Financial Management Exam # 1 Solved
Correctly To Score A+ 2025 Verified
goal of financial management CORRECT ANSWERS maximize stock price, maximize
shareholder wealth
agency problems CORRECT ANSWERS managers are supposed to act as agents on
behalf of shareholders but own < 100% of the outstanding common stock
what makes managers act in shareholders best interest? CORRECT ANSWERS
possibility of promotion
threat of being fired
threat of hostile takeover
SEC rule change CORRECT ANSWERS exec. pay reporting must be clearer and more
comprehensive
corporate responsibility relation to value maximization CORRECT ANSWERS socially
responsible actions can be costly but still enhance firm value
financial market CORRECT ANSWERS mechanism for bringing borrowers and lenders
together
money market CORRECT ANSWERS short term debt securities
capital market CORRECT ANSWERS equity (stock) and longer term debt securities
primary market CORRECT ANSWERS original sale of securities by govt and corp.
secondary market CORRECT ANSWERS sales of securities after initial issue
balance sheet CORRECT ANSWERS assets: liabilities+owners equity
liquidity CORRECT ANSWERS ability of asset to be quickly converted to cash with little
or no loss of value
liquidity trade off CORRECT ANSWERS liquid assets reduce probability of financial
distress but yield smaller returns
financial decision of fixed assets CORRECT ANSWERS capital budgeting decision
financial decision of current assets and current liabilities CORRECT ANSWERS working
capital decision
, financial decision of debt and equity CORRECT ANSWERS capital structure decision,
dividend policy/pay out decision
do we want to look at market or book value? CORRECT ANSWERS market
Dividend payout ratio CORRECT ANSWERS dividends paid/ net income
retention ratio/ plowback ratio CORRECT ANSWERS 1-DPR, % of net income that is
retained
earnings per share CORRECT ANSWERS net income/ shares outstanding
dividends per share CORRECT ANSWERS dividends paid/ shares outstanding
EBIT CORRECT ANSWERS earnings before interest and taxes, equals operating
income
EBITDA CORRECT ANSWERS earnings before interest and taxes and depreciation
expense
EBT CORRECT ANSWERS earnings before interest and taxes - interest expense
NOPAT CORRECT ANSWERS EBIT-taxes : EBIAT
why will accounting income and cash flow differ? CORRECT ANSWERS the recording
of rev and exp might not match timing of cash flows
non cash items like dep. exp. have no affect on cash flow
sources of cash on balance sheet CORRECT ANSWERS decreases in assets,
increases in equity and liabilities
uses of cash on balance sheet CORRECT ANSWERS increases in assets
decreases in equity and liabilities
cash flow from assets CORRECT ANSWERS cash flow to creditors + cash flow to
stockholders
net working capital CORRECT ANSWERS current assets - current liab.
change in NWC CORRECT ANSWERS end NWC- beg. NWC
net capital spending CORRECT ANSWERS end net fixed assets- beg. net fixed assets
+ dep. expense
Sarbanes- Oxley Act of 2002 CORRECT ANSWERS ceos/ cfos must certify financial
statements
Correctly To Score A+ 2025 Verified
goal of financial management CORRECT ANSWERS maximize stock price, maximize
shareholder wealth
agency problems CORRECT ANSWERS managers are supposed to act as agents on
behalf of shareholders but own < 100% of the outstanding common stock
what makes managers act in shareholders best interest? CORRECT ANSWERS
possibility of promotion
threat of being fired
threat of hostile takeover
SEC rule change CORRECT ANSWERS exec. pay reporting must be clearer and more
comprehensive
corporate responsibility relation to value maximization CORRECT ANSWERS socially
responsible actions can be costly but still enhance firm value
financial market CORRECT ANSWERS mechanism for bringing borrowers and lenders
together
money market CORRECT ANSWERS short term debt securities
capital market CORRECT ANSWERS equity (stock) and longer term debt securities
primary market CORRECT ANSWERS original sale of securities by govt and corp.
secondary market CORRECT ANSWERS sales of securities after initial issue
balance sheet CORRECT ANSWERS assets: liabilities+owners equity
liquidity CORRECT ANSWERS ability of asset to be quickly converted to cash with little
or no loss of value
liquidity trade off CORRECT ANSWERS liquid assets reduce probability of financial
distress but yield smaller returns
financial decision of fixed assets CORRECT ANSWERS capital budgeting decision
financial decision of current assets and current liabilities CORRECT ANSWERS working
capital decision
, financial decision of debt and equity CORRECT ANSWERS capital structure decision,
dividend policy/pay out decision
do we want to look at market or book value? CORRECT ANSWERS market
Dividend payout ratio CORRECT ANSWERS dividends paid/ net income
retention ratio/ plowback ratio CORRECT ANSWERS 1-DPR, % of net income that is
retained
earnings per share CORRECT ANSWERS net income/ shares outstanding
dividends per share CORRECT ANSWERS dividends paid/ shares outstanding
EBIT CORRECT ANSWERS earnings before interest and taxes, equals operating
income
EBITDA CORRECT ANSWERS earnings before interest and taxes and depreciation
expense
EBT CORRECT ANSWERS earnings before interest and taxes - interest expense
NOPAT CORRECT ANSWERS EBIT-taxes : EBIAT
why will accounting income and cash flow differ? CORRECT ANSWERS the recording
of rev and exp might not match timing of cash flows
non cash items like dep. exp. have no affect on cash flow
sources of cash on balance sheet CORRECT ANSWERS decreases in assets,
increases in equity and liabilities
uses of cash on balance sheet CORRECT ANSWERS increases in assets
decreases in equity and liabilities
cash flow from assets CORRECT ANSWERS cash flow to creditors + cash flow to
stockholders
net working capital CORRECT ANSWERS current assets - current liab.
change in NWC CORRECT ANSWERS end NWC- beg. NWC
net capital spending CORRECT ANSWERS end net fixed assets- beg. net fixed assets
+ dep. expense
Sarbanes- Oxley Act of 2002 CORRECT ANSWERS ceos/ cfos must certify financial
statements
