INTRODUCTION TO FINANCIAL MANAGEMENT QUIZ 1

Theories:

1. What is the primary goal of financial management?

a. Increase earnings
b. Maximizing cash flow
c. Maximizing shareholders’ wealth
d. Minimizing risk of the firm
2. Proper-risk return management means that
a. The firm should take as few risks as possible.
b. Consistent with the objectives of the firm, an appropriate trade-off between risk and return
should be determined.
c. The firm should earn highest return possible.
d. The firm should value future profits more highly than current profits.
3. Which of the following is not a major area of concern and emphasis in modern financial
management?
a. Inflation and its effect on profits
b. Stable short-term interest rates
c. Changing International environment
d. Increase reliance on debt
4. Which of the following is not a major area of concern and emphasis on modern financial
management?
a. Marginal analysis
b. Risk-return trade off
c. Commodity trading
d. Changing Financial institution
5. A financial manager’s goal of maximizing current or short-term earnings may not be appropriate
because
a. It fails to consider the timing of the benefits
b. Increased earnings may be accompanied by unacceptably higher level of risk
c. Earnings are subjective; they can be defined in various ways such as accounting or economic
earnings.
d. All of the given choices.
6. Which of the following statements is true?
a. The higher the profit of a firm, the higher the value of the firm is assured of receiving in the
market.
b. Social responsibility and profit maximization are synonymous.
c. Maximizing the earnings of the firm is the primary goal of financial management.
d. There are some serious problems with the financial goal of maximizing the earnings of the
firm.
7. Corporate social responsibility is
a. Effective enforced through the controls envisioned by classical economics.

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 b. The obligation to shareholders to earn a profit.
c. The duty to embrace service to the public interest.
d. The obligation to serve long-term organizational interests.
8. A common argument against corporate involvement in socially responsible behavior is that
a. It encourages government intrusion in decision making.
b. As a legal person, a corporation is accountable for its conduct.
c. It creates goodwill.
d. In a competitive market, such behavior incurs cost that place the company at a
disadvantage.
9. Which of the following statements is false?
a. Because socially desirable goals can impede profitability in many instances, managers
should not try to operate under the assumption of wealth maximization.
b. As finance emerged as a new field, much emphasis was placed on merges and acquisitions.
c. Timing is a particularly important consideration in financial decisions.
d. During the 1930s, the government assumed a much greater role in regulating the securities
industry.
10. Which of the following statements is false?
a. In the mid 1950s, finance began to change to a more analytical, decision oriented approach.
b. Recently, the emphasis of financial management has been on the relationships between risk
and returns.
c. Inflation has led to phantom profits and undervalued assets.
d. For as long as satisfactory level of profit is earned, the financial manager need to be
concerned with unethical behavior.
11. All of the following are functions of the financial manager except
a. Analyzing and planning the company’s performance.
b. Anticipating the company’s financial needs.
c. Assigning the market price of the company’s stock
d. Allocating funds to the most profitable asset
12. Which of the following statements is false?
a. The financing decision involves the process of allocating funds for investment in competing
assets.
b. The treasurer would be responsible for activities such as managing cash balances, granting
credit to customers and managing the process of issuing new securities.
c. The optimal structure is the best combination of long-term debt and equity.
d. It is necessary to determine the appropriate risk-return trade-off to maximize the market
value of the firm for its shareholders.
13. Regine is a financial manager who has discovered that her company is violating environmental
regulations. If her immediate superior is involved, her appropriate action is to
a. Do nothing since she has a duty of loyalty to the organization.
b. Consult to audit committee.
c. Present the matter to the next higher managerial level.
d. Confront her immediate superior.

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14. If a financial manager discovers unethical conduct in his/her organization and fails to act, he/she
will be in violation of which ethical standard(s)?
a. Actively or passively subvert the attainment of the organization’s legitimate and ethical
objectives.
b. Communicate unfavorable as well as favorable information.
c. Condone the commission of such acts by others within their organizations.
d. All of the answer are correct.
15. Integrity is an ethical requirement for all financial managers. One aspect for integrity requires
a. Performance of professional duties in accordance with applicable laws
b. Avoidance of conflict of interest
c. Refraining from improper use of inside information
d. Maintenance of an appropriate level of professional competence
16. A financial manager discovers a problem that could mislead users of the firm’s financial data and
has informed his/her immediate superior. He/she should report the circumstances to the audit
committee and/or the board of directors only if
a. The immediate superior, who reports to the chief executive officer, knows about the
situation but refuses to correct it.
b. The immediate superior assures the financial manager that the problem will be resolved.
c. The immediate superior reports the situation to his/her superior.
d. The immediate superior, the firm’s chief executive officer, knows about the situation but
refuses to correct it.
17. One of the major disadvantages of a sole proprietorship is
a. That there is unlimited liability to the owner
b. The simplicity of decision making
c. Low organizational costs.
d. Low operating costs.
18. The partnership form of organization
a. Avoids the double taxation of earnings and dividends found in the corporate form of
organization.
b. Usually provides limited liability to the partners.
c. Has unlimited life
d. Simplifies decision making.
19. A corporation is
a. Owned by stockholders who enjoy the privilege of the limited liability
b. Easily divisible between owners.
c. A separate legal entity with perpetual life
d. All of the above.

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