Financial Management Questions and Answers, Exams of Financial Management

Download Financial Management Questions and Answers and more Exams Financial Management in PDF only on Docsity! fina 230 - financial management Questions and Answers What is the acronym denoting priority of mathematical operation? - correct answer BEDMAS Brackets, Exponents, Division and Multiplication, Addition and Subtraction. What is capital budgeting? - correct answer Planning and managing a firm's investment in long-term assets. Capital structure refers to? - correct answer The financing of long-term investments. Does a firm go into foreign markets, issue stock... What is Working Capital Management? - correct answer Planning and managing the firm's current assets and liabilities. It is a day-to-day activity. What are the five types of business organizations? - correct answer 1. Sole proprietorship 2. Partnerships 3. Corporations (Apple, Coca-cola...) 4. Income trust 5. Co-op (Mountain Equipment Co-op...) fina 230 - financial management Questions and Answers What is the most common form of business organization in Canada? In terms of sheer size, what is the most important for of business organization in Canada? - correct answer - Sole proprietorships -Corporations What are the 3 main disadvantages of sole proprietorship? - correct answer 1- Unlimited liability (personal assets, not just business assets, are liable to be seized). 2- Such a business organization is limited to the lifespan of the owner. 3- Transfer of ownership is often complicated, often necessitates the selling of the entire business Pros and cons of sole proprietorship, partnerships and corporations? - correct answer What is a controller? - correct answer Head accountant, of sorts. A controller is a person who manages a firm's entire accounting activities (cost accounting, financial accounting, taxes and data processing). My role - sort of - at PAD. fina 230 - financial management Questions and Answers Income statement/statement of earnings - Summary of a firm's revenues and expenses during a specified accounting period. Its main purpose is to showcase profitability. A balance sheet is a snapshot of a firm's financial well- being whereas an income statement is video. On a balance sheet, assets are listed in order of? - correct answer Liquidity What is the best financial statement to determine a firm's ability to repay financial obligations? Why is cash flow from assets a fawned-upon metric? - correct answer -Cash flow statement -Gives you the amount available to be given back to shareholders or owners. What is owner's equity? - correct answer TE or OE = TA - TL The monetary amount that a firm does not need to pay back (how much is left over to owners if all obligations are to be paid back) fina 230 - financial management Questions and Answers What is Net Working Capital? - correct answer current assets - current liabilities. Denotes short-term capital that can be utilized by firm - the bigger, the better and ideally should be positive. In the advent of a bankruptcy, who gets paid first? - correct answer Debt holders What is earnings per share (EPS)? - correct answer Net Income (NI) divided by number of shares EPS is a metric used by financial analyst to determine profit relative to number of shares. Define capital gains (losses)? - correct answer When an investment is worth more (less) than what one paid for it. What % of realized capital gains are taxed in Canada? What % of dividends are taxed in Canada? - correct answer 50% fina 230 - financial management Questions and Answers What does the fancy name capital cost allowance (CCA) actually mean? - correct answer Depreciation of assets for tax purposes. It is a tax-shield. What is the difference between market value and book value? - correct answer Market value is, well, market value and book value is value based on historical cost (what it cost you at the time of purchase). How to calculate Current Ratio? - correct answer CA/CL CR ratio of 2 is thought to be desirable/optimal. Measures whether or not a firm has enough resources to meet its short-term obligations How to calculate Quick Ratio? - correct answer (CA- Inventory)/CL Firm has CL covered x times over. Gives a measure of inventory. How to calculate Cash Ratio? - correct answer (Cash + Cash Equivalents)/CL A measure of how much cash a firm has on hand relative to short-term liabilities. fina 230 - financial management Questions and Answers What is APR? - correct answer Annual Percentage Rate, interest per period * number of periods in a year. IMP: Does not take into account compounding. What is EAR? - correct answer Effective Annual Rate IMP: Takes into account compounding. Calculated as (APR/n)^n What is a bond indenture? - correct answer the underlying contract between the company issuing bonds (borrowers) and the bondholders (lenders). What is a call provision? What is a call premium? - correct answer -A provision in a bond contract that gives the issuer the right to repurchase the bonds under specified terms prior to the maturity date. -Call Premium = call price + stated value the amount by which the call price exceeds the face value of a bond fina 230 - financial management Questions and Answers What does a credit worthiness score of D mean? - correct answer Bankruptcy or insolvency What are the different types of bonds? - correct answer -Zero-Coupon bonds: bonds pays no coupon interest (although declares it for tax purposes), but priced at an initial price discount -Floating rate bond: coupon rate fixed to some short-term rate -Income bond: coupon payments varies on firm's income -Asset backed bonds: backed by illiquid assets such as mortgages -Real return bond: coupons and principal indexed to inflation -Convertible bonds: bondholder has option to convert bond for fixed # of common shares at any time before maturity - Callable bond: bond that can be repurchased at stated price before maturity -Put bond: Bondholder has option to sell back bond at specified price before maturity Which bond price is reported by news outlets? fina 230 - financial management Questions and Answers What is clean price? Dirty price? - correct answer - Clean price -Clean price is bond price without accrued interest (hence price is lower) Dirty price is bond price with accrued interest, i.e the fraction of interest payment that has passed in between last coupon payment and date of purchase How much is one basis point? - correct answer One basis point is 1/100th of 1%. As market interest rates increase, the value of a bond will __________ ,all other things equal. - correct answer decrease What is a consol bond? How to calculate PV of it? What does it resemble? - correct answer A bond with no maturity date PV = Coupon/int rate |||| It resembles a perpetuity All other things equal, the longer the time to maturity, the _________ the interest rate risk