Introduction to Financial Management

A financial manager must choose between four alternative Assets 1, 2, 3, and 4. Each asset costs $35,000 and is expected to provide earnings over a 3-year period as described below:

Asset 1: Year 1 - $21,000 ; Year 2 - $15,000 ; Year 3 - $6,000

Asset 2: Year 1 - $9,000 ; Year 2 - $15,000 ; Year 3 - $21,000

Asset 3: Year 1 - $3,000 ; Year 2 - $20,000 ; Year 3 - $19,000

Asset 4: Year 1 - $6,000 ; Year 2 - $12,000 ; Year 3 - $12,000

Which asset would the financial manager choose?

• Asset 1

• Asset 2

• Asset 3

• Asset 4

When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to increase the firms profitability.

• True

• False

Wealth maximization as the goal of the firm implies enhancing the wealth of

• the Board of Directors.

• the firm's employees.

• the government.

• the firm's shareholders.

These are the factors that influence market price of the corporation's stocks which are controllable by management, EXCEPT:

• dividends

• competent management

• profitability

• macroeconomic conditions

The highest policy making body in a corporation.

• Shareholders

• Board of Directors

• Chief Executive Officer

• President

The following are among the responsibilities of VP for Administration, EXCEPT:

• Coordinating functions of finance and marketing departments.

• Providing assistance in payroll preparation, payment of vendors, and collection of receivables.

• Identifying adequate and cheap raw material suppliers.

• Assisting other departments in hiring employees.

The role of the VP for Finance is to determine the appropriate capital structure of the company.

• True

• False

This is one of the functions of a Financial Manager which include making decisions on how to fund long term investment and working capital.

• Financing

• Investing

• Operating

• Dividend policies

Intermediaries that channel the savings of individuals, businesses, and government into loans of investment.

• Private Placements

• Financial Institutions

• Public Offering

• Financial Market

The key participants in financial transactions are individuals, businesses, and government. Individuals are net ___ of funds, and businesses are net ___ of funds.

• suppliers; users

• purchasers; sellers

• users;suppliers

• users; providers