Multiple Choice
[QUESTION]
The primary goal of financial management is to:
A. maximise current sales
B. maximise the value of shares
C. minimise costs
D. avoid bankruptcy
E. all of the given answers
Answer: B
[QUESTION]
For a brief period the balance sheet was known as ________.
A. statement of cash flows
B. statement of operating profits
C. statement of working capital
D. statement of financial position
Answer: D
[QUESTION]
The difference between the total value of assets and the total value of liabilities is the ________.
A. net cash flows
B. net working capital
C. shareholders’ equity
D. operating profit
Answer: C
[QUESTION]
A debt that is not due in the coming year is classified as a(n) ________.
A. indirect liability
B. direct liability
C. non-current liability
D. current liability
E. long-term liability
Answer: C
[QUESTION]
Assets are classified as ________.
A. tangible or intangible
B. current or fixed (non-current)
C. cash or accounts receivable
D. direct or indirect
Answer: B
[QUESTION]
The difference between a firm’s current assets and current liabilities is called:
A. accounting profits
B. excess profits
C. net working capital
D. both accounting profits and net working capital
E. all of the given answers
Answer: C
[QUESTION]
The relationship between shareholders and management is called:
A. an agency relationship
B. a proxy relationship
C. an agency problem
D. both an agency relationship and an agency problem
E. a managerial relationship
Answer: A
[QUESTION]
Which of the following would be considered a current asset on a firm’s balance sheet?
A. accounts receivable
B. inventory
C. plant and machinery
D. both accounts receivable and inventory
E. all of the given answers
Answer: D
[QUESTION]
The possibility of conflict between shareholders and management of the firm is called:
A. corporate breakdown
B. an agency problem
C. management breakdown
D. legal liability
E. financial distress
Answer: B
[QUESTION] : The value of a firm’s assets is equal to the sum of its liabilities and:
A. liquidity
B. operating cash flows
C. retained earnings
D. shareholders’ equity
E. share capital
Answer: D
[QUESTION]
The liabilities side of the balance sheet primarily reflects managerial decisions about ________.
A. the use of debt alone
B. the capital structure
C. the owner’s equity
D. capital structure and the use of debt
Answer: D
[QUESTION]
The values shown on the balance sheet for the firm’s assets are ________ and generally are not
what the assets are actually worth.
A. discounted values
B. intrinsic values
C. book values
D. market values
E. fair values
Answer: C
[QUESTION]
________ tax rate measures the total taxes paid, divided by the taxable income.
A. Marginal
B. Average
C. Double
D. Residual
E. Flat
Answer: B
[QUESTION]
Which of the following is not true?
A. Average tax rates are the amount of tax payable on the next dollar earned.
B. Marginal tax rates are total taxes divided by total taxable income.
C. The value of a firm’s assets is greater than the value of its liabilities, plus the value of its
equity
D. both B and C
E. all of the given answers
Answer: E
[QUESTION]
Which of the following does not appear in the balance sheet?
A. good management
B. talented employees
C. good reputation
D. all of the above
E. only A and B
Answer: D
[QUESTION]
Profit is often expressed on a per share basis and called:
A. price to earnings ratio
B. earnings per share
C. retained earnings per share
D. dividends per share
Answer: B
[QUESTION]
Which is the following is shortcomings of firm’s general goals:
A. could increase current profits while harming firm (e.g., defer maintenance, issue common
stock to buy Treasury-bills, etc.).
B. does not specify timing or duration of expected returns.
C. calls for a zero payout dividend policy.
D. they are not consistent with the long-term interests of shareholders.
E. All of the above
Answer: E
True/False
[QUESTION]
The financing and the investment decisions affect the firm value. True or False?
A. True
B. False
Answer: B
[QUESTION]
Of the three decisions facing the financial manager of the firm, it’s only the investment decision
that affects firm value. True or False?
A. True
B. False
Answer: A
[QUESTION]
Shareholder’s equity is the difference between assets and liabilities. True or False?
A: True
B: False
Answer: A
[QUESTION]
Non-current assets are for the most part liquid. True or False?
A: True
B: False
Answer: B
[QUESTION]
Liquidity refers to the speed and ease with which an asset can be converted into cash. True or
False?
A. True
B. False
Answer: A
[QUESTION]
The more risk an investment has, the higher its expected return will be. True or False?
A. True
B. False
Answer: A
[QUESTION]
A dollar received today is more value than a dollar received in the future. True or False?
A. True
B. False
Answer: A
[QUESTION]
Cash Flow, not accounting profit, is used as company’s value measurement tool. True or False?
A. True
B. False
Answer: A
[QUESTION]
It is hard to find exceptionally profitable projects in perfectly competitive market. True or
False?
A. True
B. False
Answer: A
[QUESTION]
The process of diversification can reduce risk. True or False?
A. True
B. False
Answer: A
[QUESTION]
A firm has many options to invest their funds but firm has to select the most appropriate assets
for investment which will bring maximum benefit for the firm. True or False?
A. True
B. False
Answer: A
[QUESTION]
Mainly sources of finance can be divided into two categories: owners fund (shareholders fund)
and borrowers fund. True or False?
A. True
B. False
Answer: A
[QUESTION]
Agency theory refers the behaviour of principals and their agents. True or False?
A. True
B. False
Answer: A
[QUESTION]
The market value and the book value are always the same. True or False?
A. True
B. False
Answer: B
[QUESTION]
Revenues + Expenses = Profit. True or False?
A. True
B. False
Answer: B