Laguna State Polytechnic University

College of Business Management and Accountancy

Midterm Exam
Final
Name: ___________________________________________ Date: December 14 , 2020
Course/Section: BSA – 3A Total Points: 70 points
Subject: Financial Management

Test 1 - Identification(30 points):

__________________1. Is a decision making process concerned with planning, acquiring and utilizing funds
in
a manner that achieves the firm’s desired goals..
__________________2. Type of decision which determine how scarce or limited resources in terms of funds
of
the business firms are committed to projects.
__________________3. Type of decision which assert that the mix of debt and equity chosen to finance
investments should maximize the value of investments made..
__________________4. Type of decision which concerned with the determination of quantum of profits to be
distributed to the owners, the frequency of such payments and the amounts to be
retained by the firm.
__________________5. Deals with the economic decisions of individuals and firms. It focuses on the optimal
operating strategies based on the economic data of individuals and firms.
__________________6. Looks at the economy as a whole in which a particular business concern is operating.
__________________7. Is a long-range in scope and has its focus on the organization as a whole. The
concept
is based on an objective and comprehensive assessment of the present situation of
the
organization and the setting up of targets to be achieved in anticipation of changes in
the environment.
__________________8. Involves financial planning, financial forecasting, provision of finance and
formulation
of finance policies which should lead the firm’s survival and success.
__________________9. Is the process of monitoring managers and aligning their incentives with
shareholders
goals.
__________________10. One of the functional areas of business operations that deals with the design and
production of a product.
__________________11. One of the functional areas of business operations that involves selling, promotion
and distribution of a product.
__________________12. Is a form of business organization owned by a single person who has complete
control over business decisions.
__________________13. Is a legal arrangement in which two or more persons agree to contribute capital or
services to the business and divide the profits or losses that maybe derived from
them.
__________________14. Is an artificial being created by law and is a legal entity separate and distinct from
its

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 owners.
__________________15. This refers to a firm short -term asset and its short - term liabilities and this
involves
a number of activities related to a firm’s receipts and disbursement of funds.
__________________16. These are the monitors inside a public firm and who are appointed to represent
shareholders’ interest.
__________________17. This refers to the written contract prepared in establishing a formal partnership
and
which is filed with the Securities and Exchange Commission.
__________________18. This is a kind of partnership containing one or more general partners and one or
more limited partners.
__________________19. This is a kind of partnership in which each partner has unlimited liability for the
debts
incurred by the business.
__________________20. These are rules that govern the internal management of the company and are
established by the board of directors and approve by the shareholders.
__________________21. This occurs when domestic firms invest and produce goods in foreign countries or
when these firms choose to rely on imports rather than build domestic plans and
produce these goods domestically.
_________________ 22. .These provide crucial input for strategic planning as well as, information about the
relative success of those plans which can be used to corrective action and make new
operating, investing and financial decisions.
__________________23. This refers to the availability of cash in the near future after taking account of
financial
commitments .
__________________24. This refers to the availability of cash over the longer term to meet financial
commitments as they fall due.
__________________25. This refers to the difference between current assets minus current liabilities.
__________________26. This financial statement reports on changes in key types of equity over a period of
time.
__________________27. This activity use company resources to produce, promote and sell its products and
services.
__________________28. This is the difference between current assets and non-interest bearing current
liabilities.
__________________29. Is a kind of behavior that are of primary importance in any practice of finance.
__________________30. A type of financing which can raise money from shareholders.

Test 11 - Multiple Choice Questions( 25 points)

1. Which of the following statements is true?

a. The higher the profit of a firm, the higher the value of the firm is assured of receiving in the
market.
b. Social responsibility and profit maximization are synonymous.
c. Maximizing the earnings of the firm is the primary goal of financial management.
d. There are some serious problems with the financial goal of maximizing the earnings of the
firm.

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2. Corporate social responsibility is
a. effectively enforced through the controls envisioned by classical economics.
b. the obligation to shareholders to earn a profit.
c. the duty to embrace service to the public interest.
d. the obligation to serve long-term organizational interests.
3. A common argument against corporate involvement in socially responsible behavior is that
a. It encourages government intrusion in decision making.
b. as a legal person, a corporation is accountable for its conduct.
c. It creates goodwill.
d. in a competitive market, such behavior incurs costs that place the company at a disadvantage.

