LSUS MHA 706 MIDTERM EXAMINATION: A COMPREHENSIVE
STUDY GUIDE COVERING FINANCIAL MANAGEMENT, CAPITAL
STRUCTURE, AND HEALTHCARE OPERATIONS WITH VERIFIED
ANSWERS AND RATIONALES
1. Which one of the following is a working capital decision?
a.) How should the firm raise additional capital to fund its expansion?
b.) What debt-equity ratio is best suited to the firm?
c.) What is the cost of debt financing?
d.) Should the firm borrow money for five or ten years?
e.) How much cash should the firm keep in reserve?
Correct Answer: e.) How much cash should the firm keep in reserve?
Rationale: Working capital decisions involve managing short-term assets
and liabilities, such as cash, inventory, and accounts receivable.
Determining how much cash to keep in reserve directly impacts the
firm's liquidity and day-to-day operations. Decisions about raising
capital, debt-equity ratios, cost of debt, and borrowing terms relate to
capital structure and long-term financing.
2. Which one of the following is a capital structure decision?
a.) Determining the optimal inventory level
b.) Establishing the preferred debt-equity level
c.) Selecting new equipment to purchase
d.) Setting the terms of sale for credit sales
e.) Determining when suppliers should be paid
Correct Answer: b.) Establishing the preferred debt-equity level
,Rationale: Capital structure decisions concern how a firm finances its
operations and growth using different sources of funds, specifically the
mix of debt and equity. Establishing the preferred debt-equity level
directly addresses this mix. Inventory management, equipment
purchases, credit terms, and supplier payments relate to working
capital or capital budgeting decisions.
3. Working capital management includes which one of the following?
a.) Deciding which new projects to accept
b.) Deciding whether to purchase a new machine or fix a currently
owned machine
c.) Determining which customers will be granted credit
d.) Determining how many new shares of stock should be issued
e.) Establishing the target debt-equity ratio
Correct Answer: c.) Determining which customers will be granted
credit
Rationale: Working capital management involves managing current
assets and liabilities. Determining credit policies for customers affects
accounts receivable, a key component of working capital. Capital
budgeting decisions involve project acceptance and equipment
purchases (a, b), while capital structure decisions involve issuing stock
and debt-equity ratios (d, e).
4. The daily financial operations of a firm are primarily controlled by
managing the:
a.) total debt level
b.) working capital
c.) capital structure
d.) capital budget
e.) long-term liabilities
,Correct Answer: b.) working capital
Rationale: Working capital management oversees the firm's short-term
assets and liabilities, directly influencing daily operations like cash flow,
inventory, and receivables. Total debt, capital structure, capital budget,
and long-term liabilities are concerned with long-term financing and
investment decisions.
5. One advantage of the corporate form of organization is the:
a.) taxation of the corporate profits.
b.) unlimited liability for its shareholders.
c.) double taxation of profits.
d.) ability to raise larger sums of equity capital than other organizational
forms.
e.) ease of formation compared to other organizational forms.
Correct Answer: d.) ability to raise larger sums of equity capital than
other organizational forms.
Rationale: Corporations can issue stock to a wide range of investors,
allowing them to raise substantial equity capital more easily than sole
proprietorships or partnerships. Double taxation (c) and taxation of
profits (a) are disadvantages, and shareholders have limited liability, not
unlimited (b).
6. The Sarbanes-Oxley Act of 2002 has:
a.) reduced the annual compliance costs of all publicly traded firms in
the U.S.
b.) decreased senior management's involvement in the corporate
annual report.
c.) greatly increased the number of U.S. firms that are going public for
the first time.
d.) decreased the number of U.S. firms going public on foreign
, exchanges.
e.) essentially made officers of publicly traded firms personally
responsible for the firm's financial statements.
Correct Answer: e.) essentially made officers of publicly traded firms
personally responsible for the firm's financial statements.
Rationale: Sarbanes-Oxley holds CEOs and CFOs personally accountable
for the accuracy of financial statements, increasing their involvement
and liability. It has generally increased compliance costs, not decreased
them.
7. The primary goal of financial management is most associated with
increasing the:
a.) dollar amount of each sale
b.) traffic flow within the firm's stores
c.) fixed costs while lowering the variable costs
d.) firm's liquidity
e.) market value of the firm
Correct Answer: e.) market value of the firm
Rationale: The primary goal of financial management is to maximize
shareholder wealth, which is reflected in the market value of the firm's
stock. While increasing sales or liquidity may be intermediate
objectives, they are not the ultimate goal.
