Question 1

The major purpose of cash is to pay day-to-day expenses.

Accepted Answer

Cash is commonly used for daily expenses such as buying groceries, paying rent, and making small purchases.

Question 2

Two types of divestitures are _____.

Accepted Answer

Sell-offs involve the sale of a portion of a company's assets or a subsidiary, while spin-offs involve creating a separate company from a division or subsidiary and distributing its shares to existing shareholders. Therefore, the two types of divestitures are sell-offs and spin-offs.

Question 3

In a sense, a(n) ________ is the reverse of a merger.

Accepted Answer

A divestiture is the act of selling off or spinning off a business unit or subsidiary, which is essentially the reverse of acquiring or merging with such a unit.

Question 4

Financial managers are responsible for increasing profits to shareholders.

Accepted Answer

Financial managers are responsible for ensuring that the company is profitable and increasing profits to shareholders is one of their primary goals.

Question 5

Investments that promise the highest returns tend to involve the lowest amount of risk.

Accepted Answer

This statement is false. In general, investments that offer high returns also involve high risks. There is a trade-off between risk and return, and investors must assess their risk tolerance before making any investment decisions.

Question 6

Financial plans that focus on projections no more than a year or two in the future are known as strategic plans.

Accepted Answer

Financial plans that focus on projections no more than a year or two in the future are known as short-term financial plans or operating plans, not strategic plans. Strategic plans typically cover longer time frames and focus on overall organizational goals and objectives.

Question 7

Risk is defined as the uncertainty of a profit or a loss.

Accepted Answer

This is the standard definition of risk in finance and economics.

Question 8

Altitel Inc. has difficulties with managing operating costs of their company due to shortage of short-term finance. The company needs liquid assets and some capital to improve its performance in the market. Damon, an established businessman, raises money from wealthy individuals and invests it in the company. He also gives the company critical advice about managing their processes effectively. In exchange, Damon owns a small part of the company. In the context of the sources of financing, Damon is a _____.

Accepted Answer

Damon is a venture capitalist as he provides financing to a company in exchange for a share of ownership and provides advice to improve the company's performance. The other options don't accurately describe Damon's role in this scenario.

Question 9

In many companies, the CEO is promoted to the position of CFO.

Accepted Answer

While some CEOs may have the necessary financial expertise to become CFO, it is not common for a CEO to be promoted to the CFO position within the same company. It is more common for a CFO to be promoted to CEO or for the company to hire a new CFO from external sources.

Question 10

Virtually, all financial decisions involve a trade-off between risk and return.

Accepted Answer

This statement is true because investing in assets with higher returns often comes with higher risks, while investments with lower risks usually offer lower returns. Therefore, individuals must consider the trade-off between risk and return when making financial decisions.

Question 11

Managing assets for an international company creates several new challenges for a financial manager.

Accepted Answer

Managing international assets involves dealing with currency fluctuations, different tax laws, diverse regulations, and cultural differences that can significantly impact financial decisions.

Question 12

The balance sheet hedge is often one of the most difficult activities for minimizing the challenges that come with exchange rates.

Accepted Answer

The answer of The balance sheet hedge is often one...

Question 13

Ben has three subordinates that report to him. They include the treasurer, the controller, and the vice president for financial management. In the context of the role of a financial manager, Ben is the _____ of his organization.

Accepted Answer

Ben is the CFO (Chief Financial Officer) of his organization, given his role as a financial manager and the fact that his subordinates all hold financial positions. The CEO (Chief Executive Officer) is typically the highest-ranking position in an organization, while the COO (Chief Operating Officer) focuses on the day-to-day operations of the company. The CRO (Chief Risk Officer) is responsible for managing and mitigating risks within the organization.

Question 14

The treasurer is the chief financial officer of most firms.

Accepted Answer

The answer of The treasurer is the chief financial officer...

Question 15

In a quarterly meeting, Rand, a financial manager at InVest Inc., states that the company will benefit in the long term by utilizing a mix of debentures than focusing only on issuing shares. He states that this strategy will give his company a positive _____, which will increase the rate of return of the firm.

Accepted Answer

The answer of In a quarterly meeting, Rand, a financial...

Question 16

Paul, a financial manager at Faxeltel Inc., holds a meeting to discuss various aspects of investment in long-lived assets. The meeting takes into consideration the buying of new assets and the replacement of old assets. In the context of financial management, this type of decision making is called _____.

Accepted Answer

The decision making related to buying new assets and replacing old ones falls under the purview of capital investment analysis, which is a key aspect of financial management. The other options - risk-return trade-off, leveraged buyout analysis, and divestiture planning - are different concepts that have different implications for financial management.

Question 17

Rhonda, a financial manager at TRM Inc., has to organize the finances of her company for one to two years. In the context of financial planning, she should develop a(n) _____ plan to accomplish this purpose.

Accepted Answer

An operating plan is a short-term plan that outlines the day-to-day operations of an organization. It typically covers a period of one to two years and is used to guide the allocation of resources and the execution of strategies to achieve specific goals. Therefore, Rhonda should develop an operating plan to organize the finances of TRM Inc. for one to two years. A strategic plan is a long-term plan that outlines an organization's direction over a period of three to five years or more, whereas a security plan focuses on protecting the organization's assets from internal and external threats. A leverage plan is a plan for raising capital or financing operations through borrowing or issuing equity. None of these plans would be the best choice for Rhonda's purpose.

Question 18

In most firms, the controller is the chief accounting manager.

Accepted Answer

The controller is typically responsible for managing the accounting department and its functions, making financial reports and forecasts, and ensuring compliance with accounting principles and laws.

Question 19

A balance sheet hedge provides a method for global companies to reduce risks associated with exchange rate fluctuations.

Accepted Answer

A balance sheet hedge involves structuring a company's assets and liabilities in a way that reduces exposure to foreign exchange risks. This can be seen as a method to manage risks associated with exchange rate fluctuations.

Question 20

ZeChems, a chemical manufacturer, has approximately $0.68 in assets for every dollar in sales. According to asset intensity, for every $100 increase in sales, the firm would need about $100 of additional assets.

Accepted Answer

Asset intensity is the ratio of assets to sales. If ZeChems has $0.68 in assets for every dollar in sales, it means they need $68 in assets for every $100 increase in sales, not $100.

Quiz 17: Financial Management