4. Which of the following statement is false?

a. Because socially desirable goals can impede profitability in many instances, managers should
not try to operate under the assumption of wealth maximization.
b. As finance emerged as a new field, much emphasis was placed on mergers and acquisitions.
c. Timing is a particularly important considerations in financial decisions.
d. During the 1930s, the government assume a much greater role in regulating the securities
industry.
5. Which of the following statement is false?
a. Corporate social responsibility is a business model that helps company to be socially
accountable to itself, its stockholders and the public.
b. Corporate social responsibility is an important aspect of business.
c. Corporate social responsibility allows business large and small to enact positive change.
d. Corporate social responsibility refers to any effort to improve company’s environment and
economic impact.
6. All of the following are functions of the financial manager except
a. Analyzing and planning the company’s financial needs.
b. Anticipating the company’s financial needs.
c. Assigning the market price of the company’s stock.
d. Allocating funds to the most profitable asset.
7. Which of the following statement is false?
a. The financing decision involves the process of allocating funds for investment in competing
assets.
b. The treasurer would be responsible for activities such as managing cash balances, granting
credit to customers and managing the process of issuing new securities.
c. The optimal capital structure is the best combination of long-term debt and equity.
d. It is necessary to determine the appropriate risk-return trade-off to maximize the market
value of the firm for its shareholders.
8. Which of the following statement is false?
a. Governance is the act or process of governing or overseeing the control and direction of
something (such as country or an organization)
b. Good Governance is at the heart of any successful business.
c. Governance is the practice of the board of directors of coming together to make decisions
about the direction of the company.
d. Governance does not identifies who has power and accountability and who makes decisions.
9. Which of the following is not a major area of concern and emphasis in modern financial
management?

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 a. Inflation and its effect on profits
b. Stable short-term interest rates
c. Changing international environment
d. Increased reliance on debt
10. Proper-risk return management means that
a. the firm should take few risks as possible.
b. consistent with the objectives of the firm, an appropriate trade-off between risk and return
should be determined.
c. the firm should earn highest return possible
d. the firm should value future profits more highly than current profits.

11. Some issues that may have to be resolved in relation to managing a firm’s working capital
includes the following except;
a. The level of cash, securities and inventory that should be kept on hand
b. The credit policy
c. Source of long-term financing
d. Financing purchases of goods
12. One of the major disadvantages of a sole proprietor is
a. that there is unlimited liability to the owner
b. the simplicity of decision making
c. low organizational costs
d. low operating costs
13. The partnership form of organization
a. avoids the double taxation of earnings and dividends found in the corporate form of
organization
b. usually provides limited liability to the partners
c. has unlimited life
d. simplifies decision making
14. A corporation is
a. owned by stockholders who enjoy the privilege of limited liability.
b. easily divisible between owners
c. a separate legal entity with perpetual life
d. all of the above
15. Example of current assets are the following except:
a. Cash
b. Accounts payable
c. Accounts receivable
d. Prepaid expenses
16. Net working capital is a firm’s
a. current assets
b. current liabilities
c. current assets less current liabilities
d. total assets less total liabilities
17. Maximization of shareholders’ wealth is a concept in which
a. increased earnings is of primary importance
b. profits are maximized on a quarterly basis

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 c. virtually all earnings are paid as dividends to common stockholders
d. optimally increasing the long-term value of the firm is emphasized
18. Which of the following is not a true statement about the goal of maximizing shareholders’ wealth?
a. It takes into account the timing of cash flows
b. It does not consider the fact that shareholders in a firm are the residual owners.
c. It considers risk as a factor
d. Its goal is to maximize the current value per share of the existing stock or ownership in a
business firm.

19. What is the primary goal of financial management?

a. Increase earnings
b. Maximizing cash flow
c. Maximizing shareholders’ wealth
d. Minimizing risk of the firm
20. Which of the following is not a major area of concern and emphasis in modern financial
management?
a. Marginal analysis
b. Risk-return trade -off
c. Commodity trading
d. Changing financial institutions
21. Nicole is a financial manager who has discovered that her company is violating environmental
regulations. If her immediate superior is involved, her appropriate action is to –
a. do nothing since she has a duty of loyalty to the organization
b. consult the audit committee
c. present the matter to the next higher managerial level
d. confront her immediate superior
22. If a financial manager discovers unethical conduct in his/her organization and fails to act, he/she
will be in violation of which ethical standard(s)?
a. “Actively or passively subvert the attainment of the organization’s legitimate and ethical
standards”
b. “Communicate unfavorable as well as favorable information”
c. “Condone the commission of such acts by others within their organization”
d. All of the answers are correct.
23. Integrity is an ethical requirement of all financial managers. One aspect of integrity requires
a. a performance of professional duties in accordance with applicable laws
b. avoidance of conflict of interest
c. refraining from improper use of inside information
d. maintenance of an appropriate level of professional competence
24. A financial manager discovers a problem that could mislead users of the firm’s financial data
and has informed his/her immediate superior. He/she should report the circumstances to the
audit committee and/or the board of directors only if
a. the immediate superior, who reports to the chief executive officer, knows about the situation
bur refuses to correct it.
b. the immediate superior assures the financial manager that the problem will be resolved
c. the immediate superior reports the situation to his/her superior
d. the immediate superior, the firm’s chief executive officer, knows about the situation but

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 refuses to correct it.
25. A corporate restructuring can result in
a. changes in the capital structure
b. selling of low-profit margin divisions
c. reduction in the work force
d. All of the given choices

Test 111 - Problem Solving(15 points)

Arrange the following income statement items so they are in the proper order of an income
statement.

Taxes Earnings per share

Gross profit Earnings before taxes
Interest expense Cost of goods sold
Depreciation expense Earnings after taxes
Selling and administrative expense Sales
Net Income Operating profit
Sales discounts Net Sales

INSTRUCTION/S: USE A SEPARATE SHEET FOR YOUR ANSWERS.

***GOOD LUCK***

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