D076 OA Test Prep: Questions & Complete Solutions
What are long-term financial forecasts used for?
A. Developing savings, income, and expense strategies
B. Determining short-term operating needs
C. Cash budgeting
D. Making investment and financing decisions Right Ans - D. Making
investment and financing decisions
Correct! Whatever growth a firm anticipates must eventually be financed
one way or another. Any investment in capital that exceeds what the firm
retains from profit generates a discretionary financing need.
What does a net margin of 7% indicate?
A. For every dollar of revenue, 7 cents remain for the debt holders and
equity holders after all other costs are covered.
B. For every dollar of total assets, 7 cents are generated as sales.
C. For every dollar of fixed assets, 7 cents are generated in sales.
D. For every dollar of revenue, 7 cents remain for the equity holders after
all other costs are covered. Right Ans - D. For every dollar of revenue, 7
cents remain for the equity holders after all other costs are covered.
Correct! Net margin tells us the percentage of sales that will become net
income, which is the amount remaining for the equity holders.
Which area of finance involves deciding which assets to invest in to create
wealth in the future?
A. Financial management
B. Asset pricing
C. Financial institutions
D. Investments Right Ans - D. Investments
Correct! This area involves deciding which assets to invest in to create
wealth in the future.
What is the main goal of a firm?
,A. To make investment decisions
B. To circulate money in the economy
C. To maximize owner wealth
D. To make decisions on how to finance projects Right Ans - C. To
maximize owner wealth
Correct! The main goal of a firm is to maximize owner wealth, and the
financial manager should make decisions based on this goal.
What are financial managers doing if they evaluate whether it is worth
spending money on research and development for a new product?
A. Managing working capital
B. Making a financing decision
C. Making an investment decision
D. Implementing a financial policy Right Ans - C. Making an investment
decision
Correct! The financial manager assesses the costs and benefits of potential
investments in order to wisely use the investors' money.
Which type of financial market is where securities such as stocks and
bonds are traded after their initial issuance?
A. The initial public offering
B. The secondary financial market
C. The primary financial market
D. The dealer market Right Ans - B. The secondary financial market
Correct! Financial securities are first sold in the primary financial market
and then traded among investors in the secondary financial market.
What type of financial institution is an insurance company?
A. Depository
B. Investment
C. Contractual
D. Circulatory Right Ans - C. Contractual
,Correct! Insurance companies are contractual savings institutions.
Which financial institution invests funds contributed by a company to
provide retirement funds for the company's employees?
A. Mutual fund
B. Insurance
C. Pension fund
D. Central bank Right Ans - C. Pension fund
Correct! This is the role of pension funds.
Personal income is which type of economic indicator?
A. Coincident
B. Lagging
C. Unifying
D. Leading Right Ans - A. Coincident
Correct! Coincident indicators change as the economy changes.
Which term refers to something that conforms with accepted standards of
conduct that guide a person's behavior?
A. Moral
B. Standard
C. Legal
D. Ethical Right Ans - D. Ethical
Correct! Ethical refers to the accepted standards of conduct that guide a
person's behavior
What is the second step in finding a solution to an ethical dilemma?
A. Consider the consequences that may come from the action.
B. Identify and define the problem.
C. Consider alternative courses of action.
, D. Calculate the value added to the company. Right Ans - C. Consider
alternative courses of action
Correct! First, identify and define the problem. Then, consider alternative
courses of action.
How can agency problems be reduced through corporate control?
A. Setting strict goals
B. Accounting manipulations
C. Executive compensation
D. Acquisition of a foreign subsidiary Right Ans - C. Executive
compensation
Correct! By compensating the management team with stocks and stock
options, management may be willing to take on riskier projects. This
creates more value for the owners because riskier projects will increase the
value of financial securities.
What are the main services offered by financial institutions?
A. Evaluating sources of funding for a business project, the capital structure
of a firm, or actions managers could take to increase the value of the firm
B. Deciding which assets to invest in to create wealth in the future
C. Soliciting charitable donations and then managing the distribution of
these funds
D. Accepting a wide variety of deposits, offering investment products,
providing loans, and brokering financial transactions Correct! Financial
institutions such as banks, insurance companies, and mutual fund
companies provide these services. Right Ans - D. Accepting a wide
variety of deposits, offering investment products, providing loans, and
brokering financial transactions
Correct! Financial institutions such as banks, insurance companies, and
mutual fund companies provide these services.
What is the main objective of personal financial goals?
