MGM101 Chapter 13 - Financial Decisions
and Risk Management Exam Questions and
100% Correct Answers
The Role of the Financial Manager - ANSWER Financial Mangers plan and control the
acquisition and distribution of the company's financial assets
Finance (corporate finance) typically involves four responsibilities - ANSWER 1. Determining a
firm's long-term investments
2. Obtaining funds to pay for those investments
3. Conducting the firms' everyday financial activities
4. Managing the risks that the firm takes
Finance - ANSWER The business function involving decisions about a firm's long-term
investments and obtaining the funds to pay for those investments
Objectives of the Financial Manager - ANSWER A financial mangers overall objective is to
increase a firm's value and stockholder's wealth. Unlike accountants, who create data to reflect
a firm's financial status, financial managers must ensure that the company is making a profit.
Cash-flow management - ANSWER Managing the pattern in which cash flows into the firm in the
form of revenues and out of the firm in the form of debt payments.
Financial Control - ANSWER The Process of checking actual performance against plans to ensure
that the desired financial status is achieved (i.e., planned revenues based on forecasts can be
inaccurate due to the unpredictable nature of sales.)
Financial Planning - ANSWER The cornerstone of effective financial management is the
development of a Financial Plan
Financial Plan - ANSWER A description of how a business will reach some financial position it
seeks for the future; includes projections for sources and uses of funds.
When constructing a financial plan, several questions must be answered - ANSWER 1. What
funds are needed to meet immediate plans?
, 2. When will the firm need more funds?
3. Where can the firm get the funds to meet both its short- and long-term needs
Short-Term (Operating) Expenditures - ANSWER A firm incurs short-term expenditures regularly
in its everyday business activities
Accounts payable - ANSWER Unpaid bills owed to suppliers plus wages and taxes due within a
year (largest category of short-term debt).
Accounts Receivable - ANSWER Funds due from customers who have bought on credit. Because
accounts receivables represent an investment in products for which a firm has not yet received
payment, they temporarily tie up its funds. A financial plan requires financial managers to
project accurately both how much credit is advanced to buyers, and when they will make
payments.
credit policies - ANSWER Predicting payment schedules is a function of credit policy - the rules
governing a firm's extension of credit to customers (i.e., 2/10, net 30 means that the selling
company offers a 2% discount if the customer pays within 10 days, and the regular price if they
pay within 30 days).
Inventories - ANSWER Materials and goods currently held by the company that will be sold
within the year (too little - cost a firm sales, too much - tied-up funds that cannot be used
elsewhere).
raw materials - ANSWER Basic supplies a firm buys to use in its production processes (i.e.,
denim for Levi Strauss)
work-in-process inventory - ANSWER Goods partway through the production process (i.e., cut-
out but not-yet-sewn jeans)
Finished-goods inventory - ANSWER Items that are ready for sale (i.e., completed blue jeans)
Long-Term (Capital) Expenditures - ANSWER Companies need funds to cover long-term
expenditures for fixed assets such as land, buildings, and machinery. Long-term expenditures
are more carefully planned than short-term outlays because the form poses special problems
trade credit - ANSWER The granting of credit by a selling firm to a buying firm
Open-Book Credit ("gentlemen's agreement) - ANSWER Buyers receive merchandise along with
invoices stating credit terms. Sellers ship products on faith that payment will be forthcoming
Promissory notes (legally binding) - ANSWER The agreement states when and how much money
will be paid to the seller
and Risk Management Exam Questions and
100% Correct Answers
The Role of the Financial Manager - ANSWER Financial Mangers plan and control the
acquisition and distribution of the company's financial assets
Finance (corporate finance) typically involves four responsibilities - ANSWER 1. Determining a
firm's long-term investments
2. Obtaining funds to pay for those investments
3. Conducting the firms' everyday financial activities
4. Managing the risks that the firm takes
Finance - ANSWER The business function involving decisions about a firm's long-term
investments and obtaining the funds to pay for those investments
Objectives of the Financial Manager - ANSWER A financial mangers overall objective is to
increase a firm's value and stockholder's wealth. Unlike accountants, who create data to reflect
a firm's financial status, financial managers must ensure that the company is making a profit.
Cash-flow management - ANSWER Managing the pattern in which cash flows into the firm in the
form of revenues and out of the firm in the form of debt payments.
Financial Control - ANSWER The Process of checking actual performance against plans to ensure
that the desired financial status is achieved (i.e., planned revenues based on forecasts can be
inaccurate due to the unpredictable nature of sales.)
Financial Planning - ANSWER The cornerstone of effective financial management is the
development of a Financial Plan
Financial Plan - ANSWER A description of how a business will reach some financial position it
seeks for the future; includes projections for sources and uses of funds.
When constructing a financial plan, several questions must be answered - ANSWER 1. What
funds are needed to meet immediate plans?
, 2. When will the firm need more funds?
3. Where can the firm get the funds to meet both its short- and long-term needs
Short-Term (Operating) Expenditures - ANSWER A firm incurs short-term expenditures regularly
in its everyday business activities
Accounts payable - ANSWER Unpaid bills owed to suppliers plus wages and taxes due within a
year (largest category of short-term debt).
Accounts Receivable - ANSWER Funds due from customers who have bought on credit. Because
accounts receivables represent an investment in products for which a firm has not yet received
payment, they temporarily tie up its funds. A financial plan requires financial managers to
project accurately both how much credit is advanced to buyers, and when they will make
payments.
credit policies - ANSWER Predicting payment schedules is a function of credit policy - the rules
governing a firm's extension of credit to customers (i.e., 2/10, net 30 means that the selling
company offers a 2% discount if the customer pays within 10 days, and the regular price if they
pay within 30 days).
Inventories - ANSWER Materials and goods currently held by the company that will be sold
within the year (too little - cost a firm sales, too much - tied-up funds that cannot be used
elsewhere).
raw materials - ANSWER Basic supplies a firm buys to use in its production processes (i.e.,
denim for Levi Strauss)
work-in-process inventory - ANSWER Goods partway through the production process (i.e., cut-
out but not-yet-sewn jeans)
Finished-goods inventory - ANSWER Items that are ready for sale (i.e., completed blue jeans)
Long-Term (Capital) Expenditures - ANSWER Companies need funds to cover long-term
expenditures for fixed assets such as land, buildings, and machinery. Long-term expenditures
are more carefully planned than short-term outlays because the form poses special problems
trade credit - ANSWER The granting of credit by a selling firm to a buying firm
Open-Book Credit ("gentlemen's agreement) - ANSWER Buyers receive merchandise along with
invoices stating credit terms. Sellers ship products on faith that payment will be forthcoming
Promissory notes (legally binding) - ANSWER The agreement states when and how much money
will be paid to the seller
