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Foundations of Financial Management 6/c/e
Foundations of Financial Management, 6/e
Stanley B. Block, Texas Christian University
Geoffrey A. Hirt, DePaul University and Mesirow Financial
J. Douglas Short, Northern Alberta Institute of Technology

The Goals and Functions of Financial Management

Multiple Choice Quiz


The field of finance is closely related to the fields of:
A)statistics and economics
B)statistics and risk analysis
C)economics and accounting
D)accounting and comparative return analysis

The first area of study to benefit from the focus in the 1950's to a more analytical, decision oriented approach was:
A)cash and inventory management
B)capital budgeting (allocating financial capital to the purchase of plant and equipment)
C)capital structure formulation (the balance between liabilities and equity)
D)dividend policy ( the relationship between dividends and earnings)

The ultimate measure of performance is:
A)the amount of the firm's earnings
B)how the earnings are valued by the investor
C)the firm's profit margin
D)return on the firm's total assets

Which of the following is not the responsibility of financial management?
A)allocation of funds to current and capital assets
B)obtaining the best mix of financing alternatives
C)preparation of the firm's accounting statements
D)development of an appropriate dividend policy

Which of the following are not among the daily activities of financial management?
A)sale of shares and bonds
B)credit management
C)inventory control
D)the receipt and disbursement of funds

A main benefit to the corporate form of organization is:
A)double taxation of corporate income
B)simplicity of decision making and low organizational complexity
C)limited liability for the corporate shareholders
D)a major management role exists for the firm's owners

In analyzing the firm, the investor should consider:
A)the risk inherent in the firm's operation
B)the time patterns over which the firm's earnings increase/decrease
C)the quality and reliability of the firm's reported earnings
D)all of the above should be considered

Agency theory examines the:
A)relationship between the owners and managers of the firm
B)insurability of the firm's assets
C)relationship between dividend policy and firm value
D)value of the firm relative to other firms in the industry

Financial markets:
A)exist as a vast global network of individuals and financial institutions
B)include a broad group representing lenders, borrowers, owners, institutional investors, corporations, government units and others
C)circulate information quickly that affects prices of securities
D)all of the above

Capital is allocated by financial markets by:
A)a lottery system between investment dealers
B)pricing securities based on their risk and expected future cash flows
C)by pricing risky securities higher than low-risk securities
D)by a government risk-rating system based on AAA for low risk and CCC for high risk

The allocation of capital is determined by:
A)expected rates of return
B)the Bank of Canada
C)the initial sale of securities in the primary market
D)the size of the federal debt

The mix of debt and equity in a firm is referred to as the firm's:
A)primary capital
B)capital composition
C)cost of capital
D)capital structure

The main focus of finance for the last 40 years has been:
A)mergers and acquisitions
B)conglomerate firms
D)risk-return relationships