to outperform those that do not. This is because socially responsible companies often have better relationships with stakeholders, stronger brand reputation, and are able to attract and retain top talent. Therefore, a commitment to social responsibilities can ultimately result in an increase in shareholder value.

Question 3

The debt­to­asset ratio compares a firm's total liabilities to its total assets and is a way of measuring the degree of financial leverage.

Accepted Answer

The debt-to-asset ratio is a measure of financial leverage that compares a firm's total liabilities to its total assets.

Question 4

The risk­return tradeoff suggests that sources and uses of funds that offer the potential for high rates of return tend to be less risky than sources and uses of funds that offer lower returns.

Accepted Answer

The risk-return tradeoff suggests that higher returns are associated with higher levels of risk. Therefore, sources and uses of funds that offer the potential for high rates of return tend to be more risky than those that offer lower returns.

Question 5

The average collection period ratio is computed by dividing accounts payable by the total credit sales for the month.

Accepted Answer

The average collection period ratio is actually computed by dividing the accounts receivable by the average daily credit sales. It measures how long it takes a company to collect its outstanding debts from its customers.

Question 6

Firms can acquire the financial capital they need through newly­issued stocks or bonds.

Accepted Answer

Firms can raise financial capital by issuing stocks or bonds to investors. Stocks represent ownership in the company and bond represent a debt that the company must repay with interest. Investors are willing to purchase these securities in exchange for potential returns, such as dividends for stocks or interest payments for bonds.

Question 7

The current ratio is calculated by dividing the firm's current liabilities by its total assets.

Accepted Answer

The current ratio is calculated by dividing the firm's current assets by its current liabilities.

Question 8

Financial managers strategically plan the amount of risk they are willing to take with shareholders' investments to ensure an attractive rate of return. Financial managers refer to this decision as risk­return tradeoff.

Accepted Answer

Financial managers do consider the risk-return tradeoff while making investment decisions for shareholders to ensure a favorable rate of return.

Question 9

When the goals of stakeholders conflict with each other, financial managers usually adopt the view that the preferences of internal stakeholders, such as managers and employees, should be given the most weight.

Accepted Answer

Financial managers typically prioritize the interests of external stakeholders, such as shareholders and creditors, over internal stakeholders when their goals conflict. This is because external stakeholders have a greater impact on the financial health of the company.

Question 10

Financial managers should focus solely on meeting the financial needs of their firms in the short run, leaving the long­term financial issues to the top management.

Accepted Answer

Financial managers should not only focus on meeting the short-term financial needs of their firms but also play a crucial role in the long-term financial planning and decision making of the organization. They are responsible for creating and implementing financial strategies that ensure the prosperity and growth of the organization in the long run. Therefore, financial managers should not overlook long-term financial issues but work closely with top management to address them effectively.

Question 11

Historically, the most widely accepted goal of financial management has been to maximize the value of the firm to its owners.

Accepted Answer

This has been the widely accepted goal since the 1950s and is known as the shareholder wealth maximization objective.

Question 12

Financial capital refers to the funds a firm uses to acquire its assets and fund its operations.

Accepted Answer

Financial capital is the money a company uses to purchase assets and finance its activities.

Question 13

Alex needs to acquire financial capital to purchase a printing press for his business. Alex can either acquire the financial capital for the press by borrowing money from a bank or by purchasing the press on credit from his supplier.

Accepted Answer

Both borrowing money from a bank and purchasing on credit from a supplier are ways to acquire financial capital without using one's own funds upfront.

Question 14

Financial managers emphasize the goal of maximizing the market price of stock because they have a legal and ethical obligation to make decisions consistent with the financial interests of their firm's owners.

Accepted Answer

Financial managers have a fiduciary responsibility to act in the best financial interests of the firm's owners, which includes maximizing the market price of stock. This is a legal and ethical obligation.

Question 15

Companies with high inventory turns, which replenish inventory levels more frequently, have more cash tied up in inventory, which means that those funds cannot be used elsewhere.

Accepted Answer

High inventory turns indicate that a company sells and replenishes its inventory quickly, meaning less cash is tied up in inventory, allowing more funds to be available for other uses.

Question 16

Financial ratio analysis involves computing ratios that compare values of key accounts listed on the firm's financial statements, mainly its balance sheet and income statement.

Accepted Answer

Financial ratio analysis does indeed involve computing ratios that compare values of key accounts on a firm's financial statements, particularly its balance sheet and income statement.

Question 17

Finance is the area of business responsible for finding the best sources of funds and the best ways to use them.

Accepted Answer

Correct, finance is all about managing money and finding the most effective ways to use it, whether it's through investments, loans, or other financial instruments.

Question 18

The traditional goal of financial management has been to maximize the value of the firm to its owners.

Accepted Answer

This statement is true. The traditional goal of financial management has been to maximize the value of the firm to its owners, typically measured by the stock price or overall profitability of the firm. This approach is known as shareholder wealth maximization.

Question 19

When a firm provides its employees with a good work environment, those employees are likely to have better morale and greater loyalty, resulting in higher productivity and lower employee turnover.

Accepted Answer

Providing a good work environment is one of the ways to improve employee morale and loyalty, which can lead to higher productivity and lower employee turnover.

Question 20

The current ratio helps financial managers evaluate the ability of a firm to pay short­term liabilities as they come due.

Accepted Answer

The current ratio is a liquidity ratio that measures a company's ability to pay its short-term obligations with its current assets. Therefore, it helps financial managers evaluate a firm's ability to pay short-term liabilities as they come due.

