Question 1

In which scenario can being socially responsible be a good strategy to achieve the goal of wealth maximization?
A) When managers take a long­term perspective.
B) When managers are evaluated on the basis of performance of current period.
C) When manager's take a short­term perspective to achieve wealth maximization.
D) When being socially responsible is mandated by law.

Accepted Answer

Taking a long-term perspective and being socially responsible can enhance a company's reputation, encourage customer loyalty, attract socially responsible investors, and reduce risks associated with negative social or environmental impacts. These factors can ultimately lead to increased profitability and wealth maximization.

Question 2

Historically, the most widely accepted goal of financial management is to:
A) help a firm fulfil its social responsibility.
B) maximize the value of a firm to its owners.
C) analyze the risk associated with investments.
D) prevent investing in anything risky.

Accepted Answer

The most widely accepted goal of financial management is to maximize the value of a firm to its owners. This is often referred to as shareholder wealth maximization or maximizing shareholder value. It involves managing the firm's resources in a way that generates the highest possible return for the owners. This goal is consistent with the overall goal of capitalism, which is to allocate resources to their most efficient and productive uses.

Question 3

_____ is the functional area of business that is responsible for finding, among many alternatives, the best sources of funds and the best ways to use them.
A) Marketing
B) Production
C) Operations
D) Finance

Accepted Answer

Finance is the functional area of business that deals with the management of funds. It is responsible for finding the best sources of funds and the best ways to use them to ensure the financial stability and growth of the organization. Marketing, Production, and Operations are other functional areas of business that are responsible for different aspects of the organization's operations.

Question 4

A certificate of deposit is different from a savings account in that a certificate of deposit seldom requires the funds to remain on deposit for a fixed term.

Accepted Answer

A certificate of deposit does typically require the funds to remain on deposit for a fixed term, often ranging from a few months to several years. This is in contrast to a savings account, which allows for withdrawals and deposits without a fixed term commitment.

Question 5

A negative net present value indicates that the cost of the project is less than the present value of the expected future cash flows from the project.

Accepted Answer

A negative net present value indicates that the cost of the project exceeds the present value of the expected future cash flows from the project, not the other way around.

Question 6

Which of the following best describes the fiduciary duty of financial managers of a firm?
A) Their main goal is to maximize the sales figures and increase the profits of the firm.
B) They are legally and ethically obligated to make decisions consistent with the financial interests of their firm's owners.
C) They are responsible for representing a firm's financial condition in a positive way on the annual reports.
D) Their sole duty is to come up with strategies to decrease losses and eliminate expenses for the firm.

Accepted Answer

The fiduciary duty of financial managers of a firm is to act in the best interest of the firm's owners or shareholders. This includes making decisions that will maximize the financial returns of the firm, as well as making disclosures and providing accurate financial information to stakeholders. Option A is incorrect, as maximizing sales figures and increasing profits may not always be in the best interest of the shareholders. Option C is incorrect, as representing a firm's financial condition in a positive way may not always be accurate or ethical. Option D is incorrect, as the duty of financial managers goes beyond just minimizing losses and expenses, and includes maximizing profits and creating value for shareholders.

Question 7

The present value of a cash flow received in a future time period is the amount of money which, if invested today at an assumed rate of interest, would grow to become that future amount of money.

Accepted Answer

This statement correctly explains the concept of present value.

Question 8

Sally Meadows works for Swictek Industries. Her primary responsibilities include management of the firm's working capital and the analysis of long­ term investment opportunities for Swictek. Sally is a part of the firm's _____
A) administrative management.
B) logistics management.
C) financial management.
D) production management.

Accepted Answer

Sally Meadows' responsibilities are related to financial management, specifically working capital management and analysis of long-term investment opportunities for the company. Therefore, the correct choice is C.

Question 9

A positive net present value indicates that the cost of the project is greater than the present values of the expected cash flows from the project.

Accepted Answer

A positive net present value indicates that the present values of expected cash inflows from the project are greater than the cost of the project, which is a favorable outcome for the project. Therefore, the statement given in the question is false.

Question 10

The net present value of an investment proposal is found by adding the present values of all of its estimated future cash flows and subtracting the initial cost of the investment from the sum.