8. Which one of the following best describes the primary intent of the
Sarbanes-Oxley Act of 2002?
a.) Decrease the number of corporations that can be publicly traded
b.) Increase the protections against corporate fraud
c.) Limit secondary issues of corporate securities
d.) Increase the dividends paid to shareholders
e.) Increase the number of firms that "go dark"
STUDY GUIDE COVERING FINANCIAL MANAGEMENT, CAPITAL
STRUCTURE, AND HEALTHCARE OPERATIONS WITH VERIFIED
ANSWERS AND RATIONALES
1. Which one of the following is a working capital decision?
a.) How should the firm raise additional capital to fund its expansion?
b.) What debt-equity ratio is best suited to the firm?
c.) What is the cost of debt financing?
d.) Should the firm borrow money for five or ten years?
e.) How much cash should the firm keep in reserve?
Correct Answer: e.) How much cash should the firm keep in reserve?
Rationale: Working capital decisions involve managing short-term assets
and liabilities, such as cash, inventory, and accounts receivable.
Determining how much cash to keep in reserve directly impacts the
firm's liquidity and day-to-day operations. Decisions about raising
capital, debt-equity ratios, cost of debt, and borrowing terms relate to
capital structure and long-term financing.
2. Which one of the following is a capital structure decision?
a.) Determining the optimal inventory level
b.) Establishing the preferred debt-equity level
c.) Selecting new equipment to purchase
d.) Setting the terms of sale for credit sales
e.) Determining when suppliers should be paid
Correct Answer: b.) Establishing the preferred debt-equity level
,Rationale: Capital structure decisions concern how a firm finances its
operations and growth using different sources of funds, specifically the
mix of debt and equity. Establishing the preferred debt-equity level
directly addresses this mix. Inventory management, equipment
purchases, credit terms, and supplier payments relate to working
capital or capital budgeting decisions.
3. Working capital management includes which one of the following?
a.) Deciding which new projects to accept
b.) Deciding whether to purchase a new machine or fix a currently
owned machine
c.) Determining which customers will be granted credit
d.) Determining how many new shares of stock should be issued
e.) Establishing the target debt-equity ratio
Correct Answer: c.) Determining which customers will be granted
credit
Rationale: Working capital management involves managing current
assets and liabilities. Determining credit policies for customers affects
accounts receivable, a key component of working capital. Capital
budgeting decisions involve project acceptance and equipment
purchases (a, b), while capital structure decisions involve issuing stock
and debt-equity ratios (d, e).
4. The daily financial operations of a firm are primarily controlled by
managing the:
a.) total debt level
b.) working capital
c.) capital structure
d.) capital budget
e.) long-term liabilities
,Correct Answer: b.) working capital
Rationale: Working capital management oversees the firm's short-term
assets and liabilities, directly influencing daily operations like cash flow,
inventory, and receivables. Total debt, capital structure, capital budget,
and long-term liabilities are concerned with long-term financing and
investment decisions.
5. One advantage of the corporate form of organization is the:
a.) taxation of the corporate profits.
b.) unlimited liability for its shareholders.
c.) double taxation of profits.
d.) ability to raise larger sums of equity capital than other organizational
forms.
e.) ease of formation compared to other organizational forms.
Correct Answer: d.) ability to raise larger sums of equity capital than
other organizational forms.
Rationale: Corporations can issue stock to a wide range of investors,
allowing them to raise substantial equity capital more easily than sole
proprietorships or partnerships. Double taxation (c) and taxation of
profits (a) are disadvantages, and shareholders have limited liability, not
unlimited (b).
6. The Sarbanes-Oxley Act of 2002 has:
a.) reduced the annual compliance costs of all publicly traded firms in
the U.S.
b.) decreased senior management's involvement in the corporate
annual report.
c.) greatly increased the number of U.S. firms that are going public for
the first time.
d.) decreased the number of U.S. firms going public on foreign
, exchanges.
e.) essentially made officers of publicly traded firms personally
responsible for the firm's financial statements.
Correct Answer: e.) essentially made officers of publicly traded firms
personally responsible for the firm's financial statements.
Rationale: Sarbanes-Oxley holds CEOs and CFOs personally accountable
for the accuracy of financial statements, increasing their involvement
and liability. It has generally increased compliance costs, not decreased
them.
7. The primary goal of financial management is most associated with
increasing the:
a.) dollar amount of each sale
b.) traffic flow within the firm's stores
c.) fixed costs while lowering the variable costs
d.) firm's liquidity
e.) market value of the firm
Correct Answer: e.) market value of the firm
Rationale: The primary goal of financial management is to maximize
shareholder wealth, which is reflected in the market value of the firm's
stock. While increasing sales or liquidity may be intermediate
objectives, they are not the ultimate goal.
8. Which one of the following best describes the primary intent of the
Sarbanes-Oxley Act of 2002?
a.) Decrease the number of corporations that can be publicly traded
b.) Increase the protections against corporate fraud
c.) Limit secondary issues of corporate securities
d.) Increase the dividends paid to shareholders
e.) Increase the number of firms that "go dark"
