It is a body of facts, principles and
theories relating to raising and using
money by individuals, businesses
and governments.
It is concerned with the
determination of profits to be
distributed to the owners, the
frequency of such payments and the
amounts to be retained by the firm.
Finance
Accounting
Dividend decision
Management Advisory Services
Operating Decision
Financial Management
Financing Decision
Investment Decision
A decision-making process
concerned with planning, acquiring
and utilizing funds in a manner that
achieves the firm’s desired goals.
Financial Management
Accounting
Finance
Management Advisory Services
Area of decision which determines
how scarce or limited resources in
terms of funds of the business are
committed to projects.
Investment Decision
Financing Decision
Dividend decision
Operating Decision
It asserts that the mix of debt and
equity chosen that should maximize
the value of investments made.
Financing Decision
Dividend decision
Operating Decision
Investment Decision
Statement 1 – Finance is a part of a
larger discipline of Financial
Management
Statement 2 – Financial Management
is also referred to as managerial
finance, corporate finance or
business finance
False True
False False
True False
True, True
Statement 1 – The basic objective of
the investment, financing and
dividend decisions is to maximize the
firm’s wealth
Statement 2 – The goal of financial
management is to maximize the
current value per share of the
existing stock or ownership in a
business firm.
True, True
True False
False False
True False
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Statement 1 – A firm having latest
technology, sophisticated machinery,
high calibre marketing and technical
experts may fail unless its finances
are managed on sound principles of
financial management thus
management of finance reduces the
chances of failure
Statement 2 – Finance function
reduces the chances of failure
because it enables the other
functions of production, marketing,
purchasing and personnel to be
effective in the achievement of
financial objective goals and
objectives of maximizing owner’s
wealth.
True False
False, False
False True
True, True
It is an aspect of financial
management which considers the
amount of cash flows expected to be
generated for the benefits of owners,
the timing of these cash flows and
the risk attached to these cash flows
Measurement of ROI
Strategic Planning
Strategic Financial Management
Business Plan
It reflects how business achieve its
goals and objectives
Business Plan
Strategic financial planning
Strategic Planning
Strategic Financial Management
Maximization of return on capital
employed or return on investment,
minimization of finance charges are
an example of
Short & Medium-Term financial
objectives
Short term financial objectives
Medium Term financial objectives
Long Term financial objectives
The level of cash, securities and
inventory that should be kept on
hand, credit policy, source of short
term financing are an example of
areas of decision of
Broad Applicability
Operating
Reduction of Chances of Failure
Dividend
Areas of Decisions
It involves planning, forecasting,
provision of finance and formulation
of policies which lead the firm’s
survival and success.
Strategic financial planning
Financing
Investing
Evaluation & selection of capital
investment proposal, prioritization of
investment alternatives, funds
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allocation and its rationing are
example of areas of decision of
Corporate Governance
Financial Management
Corporate Management
Investing
Corporate Planning
Financing
Dividend
Operating
Financial Manager makes decision
involving the following except
Audit
It keeps tract of the firm’s
performance & conduct their own
evaluations of the company’s
business activities.
Investment analysts
Board of Directors
External Auditors
Credit analysts
Analysis & Planning
Acquisition of funds
Utilization of funds
The following are the functions of
Treasurer except
Tax management
Cash management
Credit management
Financial Planning
The following are the functions of
Controller except
Financial Planning
Tax management
Cost accumulation
Data processing
It is the process of monitoring
managers and aligning their
incentives with shareholders goals.
It examines a firm’s financial strength
for its debt holders.
Credit analysts
Board of Directors
Investment analysts
External Auditors
The basic objective of the
investment, financing and dividend
decisions is to maximize the
Firm’s wealth
The current value per share of the
existing stocks
Business Profit
Managers compensation and
benefits
The following are responsibility areas
in achieving the financial objectives
of a firm except
Dividend
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Operating
Financing
Investing
Which of the following statements is
false?
The financing decision involves the
process of allocating funds for
investment in competing assets
The treasurer would be responsible
for activities such as managing cash
balances, granting credit to customers
and managing the process of issuing
new securities.
It is necessary to determine the
appropriate risk-return trade-off to
maximize the market value of the firm
for its shareholders.
The optimal capital structure is the
best combination of long term debt and
equity
Statement 1 - The Controller or Chief
Accounting Officer is responsible for
the maintenance of adequate internal
control and for the preparation of
accounting records and
financial statements
Statement 2 - The Treasurer has
custody of the company funds and is
generally responsible for planning
and controlling the company cash
position
True, True
False True
Statement 1 - The raising of
more debts will involve fixed interest
liability and dependence upon
outsiders. It may help in increasing
the return on equity but will also
enhance the risk.
Statement 2 - The raising of funds
through equity will bring permanent
funds to the business but the
shareholders will expect higher rates
of earnings
True, True
True False
False False
False True
Statement 1- Investment Decision is
influenced by tradeoff between
liquidity and
profitability
Statement 2 - The more liquid the
asset, the less it is likely to yield and
the more profitable an asset, the
more illiquid it is.
True, True
True False
False False
False True
Society’s standards for judging
whether an action is right or wrong is
called
True False
Ethics
False False
Business Ethics
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Code of Conduct
P116
Business Code of Conduct
Arises when an agent does not act in
the best interest of the principal
As the interest rate increases for any
given period, the future value interest
factor will
Agency Problem
increase
Corporate Scandal
decrease.
Agency Costs
remain unchanged
Ethical Conflict
move toward 1
In future value or present value
problems, unless stated otherwise,
cash flows are assumed to be
at the end of a time period.
at the beginning of a time period.
in the middle of a time period.
spread out evenly over a time
period.
When the amount earned on a
deposit has become part of the
principal at the end of a specified
time period the concept is called
compound interest.
primary interest.
future value
discount interest.
The future value of P100 received
today and deposited at 6 percent for
four years is
The present value of P100 to be
received 10 years from today,
assuming an opportunity cost of 9
percent, is
P42
P699
P75
P236.
The amount of money that would
have to be invested today at a given
interest rate over a specified period
in order to equal a future amount is
called
present value.
future value interest factor
present value interest factor.
future value.
What is the primary goal of financial
management?
P126
Maximizing shareholders' wealth
P79
Increase earnings
P124
Maximizing cash flow
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Minimizing risk
A financial manager's goal of
maximizing current or short-term
profits may not be appropriate
because
All of the given choices
it fails to consider the time value of
money
increased earnings may be
accompanied by unacceptable higher
levels of risk
earnings are subjective
Which of the following statement is
true?
There are some serious problems
with the financial goal of maximizing the
earnings of the firm
Maximizing the earnings of the firm
is the primary goal of financial
management
The higher the profit of a firm, the
higher the value of the firm is assured of
receiving in the market
Allocating funds to the most
profitable assets
Timothy is a financial manager who
has discovered that her company is
violating environmental regulations.
If her immediate supervisor is
involved, what will be her appropriate
action?
Present the matter to the next higher
managerial level
Confront her his boss
Do nothing since he should show
loyalty to his boss
Consult the audit committee
Integrity is an ethical requirement for
all financial managers. One aspect of
integrity requires
Avoidance of conflict of interest
Performance of professional duties
in accordance with the applicable laws
Refraining from improper use of
inside information
Maintenance of an appropriate level
of professional competence
Social responsibility and profit
maximization are synonymous
All of the following are functions of
the financial manager except
Assigning the market price of the
company's stock
Analysing and planning the
company's performance
Anticipating the company's financial
needs
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