FINANCIAL MANAGEMENT 1

Quiz 1
Name: _________________________________________ Date: _______________ Score: ________________
Answer the following questions carefully. Be specific and concise, no credit will be given for wordy
answers not addressing the question directly A short and concise essay dealing directly with the
question may receive more credit than a long drawn-out answer that says the same thing.

1.
2.
3.

4.
5.

6.
7.

What are the drawbacks in considering that the utmost goal of a business entity is to yield
highest profit possible for the firm?
Evaluate the following statement: Managers should not focus on the current stock value
because doing so will lead to an overemphasis on short-term profits at the expense of long
term profits.
Using the following criteria, specify the legal form of business that is: (a) organizational
requirements and costs, (b) liability of the owners, (c) continuity of business, (d)
transferability of ownership, (e) management control and regulations, (f) ability to raise
capital, and (g) income taxes
Distinguish between primary and secondary market.
a.
What does the risk-return trade-off mean?
b.
Why are we interested in cash flows rather than accounting profits in determining
the value of an asset?
c.
What is the cause of the agency problem and how do we try to solve it?
d.
What is an efficient market and what are the implications of efficient market for
us?
Suppose you were the financial manager of a not-for-profit business (a not-for-profit
hospital). What kinds of goals do you think would be appropriate?
Distinguish the functions of a controller from the functions of the treasurer.

FINANCIAL MANAGEMENT 1
Quiz 1
Name: _________________________________________ Date: _______________ Score: ________________
Answer the following questions carefully. Be specific and concise, no credit will be given for wordy
answers not addressing the question directly A short and concise essay dealing directly with the
question may receive more credit than a long drawn-out answer that says the same thing.

1.
2.
3.

4.
5.

6.
7.

What are the drawbacks in considering that the utmost goal of a business entity is to yield
highest profit possible for the firm?
Evaluate the following statement: Managers should not focus on the current stock value
because doing so will lead to an overemphasis on short-term profits at the expense of long
term profits.
Using the following criteria, specify the legal form of business that is: (a) organizational
requirements and costs, (b) liability of the owners, (c) continuity of business, (d)
transferability of ownership, (e) management control and regulations, (f) ability to raise
capital, and (g) income taxes
Distinguish between primary and secondary market.
a.
What does the risk-return trade-off mean?
b.
Why are we interested in cash flows rather than accounting profits in determining
the value of an asset?
c.
What is the cause of the agency problem and how do we try to solve it?
d.
What is an efficient market and what are the implications of efficient market for
us?
Suppose you were the financial manager of a not-for-profit business (a not-for-profit
hospital). What kinds of goals do you think would be appropriate?
Distinguish the functions of a controller from the functions of the treasurer.