CPCU 540 - Chapter 1 Practice Questions with Correct Answers
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Course
CPCU 540
Institution
CPCU 540
Identify the relationship between a corporate finance department and accounting Responsibilities of a Corporate finance department typically include: Acquiring, investing, and managing a companies financial resources, as well as conducting some accounting activities.
What types of information ca...
CPCU 540 - Chapter 1 Practice Questions with Correct Answe rs Identify the relationship between a corporate finance department and accounting ✅Responsibilities of a Corporate finance department typically include: Acquiring, investing, and managing a companies financial resources, as well as conducting some accounting activities. What types of information can a producer or risk management professional identify by examining an organizations financial Statement? ✅Potential loss exposures or financial liabilities that are neither insured nor adequately addressed by risk management techniques. Can also reveal trends in an organizations financial performances signalling potential problems or growth opportunities Define Stakeholder ✅Anyone with Financial Interest in the Corporation What was the Sarbanes Oxley Act of 2002 ✅Federal Statutory Law governing Corporate Directors in the areas of investor protection internal controls and penalties in both Civil and Criminal What are the 3 main goals of corporate finance and accounting? ✅To maximize shareholder wealth Provide transparency in financial reporting Conduct Financial Operations in an ethical manner What are 3 Problems that can result from a business focusing on an overall financial goal of maximizing profits? ✅1. Focusing on current profits to the detriment of Long Term Profitability 2. Not accounting for the level of risk associated with different profit scenarios 3. Electing accounting treatments that make financial statements less useful to potential investors What is Financial Transparency as it relates to a board of directors duty to shareholders? ✅The most important role of the Board of Directors is to ensure that management is acting in the best interests of the company. Financial Management must create financial transparency for the board and shareholders by providing access to timely, understanda ble, informative, and accurate financial reporting that contains full disclosure of key events and accounting methods. What was the purpose and major provisions of the Sarbanes Oxley Act of 2002 regarding financial reporting of US Corporations? ✅Protect Investors by improving accuracy and reliability of corporate disclosures including: - Creation of an oversight board to regulate public accounting - Enhanced financial Disclosure requirements - Increase in criminal penalties for Corporate Fraud & White Collar Crime - New requirements for certifying accuracy of financial Info What are some questions (3) that help determine whether a business decision is ethical? ✅1) Does my decision fall within the guidance of the corporations code of ethics? 2) Am I willing to have my decision and reasoning reported on the front page of the newspaper or lead story on evening TV news report? 3) Will people with whom I have relations with approve of my decision? If an underwriter notices that the net income of a corporation has improved over previous years, but the costs for repairs and maintenance have dropped from previous years, are the insured's activities meeting the goals of corporate finance and accounting? Explain. ✅Although in the short term the bottom line grew, both of these actions of not performing maintenance/repairs can reduce the useful life of the equipment and be more expensive in the long run by decreasing efficiency. This does not meet the goal of maximizi ng shareholder wealth in the long run. Define Capital Structure ✅Corporations mix of long term debt and equity Define Capital Budgeting ✅The planning and managing of a Corporations Long Term Investments What are the responsibilities of Corporate Finance Departments ✅Acquiring, investing, and managing the organizations financial resources and providing financial information that internal and external stakeholders need to make informed decisions. Explain working capital management and its importance to a corporation ✅It focuses on a corporations short term needs for cash and other resources. By maintaining an adequate amount of working capital, a corporation can meet its day to day financial obligations and operate its business efficiently by being able to provide need ed resources without delay. What two major decisions must a financial manager make regarding the capital structure? ✅1) How much capital will be financed by borrowing and how much will be raised through sale of stock in a corporation? 2) What specific financial vehicles will be used to raise capital? Describe the two categories of assets financial managers invest in when performing capital budgeting ✅It is the planning and managing of a corporations long term investments. These investments can be for tangible assets or they can be for intangible assets
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