Financial Management

Topics in this chapter

• Financial Management Objectives
• Financial Planning and Capital Requirements
• Investment and Fixed Capital Decisions
• Financing and Capital Structure
• Business and Financial Risk
• Working Capital Management
• Dividend and Retained Earnings Decisions

Cheat sheet

Practice questions

1. Question 1Q-552B43

   A company is evaluating two projects and chooses the one expected to generate returns higher than its cost of capital. Which financial decision is primarily involved?

   1. A.Investment decision
   2. B.Financing decision
   3. C.Dividend decision
   4. D.Working capital management decision
   See the answer and solution
2. Question 2Q-79FECA

   Which objective of financial management is considered superior because it considers both the return and the risk associated with business decisions?

   1. A.Maximisation of sales
   2. B.Profit maximisation
   3. C.Wealth maximisation
   4. D.Maximisation of production
   See the answer and solution
3. Question 3Q-6B1ED0

   A company is considering raising a larger proportion of its funds through debt. Its expected return on investment is higher than the interest rate on debt. Which statement is most appropriate?

   1. A.Debt will always reduce the earnings available to equity shareholders.
   2. B.Debt may increase earnings per equity share, but it also increases financial risk.
   3. C.Debt has no effect on the financial risk of the company.
   4. D.Debt eliminates the need for equity shareholders’ funds.
   See the answer and solution
4. Question 4Q-A54B91

   Explain how investment, financing and dividend decisions are interrelated in financial management.

   See the answer and solution
5. Question 5Q-4852D8

   Which statement best describes the purpose of financial planning in a business?

   1. A.To determine the exact market share the business will achieve
   2. B.To estimate fund requirements and decide the sources and timing of funds
   3. C.To eliminate all business risks
   4. D.To fix the selling price of every product
   See the answer and solution