MOS 1023 Final Exam UPDATED ACTUAL Questions and CORRECT Answers
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Course
MOS 1023
Institution
MOS 1023
MOS 1023 Final Exam UPDATED
ACTUAL Questions and CORRECT
Answers
What is finance? - CORRECT ANSWER- the science or study of the management of
funds
The goal of the firm - CORRECT ANSWER- create value for the firm's shareholders
How does the firm achieve their main goal? - CORRECT ANSWER- B...
MOS 1023 Final Exam UPDATED
ACTUAL Questions and CORRECT
Answers
What is finance? - CORRECT ANSWER- ✔✔the science or study of the management of
funds
The goal of the firm - CORRECT ANSWER- ✔✔create value for the firm's shareholders
How does the firm achieve their main goal? - CORRECT ANSWER- ✔✔By maximizing the
price of the existing common stock by making good financial decisions
Contractual claims - CORRECT ANSWER- ✔✔entitled to what their entitled to, if they don't
get it they can sue, Creditors, managers, employees and customers
Residual claims - CORRECT ANSWER- ✔✔Claim is against whatever is left, after paying
what people are contractually owed. This is what shareholders have.
Management serves as a ____ and ____ between conflicting interest groups or stakeholders
and objectives - CORRECT ANSWER- ✔✔arbitrator and moderator
Three basic issues addressed by the study of finance - CORRECT ANSWER- ✔✔capital
budgeting decision, capital structure decision, operating decision
Capital budgeting decision - CORRECT ANSWER- ✔✔What long-term investments should
the firm undertake? Ex. do we open a factory, expand into Europe, create a new product
Capital structure decision - CORRECT ANSWER- ✔✔How should the firm raise money to
fund these investments? Ex. issue more or less stocks, pay dividends, issue bonds, borrow
from bank
Operating decision - CORRECT ANSWER- ✔✔How to manage cash flows arising from
day-to-day operations? Ex. what to do with all money, how best to use extra cash for one day
, Cycle in the function of financial manager - CORRECT ANSWER- ✔✔1.a) raising funds
financial markets -> financial manager
1.b) Obligations stock, debt, security financial manager -> financial markets
2. Investments financial manager-> operations (plant,equipment, projects)
3. Cash from operational activities operations ->financial manager
4. reinvesting financial manager-> financial manager
5. dividend or interest payment (instead of reinvesting) financial manager ->financial markets
6 principles of finance - CORRECT ANSWER- ✔✔cashflow is what matters, Money has
time value, Risk requires reward, market prices are generally right, conflicts of interest cause
agency problem, Ethics and trust in bussiness
Principle 1: Cash flow is what matters - CORRECT ANSWER- ✔✔Finance only care about
the cashflow Why? Because its pure. They can have profits but still go bankrupt. When
businesses grow too fast, their income statements look good but they go bankrupt. vice versa,
no profits but a lot of cash flow.
Principle 2: Money has time value - CORRECT ANSWER- ✔✔A dollar received today is
worth more than a dollar received in the future.
Since we can earn interest on money received today, it is better to receive money sooner
rather than later.
Equation for finding the original value of a bond before the interest - CORRECT ANSWER-
✔✔P = Fn/(1+r)^n
The net present value Method: to determine net present value we.. 3 - CORRECT ANSWER-
✔✔calculate the present value of cash inflows, calculate the present value of cash outflows,
subtract the present value of outflows from the present value of inflows
If the net present value is positive then the project is.. - CORRECT ANSWER-
✔✔acceptable, since it promises a return greater than the required rate of return
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