FINANCIAL MANAGEMENT EXAM QUESTIONS
AND ANSWERS 100% CORRECT!!
, goal of financial management - ANSWER maximize stock price, maximize shareholder
wealth
agency problems - ANSWER 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? - ANSWER possibility of
promotion
threat of being fired
threat of hostile takeover
SEC rule change - ANSWER exec. pay reporting must be clearer and more
comprehensive
corporate responsibility relation to value maximization - ANSWER socially responsible
actions can be costly but still enhance firm value
financial market - ANSWER mechanism for bringing borrowers and lenders together
money market - ANSWER short term debt securities
capital market - ANSWER equity (stock) and longer term debt securities
primary market - ANSWER original sale of securities by govt and corp.
secondary market - ANSWER sales of securities after initial issue
balance sheet - ANSWER assets: liabilities+owners equity
liquidity - ANSWER ability of asset to be quickly converted to cash with little or no loss
of value
liquidity trade off - ANSWER liquid assets reduce probability of financial distress but
yield smaller returns
financial decision of fixed assets - ANSWER capital budgeting decision
financial decision of current assets and current liabilities - ANSWER working capital
decision
retention ratio/ plowback ratio - ANSWER 1-DPR, % of net income that is retained
AND ANSWERS 100% CORRECT!!
, goal of financial management - ANSWER maximize stock price, maximize shareholder
wealth
agency problems - ANSWER 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? - ANSWER possibility of
promotion
threat of being fired
threat of hostile takeover
SEC rule change - ANSWER exec. pay reporting must be clearer and more
comprehensive
corporate responsibility relation to value maximization - ANSWER socially responsible
actions can be costly but still enhance firm value
financial market - ANSWER mechanism for bringing borrowers and lenders together
money market - ANSWER short term debt securities
capital market - ANSWER equity (stock) and longer term debt securities
primary market - ANSWER original sale of securities by govt and corp.
secondary market - ANSWER sales of securities after initial issue
balance sheet - ANSWER assets: liabilities+owners equity
liquidity - ANSWER ability of asset to be quickly converted to cash with little or no loss
of value
liquidity trade off - ANSWER liquid assets reduce probability of financial distress but
yield smaller returns
financial decision of fixed assets - ANSWER capital budgeting decision
financial decision of current assets and current liabilities - ANSWER working capital
decision
retention ratio/ plowback ratio - ANSWER 1-DPR, % of net income that is retained
