FIN2603 TEST BANK 2021

Chapter 1: The financial goal of a firm Any organisation that is managed in accordance with business principles should be able to ensure its survival because it will ... A. maximise its revenue from sales and control its expenses. B. plan its cash inflows and outflows by means of a cash budget. C. keep its cost of financing as low as possible. D. undertake all the above-mentioned financial measures. Answer Key: D Current liabilities can be viewed as ... A. debts that mature in one year or less. B. debts that mature in more than one year. C. sources of cash inflows. D. irrelevant in calculating net working capital. Answer Key: A During periods where the consumer price index (CPI) is expected to decrease, a retail firm will have to ... A. relax credit standards due to a decline in sales, a decrease in bad debts and a slowdown of cash outflow. B. expand due to declining interest rates, an increase in sales and improved feasibility of investment opportunities. C. apply credit standards more strictly due to declining interest rates, increase in sales, but a slowdown of cash inflow. D. budget more conservatively as a result of rising interest rates, a decline in sales and an increase in bad debts. Answer Key: B Finance can be defined as the ... A. system of debits and credits. B. art and science of managing money. C. art of merchandising products and services. D. science of the production, distribution and consumption of wealth. Answer Key: B If the company's managers are NOT owners of the company, they are ... A. outsiders. B. traders. C. dealers. D. agents. Answer Key: D 2020 Semester 2 – FIN2603 Study Group One method often used by companies to ensure that management decisions are in the best interest of the shareholders is to ... A. have a shareholder meeting once a year. B. threaten to fire managers who do not performing adequately. C. tie management compensation to the performance of the company share price. D. tie management compensation to the level of earnings per share. Answer Key: D The best way in which a firm may improve its profitability would involve ... A. reducing expenditure on non-core business activities. B. employing fewer permanent staff and using contract workers during peak periods. C. increasing sales by means of improved marketing. D. selling all its non-core assets Answer Key: A The long-term financial goal of the firm may be achieved by ... A. maximising revenue and minimising expenses. B. minimising the cost of capital and maximising the internal rate of return (IRR). C. maximising the assets relative to the liabilities. D. accelerating cash inflows. Answer Key: B The long-term financial goal of the firm may be achieved by ... A. maximising revenue and minimising expenses. B. minimising the cost of capital and maximising return (IRR). C. maximising the assets relative to the liabilities. D. accelerating cash inflows. Answer Key: B The primary goal of a publicly-owned firm interested in serving its shareholders should be to ... A. minimise the debt used by the firm. B. maximise the EPS. C. maximise the share price. D. maximise the expected net income. Answer Key: B The primary short-term financial goal of the firm may be best achieved by ... A. maximising revenue and minimising expenses. B. minimising the cost of capital and maximising the internal rate of return (IRR). C. increasing expenses in order to reduce the firm’s tax liability. D. accelerating cash inflows and delaying cash outflows. E. Answer Key: A What financial securities are likely to be traded on the JSE Limited? 2020 Semester 2 – FIN2603 Study Group A. Ordinary shares B. Treasury bills C. Commercial paper D. Company bonds Answer Key: A What is the main function of a financial manager? A. To prevent bad debts. B. To ensure liquidity and solvency. C. To increase the value of ordinary shares. D. To earn returns greater than those of the competitors. Answer Key: C Which of the following is a career opportunity in managerial finance? A. Investment management B. Real estate and insurance C. Capital expenditures management D. Personal financial planning Answer Key: C Which of the following is not a responsibility of the treasurer of an organisation? A. Raising the necessary funds for the organisation in order to be sustainable and grow. B. Doing the tax payments for the organisation. C. Conducting and executing capital budgeting activities. D. Formulating and the credit policy of the organisation. Answer Key: B Which source of the following funds are the most likely to be relayed on by small firms? A. Long-term debt B. Equity C. Preference shares D. Short-term debt Answer Key: D Which stakeholders have the first claim on assets when a organisation enters bankruptcy? A. Creditors B. Top management C. Debtors D. Shareholders Answer Key: A Who is/are the true owner(s) of an organisation? A. The board of directors. B. The chief executive officer. C. The shareholders. D. The creditors. Answer Key: C