FIN 320F Exam 1 Study Set Latest
Update Graded A+
What is the primary goal of financial management?
To maximize shareholder wealth.
What is the difference between a primary market and a secondary market?
A primary market involves the initial issuance of securities, while a secondary ma...
FIN 320F Exam 1 Study Set Latest
Update Graded A+
What is the primary goal of financial management?
✔✔ To maximize shareholder wealth.
What is the difference between a primary market and a secondary market?
✔✔ A primary market involves the initial issuance of securities, while a secondary market
involves the trading of previously issued securities.
What is the purpose of financial statements in a business?
✔✔ To provide information about the financial performance and position of a company.
What does the term "liquidity" refer to in finance?
✔✔ The ability to convert an asset into cash quickly without significant loss of value.
What is the formula for calculating the future value of an investment?
✔✔ Future Value = Present Value × (1 + interest rate)^number of periods.
1
,How is "debt" different from "equity" in a company's capital structure?
✔✔ Debt represents borrowed funds that must be repaid, while equity represents ownership in
the company.
What is the role of a financial manager in a corporation?
✔✔ To make decisions that enhance the value of the firm for its shareholders.
What is "capital budgeting"?
✔✔ The process of planning and managing a company's long-term investments.
How does diversification affect investment risk?
✔✔ Diversification reduces the overall risk of a portfolio by spreading investments across
different assets.
What is the "time value of money" concept?
✔✔ Money today is worth more than the same amount in the future due to its potential earning
capacity.
2
,What is the "net present value" (NPV) of a project?
✔✔ The difference between the present value of cash inflows and the present value of cash
outflows.
What does the "return on equity" (ROE) measure?
✔✔ The profitability of a company in relation to shareholders' equity.
How do interest rates affect bond prices?
✔✔ When interest rates rise, bond prices generally fall, and when interest rates fall, bond prices
generally rise.
What is the "weighted average cost of capital" (WACC)?
✔✔ The average rate of return a company must pay to its security holders, weighted by the
proportion of each type of capital.
What is meant by "risk-return tradeoff"?
✔✔ The principle that potential return rises with an increase in risk.
3
, What is the "current ratio" used to assess?
✔✔ A company's ability to pay its short-term liabilities with its short-term assets.
How is "return on assets" (ROA) calculated?
✔✔ ROA = Net Income / Total Assets.
What does the "price-to-earnings ratio" (P/E ratio) indicate?
✔✔ The valuation of a company by comparing its current share price to its earnings per share.
What is the purpose of "financial leverage"?
✔✔ To increase the potential return on equity by using borrowed funds.
What is the "break-even point" in financial analysis?
✔✔ The level of sales at which total revenues equal total costs, resulting in neither profit nor
loss.
What is "working capital"?
✔✔ The difference between a company's current assets and current liabilities.
4
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