CHAPTER 1: NATURE, PURPOSE AND SCOPE OF FINANCIAL MANAGEMENT

REVIEW QUESTION

1. The purpose of financial management is to increase profit in order to provide added value to the
owners. It is concerned with the acquisition of long-term and short-term finances, the mobilization of
money through financial instruments, and the compliance with legal and regulatory requirements. As
well as assisting in decision-making processes such as investing, financing, and dividend distribution.

2. Finance utilized accounting statements to make judgments about how to use assets and manage
liabilities in order to plan for the company's future growth. Accounting, on the other hand, is concerned
with recording and summarizing the entity's transactions and occurrences.

3. The shareholder wealth maximization aim is the management's goal in running the firm to offer a
higher return to owners, which may be assessed by stock price. It is a better aim since profit
maximization is simply one component in achieving a high return on investment, but the shareholders
are the ones who should benefit from it.

4. Stakeholders are the following:

Owners or shareholders are those who have invested money from their savings or excess money in a
surplus unit in order to get a better return.

Employees- assist in the management of the firm so that they may earn money via salary and invest in
the company where they work.

Customers are those who purchase a company's goods or services.

Suppliers: Suppliers provide support to the business by providing resources to be used in operations.
Government-implement policies that must be followed, such as paying taxes and reducing waste, in
order to be led in doing the right thing for the good of the people.

5. The conflict of interest between managers and shareholders may emerge as a result of management's
poor performance in maximizing its resources to best serve the owners' interests.

MULTIPLE CHOICE

1. C
2. B
3. C
4. C
5. D

CHAPTER 2: RELATIONSHIP OF FINANCIAL OBJECTIVES TO ORGANZATIONAL STRATEGY AND OTHER

REVIEW QUESTION

1. If I were the financial manager of a non-profit organization such as a hospital, my aims would be to
guarantee that my patients are adequately taken care of by giving financial assistance to them,
generating cash through donations, and ensuring the organization's long-term existence.

2. The conflict that financial managers face includes selecting whether or not to invest the business's
revenues, deciding whether or not to issue dividends, and procuring and employing resources. A
company may recruit the finest managers by paying them fairly for their accomplishments.

3. Knowledge of financial theory and statistical techniques can assist managers in addressing financial
issues by taking into account variables that contribute to the quandary and representing it via financial
data to assess, but they are only contributing in solving the problems. Before making a choice, the
financial manager must devise the optimal plan and consider all possible outcomes.

4. It is true that if a manager focuses on the present stock price, he or she may overestimate short-term
gains and miss out on the best long-term return. To maximize profits, consider the time value of
investment.

5. If the BOD wishes to reward the CEO by increasing shareholder wealth, it must be based on how well
the company does, and management as a whole should be compensated as well because it is a joint
effort. To forecast the company's future growth, performance must be measured by the rate of growth
in its intrinsic value.

MULTIPLE CHOICE

1. D
2. C
3. D
4. A
5. D

CHAPTER 3: FUNCTIONS OF FINANCIAL MANAGEMENT

REVIEW QUESTIONS

1. The treasurer and controller are two separate departments that subordinate to the chief financial
officer. The treasurer is the focal point of corporate finance since they are in charge of cash and credit
management, financial planning, and capital expenditures.

2. Yes, raising the value of stock shares may clash with other goals such as preventing unethical or
unlawful activity since it may place too much pressure on management. The management may declare
that the firm is operating well through its financial statements, even if the goal is to recruit additional
investors. For example, reducing employee perks to reduce expenditures in order to save more money
may have an impact on the employee's performance. Having that major objective must not jeopardize
our ethical and social responsibilities to others and to society as a whole.

3. When considering a foreign nation, the aim of enhancing the value of equity shares is the same, but
there are certain changes in the economic, social, and political conditions.

4. The CEO's salary is fair and just because the company is profitable as a result of the top executives'
and employees' effective management. Celebrities who excel in their fields are rewarded in the same
way.

5. In order for management and stockholders' to share the same aims, risk must be managed, needless
acts avoided, and the firm's integrity must be maintained.

MULTIPLE CHOICE

1. C

2. B

3. C

4. C

5. A

6. A
CHAPTER 4: BUSINESS ORGANIZATION AND TRENDS

REVIEW QUESTIONS

1. Sole proprietorship, partnership, and corporation are the three basic forms of business ownership.
The benefits of a sole proprietorship include ease of entrance and departure, full ownership or control,
tax savings, and minimal government requirements, while the negatives include limitless liability,
restrictions on raising capital, and a lack of continuity. The benefits of forming a partnership include
simplicity of creation, new sources of money, a managerial basis, and tax implications, but the
drawbacks include limitless liability, lack of continuity, difficulties transferring ownership, and limits on
obtaining capital. The benefits of forming a corporation include limited liability, unlimited life, ease of
transferring ownership, and the capacity to generate money, while the drawbacks include the time and
expense of creation, regulation, and the payment of high income taxes.

2. A sole proprietorship has a restricted capacity to obtain cash since it relies on its own assets or
resources and may not be able to borrow substantial sums of money. A partnership can raise more
capital through the contributions of its partners, but it may not be able to borrow a substantial sum of
money. Corporations can raise funds by selling assets such as stock or bonds.

3. The founder may lose control of the company due to bad performance, but this will not happen if he
or she hires or chooses a competent CEO to run the business and devise the best strategy to enhance
the company's performance.

4. The company is owned by the shareholders, and the owners have influence over the firm's
management by choosing the members of the board that appoints the firm's management. The dispute
may emerge as a result of distinct corporate control and ownership.

5. Statistics may be used to assist managers succeed by serving as a tool for gathering, evaluating, and
presenting data, allowing management to readily analyze the financial condition, performance, and
forecast the likely returns of each action.

MULTIPLE CHOICE

1. A

2. A

3. D