Accepted Answer

This is the correct formula for calculating the net present value (NPV) of an investment proposal. NPV helps to determine whether an investment is viable by comparing the present value of expected future cash flows to the initial cost of the investment.

Question 11

Projects with a potential for high returns generally have a low degree of uncertainty and risk.

Accepted Answer

Projects with high potential returns often involve higher levels of uncertainty and risk, as they typically involve new or untested technologies, markets, or methods. While the potential rewards may be great, there is also a high likelihood of failure or setbacks.

Question 12

For financial managers to be socially responsible, it is necessary that they:
A) focus solely on the short­term performances of the firm.
B) make a long­term commitment to the needs of stakeholders.
C) focus on maximum utilization of human resources.
D) allot 10% of company's profit to employee welfare.

Accepted Answer

Being socially responsible means taking into account the impact of business decisions on stakeholders, including employees, customers, communities, and the environment. Making a long-term commitment to the needs of these stakeholders, rather than focusing solely on short-term performance, is essential for financial managers to be socially responsible. Maximizing the utilization of human resources and allocating a portion of profits to employee welfare may be important steps in achieving social responsibility, but they should be part of a larger, sustained effort to balance financial goals with broader social and environmental goals.

Question 13

A wealthy relative offers to give you $1,000 today, but doesn't actually give you the money until a year later. The delay in receiving the money causes you to lose the opportunity to earn a year's worth of interest. This example illustrates the rationale for the time value of money.

Accepted Answer

The time value of money refers to the idea that money available at the present time is worth more than the same amount in the future due to its potential to earn interest or increase in value over time. In this example, the delay in receiving the money results in the loss of potential earnings from interest, highlighting the importance of the time value of money.

Question 14

When financial managers compare different investments with cash flows over a period of time, they take the time value of these cash flows into account by converting them into their present values.

Accepted Answer

This is true. Financial managers use present value calculations to compare investments with cash flows over different time periods. The time value of money is taken into account by discounting future cash flows back to their present values using an appropriate discount rate.

Question 15

According to the time value of money, an amount of $1,000 received three years from today would have the same present value as a cash flow of $1,000 received two years from today.

Accepted Answer

According to the time value of money, receiving $1,000 earlier is better than receiving it later because you can invest the money and earn interest. Therefore, the $1,000 received two years from today would have a higher present value than the $1,000 received three years from today.

Question 16

The assumed rate of interest that will influence the present value of a cash flow to be received in the future is referred to as the discount rate.

Accepted Answer

The discount rate is the assumed rate of interest used to calculate the present value of a future cash flow.

Question 17

The time value of money is the principle that a dollar received today is worth less than a dollar received in the future.

Accepted Answer

The time value of money is the principle that a dollar received today is worth more than a dollar received in the future due to its potential earning capacity.

Question 18

Financial managers determine whether riskier proposals generate high enough expected returns to justify the risk. One way they try to do this is by using a lower discount rate when they compute the present values of cash flows for risky projects than when they compute present values for less risky projects.

Accepted Answer

Financial managers use a higher discount rate for riskier projects to account for the increased risk, not a lower one.

Question 19

Financial managers at O'Hally Corporation have computed the net present value for a capital budgeting proposal and found the value to be $1,500. Based on this value,the financial managers are likely to approve this proposal.

Accepted Answer

A positive net present value is typically seen as an indication that a capital budgeting proposal is a good investment and is therefore likely to be approved.

Question 20

When financial managers compare cash flows that occur at different times, they should take the time value of money into account.

Accepted Answer

Financial managers must account for the time value of money when comparing cash flows that occur at different times. The time value of money refers to the idea that a dollar received in the future is worth less than a dollar received today due to inflation and the potential for earning interest. Therefore, to accurately compare cash flows, financial managers must adjust for the time value of money by discounting future cash flows to their present value.

Quiz 9: Finance: Acquiring Using Funds to Maximize Value

In which scenario can being socially responsible be a good strategy to achieve the goal of wealth maximization?

Historically, the most widely accepted goal of financial management is to:

_____ is the functional area of business that is responsible for finding, among many alternatives, the best sources of funds and the best ways to use them.

