Question 1

Which of the following best explains why money has a time value?

Accepted Answer

Because a dollar received today can be invested to earn interest, making it worth more than a dollar received in the future.

Question 2

A company is considering two projects. Project A returns RM10,000 in one year, while Project B returns RM10,000 in two years. If the interest rate is 5%, which project has a higher present value?

Accepted Answer

Project A, because $$PV = \frac{10,000}{(1+0.05)^1$} is $$greater than $$PV = \frac{10,000}{(1+0.05)^2$}.$$

Question 3

Which formula correctly calculates the future value of an investment?

Accepted Answer

$$FV_n = PV (1 + r)^n$$

Question 4

Which of the following is NOT a function of financial management?

Accepted Answer

Preparing tax returns

Question 5

A firm reports RM20,000 in accounting profits but has negative cash flow. What does this indicate?

Accepted Answer

The firm may have made sales on credit and not collected cash.

Question 6

Which of the following best describes the main objective of financial management in a corporation?

Accepted Answer

To maximize shareholders’ wealth.

Question 7

Which of the following is a key difference between profit maximization and shareholders’ wealth maximization?

Accepted Answer

Shareholders’ wealth maximization considers risk and timing of returns.

Question 8

Which business organization type exposes its owners to unlimited liability?

Accepted Answer

Sole proprietorship

Question 9

In a limited partnership, which of the following statements is TRUE?

Accepted Answer

Limited partners cannot participate in management.

Question 10

Which of the following is a weakness of the corporate form of business?

Accepted Answer

Shareholders are paid last in the event of liquidation.

Question 11

Agency theory deals with which of the following relationships?

Accepted Answer

Between owners (principals) and managers (agents)

Question 12

Which of the following is a method to mitigate agency problems?

Accepted Answer

Implementing management compensation plans tied to share price

Question 13

Which of the following stakeholders is NOT typically considered a primary stakeholder in a company?

Accepted Answer

Competitors

Question 14

If a company’s objective is to maximize the market value of its common stock, which objective is it pursuing?

Accepted Answer

Shareholders’ wealth maximization

Question 15

Which of the following is an example of an opportunity cost?

Accepted Answer

Earning 1% interest in a savings account instead of lending money at 0% interest to a friend

Question 16

A company must decide whether to pay dividends or retain earnings. This decision is most closely related to which financial management function?

Accepted Answer

Dividend policy

Question 17

Which formula is used to calculate the present value of a future sum?

Accepted Answer

$$PV = FV_n \left\{ \frac{1}{(1 + r)^n} \right\}$$

Question 18

Which of the following is a key responsibility of management accounting?

Accepted Answer

Providing information for day-to-day control and decision making

Question 19

Which of the following is a characteristic of a corporation?

Accepted Answer

Ownership can be easily transferred through sale or inheritance

Question 20

Which of the following best describes working capital management?

Accepted Answer

Ensuring liquidity by managing receivables, inventory, cash, and payables

Financial Management Function: Core Concepts and Applications

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