ASU FIN 300 EXAM 1 (CH 1-4) | 125 QUESTIONS AND
ANSWERS | WITH COMPLETE SOLUTIONS.
Three areas of finance: Answer - 1. *Financial Management*
-buying/selling of assets
-financing choices
-control costs
2. *Investments*
-purchasing and holding assets & securities
-stocks and bonds
3. *Financial Markets*
-capital markets
-money markets
-financial intermediaries (banks or credit unions)
Productive assets Answer - the long-term tangible and intangible *assets* a
firm uses *to generate cash flows*
Tangible = equipment etc.
intangible = patents, trademarks, technical experience
when purchase productive assets = *capital budgeting*
Financial Managers should make decisions that maximize Answer - the *value
of the owner's stock*
,which helps maximize the *owner's wealth* (the economic value of the assets
the owners possesses)
Stakeholder Answer - anyone other than the owner (stockholder) with a claim
on the cash flows of a firm (employees, customers, creditors, suppliers, the
government)
3 fundamental decisions in financial management Answer - a. *Capital
budgeting*- which productive assets to buy
b. *Financing decisions*- raising money to buy more p assets, mainly through
selling long term *debt and equity*
c. *Working capital* decisions- involve how firms *manage their current assets
and liabilities*. Enough money to *pay the bills* and any money left over is
invested to earn a return
Capital Budgeting Answer - *which productive assets* the firm *should
purchase* and how much money the firm can afford to spend
*long term assets* on balance sheets/investments/ productive assets both
tangible and intangible
Financing decisions Answer - how firms raise cash to pay for their iterm-
55nvestments
ex: productive assets financed by long term borrowing or equity investment
debt financing - advantage=tax deductable
but increase firms risk because contractual obligation to make interest
payments
, equity- has no maturity/guarantee of payments.
*long term liability (debt) and equity*
Working capital management decisions Answer - how to manage the firm's
*current assets and current liabilities*
*day to day* management of short term asserts and liabilities
-mismanagement cause firm to go into debt/*bankruptcy*
-*profitability affected*
Capital structure Answer - the mix of debt and equity that is used to finance a
firm
Net working capital Answer - the dollar difference between total current assets
and total current liabilities
Capital Markets Answer - financial markets where equity and debt instruments
with maturities greater than one year are traded
Residual Cash Flow Answer - cash remaining after a firm has paid operating
expenses and what it owes creditors and taxes, can be distributed to owners as
cash dividend or by repurchasing shares or reinvested into business
Cash flows between firms and stake/stockholders Answer - A. Cash flows
generated by productive assets through sale of goods/services → management
invests in current and productive long term assets → cash paid as wages, to
ANSWERS | WITH COMPLETE SOLUTIONS.
Three areas of finance: Answer - 1. *Financial Management*
-buying/selling of assets
-financing choices
-control costs
2. *Investments*
-purchasing and holding assets & securities
-stocks and bonds
3. *Financial Markets*
-capital markets
-money markets
-financial intermediaries (banks or credit unions)
Productive assets Answer - the long-term tangible and intangible *assets* a
firm uses *to generate cash flows*
Tangible = equipment etc.
intangible = patents, trademarks, technical experience
when purchase productive assets = *capital budgeting*
Financial Managers should make decisions that maximize Answer - the *value
of the owner's stock*
,which helps maximize the *owner's wealth* (the economic value of the assets
the owners possesses)
Stakeholder Answer - anyone other than the owner (stockholder) with a claim
on the cash flows of a firm (employees, customers, creditors, suppliers, the
government)
3 fundamental decisions in financial management Answer - a. *Capital
budgeting*- which productive assets to buy
b. *Financing decisions*- raising money to buy more p assets, mainly through
selling long term *debt and equity*
c. *Working capital* decisions- involve how firms *manage their current assets
and liabilities*. Enough money to *pay the bills* and any money left over is
invested to earn a return
Capital Budgeting Answer - *which productive assets* the firm *should
purchase* and how much money the firm can afford to spend
*long term assets* on balance sheets/investments/ productive assets both
tangible and intangible
Financing decisions Answer - how firms raise cash to pay for their iterm-
55nvestments
ex: productive assets financed by long term borrowing or equity investment
debt financing - advantage=tax deductable
but increase firms risk because contractual obligation to make interest
payments
, equity- has no maturity/guarantee of payments.
*long term liability (debt) and equity*
Working capital management decisions Answer - how to manage the firm's
*current assets and current liabilities*
*day to day* management of short term asserts and liabilities
-mismanagement cause firm to go into debt/*bankruptcy*
-*profitability affected*
Capital structure Answer - the mix of debt and equity that is used to finance a
firm
Net working capital Answer - the dollar difference between total current assets
and total current liabilities
Capital Markets Answer - financial markets where equity and debt instruments
with maturities greater than one year are traded
Residual Cash Flow Answer - cash remaining after a firm has paid operating
expenses and what it owes creditors and taxes, can be distributed to owners as
cash dividend or by repurchasing shares or reinvested into business
Cash flows between firms and stake/stockholders Answer - A. Cash flows
generated by productive assets through sale of goods/services → management
invests in current and productive long term assets → cash paid as wages, to
