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Finance Skills for Managers - D076 2024-2025: Questions and Verified Answers (Grade: A), Exams of Nursing

Sharda UniversityNursing

Finance Skills for Managers - D076 2024-2025: Questions and Verified Answers (Grade: A)

Typology: Exams

2023/2024

Available from 11/25/2024

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Finance Skills for Managers - D076 2024-2025: Questions
and Verified Answers (Grade: A)
1. Ethical Issues in Selling Stocks
A company's officers and board members are selling their stocks at inflated
prices based on inaccurate accounting reports that exaggerate the stock's
actual value. What ethical issue is present here?
oAnswer:Agency problem due to conflicting interests.(Thissituation
exemplifiesanagencyproblem,asmanagementengagesinearnings
manipulationtoattainhighercompensationrelatedtostockperformance.)
2. Evaluating Investments
Bobby's Books has tasked a financial analyst with assessing a potential
investment using a time value of money approach. Are there multiple
methods for this analysis?
oAnswer:Yes, both NPV and IRR methods can be utilized.(BothNetPresent
ValueandInternalRateofReturnincorporatethetimevalueofmoneyin
theirevaluations.)
3. Sales and Cash Received Discrepancy
A firm reports $100,000 in sales for the month but only receives $90,000 in
cash. What accounts for this discrepancy?
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Download Finance Skills for Managers - D076 2024-2025: Questions and Verified Answers (Grade: A) and more Exams Nursing in PDF only on Docsity!

Finance Skills for Managers - D076 2024-2025: Questions

and Verified Answers (Grade: A)

  1. Ethical Issues in Selling Stocks A company's officers and board members are selling their stocks at inflated prices based on inaccurate accounting reports that exaggerate the stock's actual value. What ethical issue is present here? o Answer: Agency problem due to conflicting interests. (This situation exemplifies an agency problem, as management engages in earnings manipulation to attain higher compensation related to stock performance.)
  2. Evaluating Investments Bobby's Books has tasked a financial analyst with assessing a potential investment using a time value of money approach. Are there multiple methods for this analysis? o Answer: Yes, both NPV and IRR methods can be utilized. (Both Net Present Value and Internal Rate of Return incorporate the time value of money in their evaluations.)
  3. Sales and Cash Received Discrepancy A firm reports $100,000 in sales for the month but only receives $90,000 in cash. What accounts for this discrepancy?

o Answer: Some sales were made on credit. (The difference arises because certain transactions were conducted on credit, with some amounts expected to be collected in future months.)

  1. Capital Budgeting Decision Factors Beckingham Sports is evaluating an overseas expansion after incurring $400,000 on a market study and $600,000 in consulting fees. They stand to gain an annual operating cash flow increase of $3,000,000 through this move. They spent $2,000,000 for land for a new factory, but an offer of $3,000,000 for the land has come in. What should be factored into their decision-making? o Answer: The $3,000,000 offer for the land. (Choosing to proceed with the project means forfeiting the opportunity to sell the land for $3,000,000, representing an opportunity cost.)
  2. Improving Accounts Receivable Management Firm A has an average collection period of 67 days, significantly higher than the industry standard of 40 days. What can they do to improve competitiveness in accounts receivable management? o Answer: Tighten credit standards for customers. (By enforcing stricter credit policies, the firm can reduce its average collection period.)
  3. Sunk Costs in Capital Investment Analysis How should sunk costs be treated in capital investment analysis?

o Answer: Primary market. (This market facilitates the initial issuance of securities.)

  1. Understanding Valuation Calculations As a manager, you discover that a financial analyst failed to indicate whether the NPV or IRR method was used in some valuation calculations, but all results are represented as percentages. What can be deduced? o Answer: The analyst used the IRR method. (Internal Rate of Return is expressed as a percentage, representing the rate of return of the investment.)
  2. Calculating Real Interest Rate If an investment has a nominal interest rate of 8% and an inflation rate of 3%, what is the real interest rate? o Answer: 5%. (Real rate = Nominal rate - Inflation, hence 8% - 3% = 5%.) Additional Topics and QuestionsServices of Financial Institutions o Main offerings include accepting deposits, providing investment products, issuing loans, and facilitating financial transactions.  Cost of Capital Alias o Also referred to as the discount rate.

Utility of Ratios in Performance Analysis o Ratios standardize financial data for effective comparison across firms of varying sizes.  Fundamentals of Personal Budgeting o Essential principles include record-keeping, understanding savings, expenses, income, and eliminating consumer debt.  Long-term Financial Forecasts o Used for guiding investment and financing decisions.  What Net Margin Indicates o A net margin of 7% signifies that for every dollar of revenue, 7 cents remain after covering costs.  Inventory Turnover o Evaluates the firm's efficiency in managing inventory.  Understanding Ethical Behavior o Refers to the accepted standards governing conduct.  Current vs. Quick Ratio o The quick ratio excludes inventory because it is the least liquid current asset.  Disadvantage of Debt Financing

o Answer: Agency problem due to conflicting interests.

