CHAPTER 1 : THE ROLE & OBJECTIVE OF FINANCIAL MANAGEMENT

Question 1

What does statement of financial position include ( NI)

Answer 1

-> accounting equation
-> assets and liabilities

Question 2

what does the income statement include ( NI)

Answer 2

->income and expenses
-> profit

Question 3

what are the 3 decisions faces by financial managers

Answer 3

• investment decision
  -financing decisions
  -dividends decisions

Question 4

is machinery a long term acquired asset

Answer 4

-> yes , and inventory is working capital

Question 5

what does issuing bonds mean

Answer 5

a loan that you take with the creditors

Question 6

define accounts receivables

Answer 6

bought/received goods but no payment yet

Question 7

define accounts payable

Answer 7

things a company bought/received but hasn’t paid for yet

Question 8

what is the main goal a manager needs to think about when making investment , financing and dividend decisions

Answer 8

shareholder wealth maximization

Question 9

to maximize present value of expected future cash flows -> to achieve shareholder wealth maximizing -> need to think of :

Answer 9

amount of expected future cash flows
timing of expected future cash flows
the risk of expected future cash flows

Question 10

what are agency problems

Answer 10

problem can sometimes occurred due to separation of owners and management -> management may want to maximize its own welfare instead of its shareholder’s

Question 11

what are agency costs , and give examples

Answer 11

are costs involved with solving the agency problems
-> examples of solutions :
- paying management incentives ( stock options)
- monitoring performance using audits
- have multiple managers -> no overpower
- protective covenants -> capital rationing

Question 12

define capital rationing

Answer 12

Capital rationing is the practice of restricting the amount of money a company invests in various projects, often due to budget constraints or financial limitations.