A. To maximize charity donations
What are long-term financial forecasts used for?
A. Developing savings, income, and expense strategies
B. Determining short-term operating needs
C. Cash budgeting
D. Making investment and financing decisions Right Ans - D. Making
investment and financing decisions
Correct! Whatever growth a firm anticipates must eventually be financed
one way or another. Any investment in capital that exceeds what the firm
retains from profit generates a discretionary financing need.
What does a net margin of 7% indicate?
A. For every dollar of revenue, 7 cents remain for the debt holders and
equity holders after all other costs are covered.
B. For every dollar of total assets, 7 cents are generated as sales.
C. For every dollar of fixed assets, 7 cents are generated in sales.
D. For every dollar of revenue, 7 cents remain for the equity holders after
all other costs are covered. Right Ans - D. For every dollar of revenue, 7
cents remain for the equity holders after all other costs are covered.
Correct! Net margin tells us the percentage of sales that will become net
income, which is the amount remaining for the equity holders.
Which area of finance involves deciding which assets to invest in to create
wealth in the future?
A. Financial management
B. Asset pricing
C. Financial institutions
D. Investments Right Ans - D. Investments
Correct! This area involves deciding which assets to invest in to create
wealth in the future.
What is the main goal of a firm?
,A. To make investment decisions
B. To circulate money in the economy
C. To maximize owner wealth
D. To make decisions on how to finance projects Right Ans - C. To
maximize owner wealth
Correct! The main goal of a firm is to maximize owner wealth, and the
financial manager should make decisions based on this goal.
What are financial managers doing if they evaluate whether it is worth
spending money on research and development for a new product?
A. Managing working capital
B. Making a financing decision
C. Making an investment decision
D. Implementing a financial policy Right Ans - C. Making an investment
decision
Correct! The financial manager assesses the costs and benefits of potential
investments in order to wisely use the investors' money.
Which type of financial market is where securities such as stocks and
bonds are traded after their initial issuance?
A. The initial public offering
B. The secondary financial market
C. The primary financial market
D. The dealer market Right Ans - B. The secondary financial market
Correct! Financial securities are first sold in the primary financial market
and then traded among investors in the secondary financial market.
What type of financial institution is an insurance company?
A. Depository
B. Investment
C. Contractual
D. Circulatory Right Ans - C. Contractual
,Correct! Insurance companies are contractual savings institutions.
Which financial institution invests funds contributed by a company to
provide retirement funds for the company's employees?
A. Mutual fund
B. Insurance
C. Pension fund
D. Central bank Right Ans - C. Pension fund
Correct! This is the role of pension funds.
Personal income is which type of economic indicator?
A. Coincident
B. Lagging
C. Unifying
D. Leading Right Ans - A. Coincident
Correct! Coincident indicators change as the economy changes.
Which term refers to something that conforms with accepted standards of
conduct that guide a person's behavior?
A. Moral
B. Standard
C. Legal
D. Ethical Right Ans - D. Ethical
Correct! Ethical refers to the accepted standards of conduct that guide a
person's behavior
What is the second step in finding a solution to an ethical dilemma?
A. Consider the consequences that may come from the action.
B. Identify and define the problem.
C. Consider alternative courses of action.
, D. Calculate the value added to the company. Right Ans - C. Consider
alternative courses of action
Correct! First, identify and define the problem. Then, consider alternative
courses of action.
How can agency problems be reduced through corporate control?
A. Setting strict goals
B. Accounting manipulations
C. Executive compensation
D. Acquisition of a foreign subsidiary Right Ans - C. Executive
compensation
Correct! By compensating the management team with stocks and stock
options, management may be willing to take on riskier projects. This
creates more value for the owners because riskier projects will increase the
value of financial securities.
What are the main services offered by financial institutions?
A. Evaluating sources of funding for a business project, the capital structure
of a firm, or actions managers could take to increase the value of the firm
B. Deciding which assets to invest in to create wealth in the future
C. Soliciting charitable donations and then managing the distribution of
these funds
D. Accepting a wide variety of deposits, offering investment products,
providing loans, and brokering financial transactions Correct! Financial
institutions such as banks, insurance companies, and mutual fund
companies provide these services. Right Ans - D. Accepting a wide
variety of deposits, offering investment products, providing loans, and
brokering financial transactions
Correct! Financial institutions such as banks, insurance companies, and
mutual fund companies provide these services.
What is the main objective of personal financial goals?
A. To maximize charity donations
