Number 1: Which of the following questions are addressed by financial managers? I.

How
should a product be marketed? II. Should customers be given 30 or 45 days to pay for their
credit purchases? III. Should the firm borrow more money? IV. Should the firm acquire
new equipment?

A.I and IV only.

[Link] and III only.

C.I, II, and III only.

[Link], III, and IV only.

E.I, II, III, and IV.

Answer:
Option D: II, III, IV only
Explanation for the correct option:
Financial managers primarily deal with the financial aspects of a business, such as managing
cash flows, the number of credit days given to customers, investing in assets, and financing
operations. Therefore, the questions addressed by any financial manager include options II, III,
and IV.
Explanation for incorrect options:
Option A: It takes into account the financial manager addressing how a product should be
marketed, which ideally pertains to marketing, which is not primarily the responsibility of a
financial manager.
Option B: This excludes an important option, which is addressing whether the firm should
acquire new equipment, as this involves a capital expenditure decision, it must ideally be taken
by the financial manager. Financial managers may evaluate the cost and benefit of acquiring new
equipment, such as analyzing the expected return on investment (ROI), and the payback period
for the equipment. They may also consider alternative options such as leasing equipment, to
determine a cost-effective approach.
Option C: Making a decision on how to market a product ideally relates to marketing, which
does not fall under the purview of a financial manager. While marketing decisions may affect a
company’s financial performance, they are not directly related to financial management.
Option E: A financial manager does not make any marketing decisions regarding a product.
Marketing decisions are usually made by the marketing department, however, the financial
manager provides financial support and guidance to the marketing team, rather than making
marketing decisions themselves.

Number 2: Which one of the following is a capital budgeting decision?

a. deciding whether or not to purchase a new machine for the production line

b. deciding how to refinance a debt issue that is maturing

c. determining how much inventory to keep on hand

d. determining how many shares of stock to issue

e. determining how much money should be kept in the checking account

Capital Budgeting Decision
A capital budgeting decision refers to the process of evaluating and selecting long-term
investment projects that involve significant cash outflows. It involves determining whether or not
to invest in projects that will yield returns over an extended period.
Out of the options provided, the capital budgeting decision is:
a. Deciding whether or not to purchase a new machine for the production line
This decision involves evaluating the cost of the machine, estimating the expected cash flows it
will generate, and comparing it to the initial investment. By considering factors such as the
machine's useful life, maintenance costs, and potential revenue increase, the decision-maker can
determine if the investment is financially viable.
The other options mentioned are not capital budgeting decisions:
b. Deciding how to refinance a debt issue that is maturing - This is a financing decision, not a
capital budgeting decision. It involves determining the best way to repay existing debt
obligations.
c. Determining how much inventory to keep on hand - This is an operational decision related to
inventory management, not a capital budgeting decision.
d. Determining how many shares of stock to issue - This is a financing decision, specifically
related to equity financing, not a capital budgeting decision.
e. Determining how much money should be kept in the checking account - This is a working
capital management decision, not a capital budgeting decision. It involves managing the day-to-
day cash flow needs of a business.

Number 3: Which one of the following is a capital structure decision?

Select one:

a. determining how to allocate investment funds to multiple projects

b. determining which one of two projects to accept

c. determining how much debt should be assumed to fund a project

d. determining how much inventory will be needed to support a project

e. determining the amount of funds needed to finance customer purchases of a new product
The correct answer is c. determining how much debt should be assumed to fund a project.
Capital structure decisions involve determining the mix of debt and equity financing that a
company will use to fund its operations and projects. This decision includes determining the
appropriate level of debt that should be assumed to finance a project. The other options
mentioned in the question are not directly related to capital structure decisions.
Number 4: Which one of the following terms is defined as a conflict of interest between the
corporate shareholders and the corporate managers?

A. Articles of incorporation.

B. Corporate breakdown.

C. Agency problem.

D. Bylaws.

E. Legal liability.
Answer
The correct option is C.
Explanation
The agency problem relates to the disagreement between the shareholders (principal) and the
managers (agents). This mostly arises due to the presence of a conflict of interest between the
both parties.
Wrong Options
Option A - Articles of incorporation, a legal document, establishes and outlines the basic
information about the organization. It is not related to any sort of conflict.
Option B - Corporate breakdown is a term used in reference to significant corporation failure or
crises, not necessarily between shareholders and the managers of the corporation.
Option D - Bylaws are a group of rules and guidelines that abide by the internal activities of an
organization.
Option E - Legal liability is the lawful responsibility of the company for its actions and
omissions, it does not necessarily relates to the conflict of interest.

Number 5: Which of the following accounts are included in working capital management?
I. Accounts Payable II. Accounts Receivable III. Fixed Assets IV. Inventory A.I and II only.
B.I and III only. [Link] and IV only. D.I, II, and IV only. [Link], III, and IV only.
Answer-
The correct choice is option D- I, II, and IV only.
Explanation-
Working capital management is the set of actions performed by a firm to assure that it got
adequate resources for daily operating expenses.
Working capital management involves inventory management, accounts receivable management,
and accounts payable management. It also includes accounts payable timing (i.e., paying
suppliers).
Thus, working capital management includes the accounts of accounts receivable, accounts
payable, and inventory.
Wrong options-
Option A- This option is not true as working capital management also involves inventory.
Option B- Fixed assets accounts are not included in the working capital management.
Option C- This option is not true as working capital management also involves accounts payable.
Option E- Working capital management only includes current assets, not fixed assets.