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MOS 1023 Final Exam Practice Questions and Answers

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MOS 1023 Final Exam Practice Questions and Answers What is finance? - ANSWER-the science or study of the management of funds The goal of the firm - ANSWER-create value for the firm's shareholders How does the firm achieve their main goal? - ANSWER-By maximizing the price of the existing common...

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Copyright © KAYLIN 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH NOVEMBER, 2024

MOS 1023 Final Exam Practice Questions

and Answers

What is finance? - ANSWER✔✔-the science or study of the management of funds

The goal of the firm - ANSWER✔✔-create value for the firm's shareholders

How does the firm achieve their main goal? - ANSWER✔✔-By maximizing the price of the existing

common stock by making good financial decisions

Contractual claims - ANSWER✔✔-entitled to what their entitled to, if they don't get it they can sue,

Creditors, managers, employees and customers

Residual claims - 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 - ANSWER✔✔-arbitrator and moderator

Three basic issues addressed by the study of finance - ANSWER✔✔-capital budgeting decision, capital

structure decision, operating decision

Capital budgeting decision - 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 - ANSWER✔✔-How should the firm raise money to fund these investments?

Ex. issue more or less stocks, pay dividends, issue bonds, borrow from bank

Copyright ©Stuvia International BV 2010-2024 Page 1/15

, Copyright © KAYLIN 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH NOVEMBER, 2024

Operating decision - 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 - 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 - 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 - 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 - 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 - ANSWER✔✔-P = Fn/(1+r)^n

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