A certificate of deposit is different from a savings account in that a certificate of deposit seldom requires the funds to remain on deposit for a fixed term.

A negative net present value indicates that the cost of the project is less than the present value of the expected future cash flows from the project.

Which of the following best describes the fiduciary duty of financial managers of a firm?

The present value of a cash flow received in a future time period is the amount of money which, if invested today at an assumed rate of interest, would grow to become that future amount of money.

Sally Meadows works for Swictek Industries. Her primary responsibilities include management of the firm's working capital and the analysis of long term investment opportunities for Swictek. Sally is a part of the firm's _____

A positive net present value indicates that the cost of the project is greater than the present values of the expected cash flows from the project.

The net present value of an investment proposal is found by adding the present values of all of its estimated future cash flows and subtracting the initial cost of the investment from the sum.

Projects with a potential for high returns generally have a low degree of uncertainty and risk.

For financial managers to be socially responsible, it is necessary that they:

A wealthy relative offers to give you $1,000 today, but doesn't actually give you the money until a year later. The delay in receiving the money causes you to lose the opportunity to earn a year's worth of interest. This example illustrates the rationale for the time value of money.

When financial managers compare different investments with cash flows over a period of time, they take the time value of these cash flows into account by converting them into their present values.

According to the time value of money, an amount of $1,000 received three years from today would have the same present value as a cash flow of $1,000 received two years from today.

The assumed rate of interest that will influence the present value of a cash flow to be received in the future is referred to as the discount rate.

The time value of money is the principle that a dollar received today is worth less than a dollar received in the future.

Financial managers at O'Hally Corporation have computed the net present value for a capital budgeting proposal and found the value to be $1,500. Based on this value,the financial managers are likely to approve this proposal.

When financial managers compare cash flows that occur at different times, they should take the time value of money into account.

Quiz 9: Finance: Acquiring Using Funds to Maximize Value

In which scenario can being socially responsible be a good strategy to achieve the goal of wealth maximization?

Historically, the most widely accepted goal of financial management is to:

_____ is the functional area of business that is responsible for finding, among many alternatives, the best sources of funds and the best ways to use them.

A certificate of deposit is different from a savings account in that a certificate of deposit seldom requires the funds to remain on deposit for a fixed term.

A negative net present value indicates that the cost of the project is less than the present value of the expected future cash flows from the project.

Which of the following best describes the fiduciary duty of financial managers of a firm?

The present value of a cash flow received in a future time period is the amount of money which, if invested today at an assumed rate of interest, would grow to become that future amount of money.

Sally Meadows works for Swictek Industries. Her primary responsibilities include management of the firm's working capital and the analysis of long­ term investment opportunities for Swictek. Sally is a part of the firm's _____

A positive net present value indicates that the cost of the project is greater than the present values of the expected cash flows from the project.

The net present value of an investment proposal is found by adding the present values of all of its estimated future cash flows and subtracting the initial cost of the investment from the sum.

Projects with a potential for high returns generally have a low degree of uncertainty and risk.

For financial managers to be socially responsible, it is necessary that they:

A wealthy relative offers to give you $1,000 today, but doesn't actually give you the money until a year later. The delay in receiving the money causes you to lose the opportunity to earn a year's worth of interest. This example illustrates the rationale for the time value of money.

When financial managers compare different investments with cash flows over a period of time, they take the time value of these cash flows into account by converting them into their present values.

According to the time value of money, an amount of $1,000 received three years from today would have the same present value as a cash flow of $1,000 received two years from today.

The assumed rate of interest that will influence the present value of a cash flow to be received in the future is referred to as the discount rate.

The time value of money is the principle that a dollar received today is worth less than a dollar received in the future.

Financial managers at O'Hally Corporation have computed the net present value for a capital budgeting proposal and found the value to be $1,500. Based on this value,the financial managers are likely to approve this proposal.

When financial managers compare cash flows that occur at different times, they should take the time value of money into account.

Sally Meadows works for Swictek Industries. Her primary responsibilities include management of the firm's working capital and the analysis of long term investment opportunities for Swictek. Sally is a part of the firm's _____