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D076- ALL UNIT TESTS QUESTIONS AND ANSWERS
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D076- ALL UNIT TESTS QUESTIONS AND ANSWERS
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D076- ALL UNITTESTS QUESTIONS
AND ANSWERS
What are the main services offered by financial institutions? - answer- Accepting a wide
variety of deposits, offering investment products, providing loans, and brokering
financial transactions
What is the main objective of personal financial goals? - answer- To maximize individual
utility
Which task does the financial manager of a firm perform that involves the issuance of
new stocks and bonds? - answer- Making financing decisions
Why is understanding the definition of finance important in managing personal
finances? - answer- It helps individuals compare the costs and benefits of an action to
determine whether to take that action.
In which type of market would a company issue bonds or stocks for the first time? -
answer- Primary market
Which type of financial institution is a mutual fund? - answer- Investment institution
Which financial institution specializes in managing and administering retirement funds? -
answer- Pension funds
,Which type of economic indicator is the consumer price index? - answer- Lagging
indicator
What does the term ethical refer to? - answer- The accepted standards of conduct that
guide a person's behavior
A company's officers and board of directors are selling their stocks in the firm at higher
prices due to false accounting reports that made the stock seem more valuable than it
truly was. Which ethical issue is occurring in this situation? - answer- Agency problem
due to conflicting interests
Which area of finance involves deciding which assets to invest in to create wealth in the
future? - answer- Investments
What is the main goal of a firm? - answer- To maximize owner wealth
What are financial managers doing if they evaluate whether it is worth spending money
on research and development for a new product? - answer- Making an investment
decision
What does inventory turnover assess? - answer- The inventory management of a firm
You are comparing the return on equity of Firm 1 and Firm 2. Both firms have an
identical profit margin and asset turnover, but Firm 1 has an overall higher return on
equity. What must be true? - answer- Firm 1 is using a higher proportion of debt to
finance its operations.
Which method of ratio analysis looks at a firm's performance over time? - answer- Trend
analysis
You are a financial analyst of an investment bank, and you are doing research on
equity. You are looking at a book publisher's financial ratios in comparison to its
competitors and the industry average. What is this an example of? - answer- Cross-
sectional analysis
Which type of ratio are suppliers interested in? - answer- Liquidity ratios
What is the ratio that tells you on average how long it takes for a firm to collect accounts
receivable? - answer- Average collection period
What does a debt ratio of 40% indicate? - answer- It indicates that 40% of assets are
financed by debt.
What is operating margin useful for? - answer- Comparing the profitability of firms with
different capital structures
, What does an average collection period of 70 tell you? - answer- On average, a firm
takes 70 days to collect accounts receivable.
What does high inventory turnover relative to the industry and competitors indicate? -
answer- The firm does not hold enough inventory and is making its customers wait
longer to receive their purchased goods.
What is the difference between return on assets (ROA) and return on equity (ROE)? -
answer- ROE considers the capital structure of a company, while ROA does not.
MiniCo recently spun off of BigCo. Both companies have the same leverage and asset
turnover ratios, but MiniCo is underperforming on its return on equity to shareholders. If
MiniCo would like to improve its return on equity, which action would help? - answer-
Reduce costs to improve its overall profitability.
What is the name for a forecast of short-term events that helps a company understand if
it has sufficient cash? - answer- Cash budget
What is the purpose of a monthly cash budget? - answer- To control cash inflows and
outflows so you can balance income with expenditures and savings
In which situation would a firm need to borrow cash? - answer- When the beginning
cash balance plus the net cash is less than the minimum cash balance required for the
month
How can you use the envelope method of budgeting to monitor cash flows? - answer-
Put the amount of money budgeted for each category of your expenses into labeled
envelopes and then spend the money in each envelope on expenses in that category.
How should you go about making changes to your budget? - answer- Prioritize the
changes you want to make and then implement them gradually one by one to make
sure they work.
You are a financial manager of a company. The marketing department has informed
you that the projected sales growth for the upcoming year is 15%. As you conduct
financial forecasting, you increase cash, accounts receivable, and inventory accounts
by 15%—the same as the projected sales growth. What type of accounts are these? -
answer- Spontaneous accounts
What does it mean when a firm's calculated discretionary financing needed (DFN) is
negative? - answer- The firm needs to consider getting extra financing from the bank.
Which account is a spontaneous account? - answer- Accounts payable
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