#1
What is the primary goal of financial management in a corporation?
Maximizing shareholder wealth
ExplanationEnhancing value for company owners.
#2
Which financial statement provides a snapshot of a company's financial position at a specific point in time?
Balance sheet
ExplanationSummary of assets, liabilities, and equity.
#3
What is the concept of 'working capital' in financial management?
The difference between current assets and current liabilities
ExplanationMeasure of liquidity and operational efficiency.
#4
What does the term 'capital structure' refer to in financial management?
The proportion of debt and equity used to finance operations
ExplanationComposition of financing sources.
#5
What is the purpose of a cash flow statement in financial reporting?
To detail the sources and uses of cash during a specific period
ExplanationOverview of cash inflows and outflows.
#6
Which of the following represents the formula for calculating Return on Investment (ROI)?
(Ending Value - Beginning Value) / Beginning Value
ExplanationMeasure of profitability relative to initial investment.
#7
What does the term 'capital budgeting' refer to in corporate finance?
Assessing long-term investment opportunities
ExplanationEvaluation of potential long-term investments.
#8
What is the concept of 'time value of money' in finance?
Future cash flows are worth less than present cash flows
ExplanationRecognition that money has greater value today than in the future.
#9
Which of the following is NOT a common financial ratio used for analyzing a company's performance?
Marketing-to-sales ratio
ExplanationNot a standard metric for financial analysis.
#10
Which financial tool is used to measure a company's profitability relative to its total assets?
Return on Assets (ROA)
ExplanationIndicator of efficiency in asset utilization.
#11
What is the primary purpose of financial leverage?
To magnify the returns to shareholders
ExplanationAmplifying shareholder returns using debt.
#12
What is the formula for calculating the Weighted Average Cost of Capital (WACC)?
(Cost of Debt * (1 - Tax Rate)) + (Cost of Equity * Weight of Equity)
ExplanationAverage rate of return a company expects to pay to all its investors.
#13
What does the 'efficient market hypothesis' suggest regarding stock prices?
Stock prices fully reflect all available information
ExplanationPrices reflect all known information.
#14
What does the Modigliani-Miller theorem state about capital structure?
It suggests that capital structure has no impact on a firm's value
ExplanationCapital structure doesn't affect firm value under certain conditions.