FIN3703 Assignment 1 Semester 2 Answers
2026 - Due 31 August 2026
1. What is the primary objective of financial management in a profit-seeking organisation?
A. Maximising the number of employees
B. Maximising shareholder wealth
C. Minimising all business expenses
D. Maximising sales revenue regardless of cost
Answer: B
Rationale: Financial management generally aims to maximise the long-term value or wealth of
the owners while considering risk and sustainable business performance.
2. Which financial decision concerns the selection of long-term assets?
A. Financing decision
B. Investment decision
C. Dividend decision
D. Working capital collection decision
Answer: B
Rationale: Investment decisions involve determining which projects and long-term assets the
firm should acquire.
3. The financing decision primarily concerns:
A. How profits should be distributed
B. Which customers should receive credit
C. How the firm should raise funds
D. How inventory should be counted
Answer: C
,Rationale: Financing decisions determine the appropriate sources of capital, including debt,
equity, and retained earnings.
4. An agency problem may arise when:
A. Managers' interests differ from shareholders' interests
B. A company earns a profit
C. Interest rates decrease
D. Inventory levels are reduced
Answer: A
Rationale: Agency problems occur when managers may make decisions that benefit themselves
rather than the owners of the company.
5. Which mechanism can help reduce agency problems?
A. Eliminating financial reporting
B. Performance-based management incentives
C. Preventing shareholders from voting
D. Increasing unnecessary expenditure
Answer: B
Rationale: Appropriate incentives can align management's interests more closely with
shareholder objectives.
6. The time value of money means that:
A. Money always loses value over time
B. A shilling today can be worth more than the same shilling received in the future
C. Future money has no value
D. Inflation does not affect investment decisions
Answer: B
Rationale: Money available today can potentially be invested and earn a return, making it
generally more valuable than an equivalent amount received later.
,7. Which of the following represents a cash inflow to a business?
A. Payment of salaries
B. Purchase of equipment
C. Collection from customers
D. Payment to suppliers
Answer: C
Rationale: Collecting money from customers brings cash into the business.
8. Financial planning is important because it helps an organisation:
A. Ignore future financial needs
B. Estimate funding requirements and allocate resources
C. Eliminate all financial risks
D. Avoid preparing budgets
Answer: B
Rationale: Financial planning helps management forecast future cash needs and make informed
investment and financing decisions.
9. Which stakeholder generally has ownership rights in a corporation?
A. Supplier
B. Shareholder
C. Customer
D. Government regulator
Answer: B
Rationale: Shareholders are the owners of a corporation and have residual claims on its
earnings and assets.
10. A financial manager should generally evaluate a project based on:
A. Personal preference
B. Its expected cash flows and associated risks
, C. The number of employees involved
D. The colour of the company's brand
Answer: B
Rationale: Capital investment decisions should focus on expected cash flows, timing, risk, and
their contribution to firm value.
11. Which of the following is a financial market function?
A. Connecting suppliers of funds with users of funds
B. Manufacturing products
C. Conducting employee interviews
D. Managing warehouse inventory
Answer: A
Rationale: Financial markets facilitate the transfer of funds between investors and organisations
requiring capital.
12. A primary market transaction occurs when:
A. Existing shares are traded between investors
B. New securities are issued for the first time
C. A customer purchases inventory
D. A company pays wages
Answer: B
Rationale: The primary market is where new securities are issued and capital is raised directly
by the issuing entity.
13. The secondary market primarily allows investors to:
A. Trade previously issued securities
B. Create accounting standards
C. Manufacture securities
D. Avoid investment risk completely
Answer: A
2026 - Due 31 August 2026
1. What is the primary objective of financial management in a profit-seeking organisation?
A. Maximising the number of employees
B. Maximising shareholder wealth
C. Minimising all business expenses
D. Maximising sales revenue regardless of cost
Answer: B
Rationale: Financial management generally aims to maximise the long-term value or wealth of
the owners while considering risk and sustainable business performance.
2. Which financial decision concerns the selection of long-term assets?
A. Financing decision
B. Investment decision
C. Dividend decision
D. Working capital collection decision
Answer: B
Rationale: Investment decisions involve determining which projects and long-term assets the
firm should acquire.
3. The financing decision primarily concerns:
A. How profits should be distributed
B. Which customers should receive credit
C. How the firm should raise funds
D. How inventory should be counted
Answer: C
,Rationale: Financing decisions determine the appropriate sources of capital, including debt,
equity, and retained earnings.
4. An agency problem may arise when:
A. Managers' interests differ from shareholders' interests
B. A company earns a profit
C. Interest rates decrease
D. Inventory levels are reduced
Answer: A
Rationale: Agency problems occur when managers may make decisions that benefit themselves
rather than the owners of the company.
5. Which mechanism can help reduce agency problems?
A. Eliminating financial reporting
B. Performance-based management incentives
C. Preventing shareholders from voting
D. Increasing unnecessary expenditure
Answer: B
Rationale: Appropriate incentives can align management's interests more closely with
shareholder objectives.
6. The time value of money means that:
A. Money always loses value over time
B. A shilling today can be worth more than the same shilling received in the future
C. Future money has no value
D. Inflation does not affect investment decisions
Answer: B
Rationale: Money available today can potentially be invested and earn a return, making it
generally more valuable than an equivalent amount received later.
,7. Which of the following represents a cash inflow to a business?
A. Payment of salaries
B. Purchase of equipment
C. Collection from customers
D. Payment to suppliers
Answer: C
Rationale: Collecting money from customers brings cash into the business.
8. Financial planning is important because it helps an organisation:
A. Ignore future financial needs
B. Estimate funding requirements and allocate resources
C. Eliminate all financial risks
D. Avoid preparing budgets
Answer: B
Rationale: Financial planning helps management forecast future cash needs and make informed
investment and financing decisions.
9. Which stakeholder generally has ownership rights in a corporation?
A. Supplier
B. Shareholder
C. Customer
D. Government regulator
Answer: B
Rationale: Shareholders are the owners of a corporation and have residual claims on its
earnings and assets.
10. A financial manager should generally evaluate a project based on:
A. Personal preference
B. Its expected cash flows and associated risks
, C. The number of employees involved
D. The colour of the company's brand
Answer: B
Rationale: Capital investment decisions should focus on expected cash flows, timing, risk, and
their contribution to firm value.
11. Which of the following is a financial market function?
A. Connecting suppliers of funds with users of funds
B. Manufacturing products
C. Conducting employee interviews
D. Managing warehouse inventory
Answer: A
Rationale: Financial markets facilitate the transfer of funds between investors and organisations
requiring capital.
12. A primary market transaction occurs when:
A. Existing shares are traded between investors
B. New securities are issued for the first time
C. A customer purchases inventory
D. A company pays wages
Answer: B
Rationale: The primary market is where new securities are issued and capital is raised directly
by the issuing entity.
13. The secondary market primarily allows investors to:
A. Trade previously issued securities
B. Create accounting standards
C. Manufacture securities
D. Avoid investment risk completely
Answer: A