  1. Is there more than one method for a financial analyst to evaluate a potential investment considering the time value of money? o Answer: Yes, the analyst could use both the NPV and the IRR.
  2. Why would a firm receive $10,000 less cash than its monthly sales of $100,000? o Answer: Because the firm did not make all sales on cash (some sales were made on credit).
  3. What should be included in Beckingham Sports' capital budgeting decision regarding the overseas project and the land purchase? o Answer: $3,000,000 for the offer price of the land (representing opportunity cost).
  4. What can Firm A do to improve its accounts receivable management, given its average collection period is 67 days compared to an industry norm of 40 days? o Answer: Tighten the credit standards for its customers.
  5. How do you factor sunk costs into capital investment analysis? o Answer: Sunk costs are irrelevant.
  6. How does management choose between two seemingly identical projects?

o Answer: By analyzing the different inherent risks that change the cost of capital to the firm.

  1. How is risk defined in finance? o Answer: The possibility that the realized or actual return will differ from what we expect.
  2. If two projects are mutually exclusive, which decision-making criterion helps determine which project to accept? o Answer: Net present value (NPV).
  3. In which type of market would a company issue bonds or stocks for the first time? o Answer: Primary market.
  4. If a financial analyst's report shows valuation calculations represented as percentages but does not specify whether NPV or IRR was used, what can you conclude? o Answer: The analyst used the IRR method.
  5. What is the real interest rate if the nominal interest rate is 8% and the inflation rate is 3%? o Answer: 5%.
  6. What are the main services offered by financial institutions?
  1. What does a net margin of 7% indicate? o Answer: For every dollar of revenue, 7 cents remain for the equity holders after all other costs are covered.
  2. What does inventory turnover assess? o Answer: The inventory management of a firm.
  3. What does the term ethical refer to? o Answer: The accepted standards of conduct that guide a person's behavior.
  4. What is the difference between the current ratio and the quick ratio? o Answer: Inventory is excluded in the calculation of the quick ratio.
  5. What is the disadvantage of debt financing? o Answer: Debt financing does not achieve an optimal capital structure for a company.
  6. What is the envelope method of budgeting? o Answer: Withdrawing cash at the beginning of the period and then allowing only a certain amount to be available for each category of spending.
  7. What is the main objective of personal financial goals? o Answer: To maximize individual utility.
  1. What is the name for the minimum rate of return that an investor or lender will accept for investments? o Answer: Required rate of return.
  2. What is the rate at which a firm can grow without issuing new equity? o Answer: Sustainable growth rate.
  3. What must be determined to compare the values of two projects with differently timed cash flows? o Answer: Opportunity cost.
  4. What three actions should an individual or company take for an effective budget that meets financial goals? o Answer: Track cash flows, monitor cash flows, and revise the budget.
  5. What type of ratio is used to assess a firm's ability to pay interest and long-term obligations? o Answer: Financing ratios.
  6. Which account is considered discretionary? o Answer: Notes payable.
  7. Which action reduces the future value of cash flows? o Answer: Receive all cash flows later than expected.
  8. Which example is considered a market risk factor?

o Answer: Non-spontaneous accounts.

  1. What type of economic indicator is the consumer price index? o Answer: Lagging indicator.
  2. What type of financial institution is a mutual fund? o Answer: Investment institution.
  3. Why are activity ratios also called efficiency ratios or asset use efficiency ratios? o Answer: Because they measure how well a company uses its assets to generate sales or cash.
  4. Why do fixed assets increase as a lump sum instead of in proportion to sales growth? o Answer: A firm must purchase an entire fixed asset rather than just the portion needed to increase production.
  5. Why is it appropriate to calculate the value of a bond similarly to the present value of an annuity? o Answer: Bonds pay a constant coupon amount at regular intervals until maturity.
  6. Why is it appropriate to calculate the value of preferred stock like the present value of a perpetuity? o Answer: Preferred stocks pay a fixed amount indefinitely.
  1. Why is it important to consider the cost of capital in capital investment evaluation? o Answer: Because cash flows for a project may be uncertain.
  2. Why must the time value of money be considered in capital investment evaluation? o Answer: Because the value of cash today differs from cash received in the future.
  3. Why is NPV considered the most reliable method for evaluating investments? o Answer: It accounts for the time value of money, indicates expected dollar value added to the firm, and incorporates risk.
  4. Why is understanding finance important for personal financial management? o Answer: It aids individuals in comparing costs and benefits to make informed decisions.
  5. Why might a firm prefer raising debt capital through bonds instead of stocks? o Answer: Bonds allow the firm to raise capital without relinquishing ownership.