Quiz 9: Finance: Acquiring Using Funds to Maximize Value

The smaller the current ratio, the easier it is for a firm to pay its shortterm debts.

A commitment to meeting social responsibilities eventually results in a decrease in shareholder value.

The debttoasset ratio compares a firm's total liabilities to its total assets and is a way of measuring the degree of financial leverage.

The riskreturn tradeoff suggests that sources and uses of funds that offer the potential for high rates of return tend to be less risky than sources and uses of funds that offer lower returns.

The average collection period ratio is computed by dividing accounts payable by the total credit sales for the month.

Firms can acquire the financial capital they need through newlyissued stocks or bonds.

The current ratio is calculated by dividing the firm's current liabilities by its total assets.

Financial managers strategically plan the amount of risk they are willing to take with shareholders' investments to ensure an attractive rate of return. Financial managers refer to this decision as riskreturn tradeoff.

When the goals of stakeholders conflict with each other, financial managers usually adopt the view that the preferences of internal stakeholders, such as managers and employees, should be given the most weight.

Financial managers should focus solely on meeting the financial needs of their firms in the short run, leaving the longterm financial issues to the top management.

Historically, the most widely accepted goal of financial management has been to maximize the value of the firm to its owners.

Financial capital refers to the funds a firm uses to acquire its assets and fund its operations.

Alex needs to acquire financial capital to purchase a printing press for his business. Alex can either acquire the financial capital for the press by borrowing money from a bank or by purchasing the press on credit from his supplier.

Financial managers emphasize the goal of maximizing the market price of stock because they have a legal and ethical obligation to make decisions consistent with the financial interests of their firm's owners.

Companies with high inventory turns, which replenish inventory levels more frequently, have more cash tied up in inventory, which means that those funds cannot be used elsewhere.

Financial ratio analysis involves computing ratios that compare values of key accounts listed on the firm's financial statements, mainly its balance sheet and income statement.

Finance is the area of business responsible for finding the best sources of funds and the best ways to use them.

The traditional goal of financial management has been to maximize the value of the firm to its owners.

When a firm provides its employees with a good work environment, those employees are likely to have better morale and greater loyalty, resulting in higher productivity and lower employee turnover.

The current ratio helps financial managers evaluate the ability of a firm to pay shortterm liabilities as they come due.

Quiz 9: Finance: Acquiring Using Funds to Maximize Value

The smaller the current ratio, the easier it is for a firm to pay its short­term debts.

A commitment to meeting social responsibilities eventually results in a decrease in shareholder value.

The debt­to­asset ratio compares a firm's total liabilities to its total assets and is a way of measuring the degree of financial leverage.

The risk­return tradeoff suggests that sources and uses of funds that offer the potential for high rates of return tend to be less risky than sources and uses of funds that offer lower returns.

The average collection period ratio is computed by dividing accounts payable by the total credit sales for the month.

Firms can acquire the financial capital they need through newly­issued stocks or bonds.

The current ratio is calculated by dividing the firm's current liabilities by its total assets.

Financial managers strategically plan the amount of risk they are willing to take with shareholders' investments to ensure an attractive rate of return. Financial managers refer to this decision as risk­return tradeoff.

When the goals of stakeholders conflict with each other, financial managers usually adopt the view that the preferences of internal stakeholders, such as managers and employees, should be given the most weight.

Financial managers should focus solely on meeting the financial needs of their firms in the short run, leaving the long­term financial issues to the top management.

Historically, the most widely accepted goal of financial management has been to maximize the value of the firm to its owners.

Financial capital refers to the funds a firm uses to acquire its assets and fund its operations.

Alex needs to acquire financial capital to purchase a printing press for his business. Alex can either acquire the financial capital for the press by borrowing money from a bank or by purchasing the press on credit from his supplier.

Financial managers emphasize the goal of maximizing the market price of stock because they have a legal and ethical obligation to make decisions consistent with the financial interests of their firm's owners.

Companies with high inventory turns, which replenish inventory levels more frequently, have more cash tied up in inventory, which means that those funds cannot be used elsewhere.

Financial ratio analysis involves computing ratios that compare values of key accounts listed on the firm's financial statements, mainly its balance sheet and income statement.

Finance is the area of business responsible for finding the best sources of funds and the best ways to use them.

The traditional goal of financial management has been to maximize the value of the firm to its owners.

When a firm provides its employees with a good work environment, those employees are likely to have better morale and greater loyalty, resulting in higher productivity and lower employee turnover.

The current ratio helps financial managers evaluate the ability of a firm to pay short­term liabilities as they come due.

The smaller the current ratio, the easier it is for a firm to pay its shortterm debts.

The debttoasset ratio compares a firm's total liabilities to its total assets and is a way of measuring the degree of financial leverage.

The riskreturn tradeoff suggests that sources and uses of funds that offer the potential for high rates of return tend to be less risky than sources and uses of funds that offer lower returns.

Firms can acquire the financial capital they need through newlyissued stocks or bonds.

Financial managers strategically plan the amount of risk they are willing to take with shareholders' investments to ensure an attractive rate of return. Financial managers refer to this decision as riskreturn tradeoff.

Financial managers should focus solely on meeting the financial needs of their firms in the short run, leaving the longterm financial issues to the top management.

The current ratio helps financial managers evaluate the ability of a firm to pay shortterm liabilities as they come due.