ANS: C PTS: 1 REF: 11 OBJ: LO 2

Copyright © 2014 Nelson Education Ltd. 1-1 Chapter 1 Overview of Financial Management

MULTIPLE CHOICE

• Which of the following statements describes an activity which is financial management?
• Looking after trade payables and corporate accounting is not a responsibility of the

controller.

• Monitoring the profit for the year which is the difference between revenue and

gross profit.

• The treasurer raising funds.
• Ensuring that the cost of borrowing is greater than the return on assets.

ANS: C PTS: 1 REF: 11 OBJ: LO 2

BLM: Higher Order

• Which of the following statements describes a financial management activity?
• Arranging internal financing is obtained from banks and investors.
• Ensuring liquidity by managing the payment of dividends.
• Operating decisions dealing with better utilization of non-current assets.
• The stability objective is related to the financial structure of a business.

ANS: D PTS: 1 REF: 15 OBJ: LO 4

BLM: Remember

• Which of the following activities is NOT a financial management function?
• The treasurer is responsible for corporate accounting.
• External financing is obtained from investors.
• Internal financing is obtained from retained earnings and

depreciation/amortization.

• Improving net profit through the use of productivity indicators and planned

downsizing.

ANS: A PTS: 1 REF: 11 OBJ: LO 3

BLM: Remember

• What is the ultimate objective of financial management?
• to ensure the ROA is higher than ROR
• to obtain a higher ROR than ROA
• to ensure that ROA is higher than the cost of financing
• to collect trade receivables faster than the payment of trade and other payables

ANS: C PTS: 1 REF: 7 OBJ: LO 2

BLM: Remember

(Finance for Non-Financial Managers, 7th Canadian Edition Pierre Bergeron) (Test Bank all Chapters) 1 / 4

Chapter 1 Overview of Financial Management Copyright © 2014 Nelson Education Ltd. 1-2

• Which activity is the controller responsible for?
• general accounting
• tax administration
• investor relations
• analyzing short- and long-term borrowing sources

ANS: A PTS: 1 REF: 11 OBJ: LO 3

BLM: Remember

• What is considered an "efficiency" financial objective?
• the ability to meet short-term financial commitments
• the ability minimize the cost of borrowed funds
• the return on trade receivables
• the return on revenue

ANS: D PTS: 1 REF: 13 OBJ: LO 4

BLM: Remember

• What does the profit for the year pay for?
• executive bonuses
• interest on debt
• dividends
• employee salaries

ANS: C PTS: 1 REF: 17 OBJ: LO 5

BLM: Remember

• Which of the following is a source of internal financing?
• revenue
• depreciation/amortization
• mortgages
• long-term borrowings

ANS: B PTS: 1 REF: 16 OBJ: LO 5

BLM: Remember

• What do investing decisions deal with?
• the cost of borrowed funds
• planned downsizing
• buying non-current assets
• the financing mix

ANS: C PTS: 1 REF: 19 OBJ: LO 5

BLM: Remember

• / 4

Chapter 1 Overview of Financial Management Copyright © 2014 Nelson Education Ltd. 1-3

• What type of decision is the management of working capital?
• an operating decision
• an investing decision
• a financing decision
• a capital budgeting decision

ANS: A PTS: 1 REF: 23 OBJ: LO 5

BLM: Remember

• How is gross profit determined?
• by deducting the cost of sales from revenue
• by deducting operating expenses from revenue
• by deducting income tax expense from profit before taxes
• by deducting distribution costs from operating profit

ANS: A PTS: 1 REF: 13 OBJ: LO 4

BLM: Remember

• How is ROR calculated?
• by dividing income before taxes by revenue
• by dividing cost of sales by revenue
• by dividing revenue by cost of sales
• by dividing profit for the year by revenue

ANS: D PTS: 1 REF: 14 OBJ: LO 4

BLM: Higher Order

• Under which of these circumstances is a company a good investment?
• A company is a good investment when the ROR is less than the cost of financing.
• A company is a good investment when the ROA is greater than the cost of

financing.

• A company is a good investment when the ROA is less than the cost of capital.
• A company is a good investment when the ROR is greater than the cost of

financing.

ANS: B PTS: 1 REF: 14 OBJ: LO 4

BLM: Higher Order

• What term is defined as "the activity involved in raising funds and buying assets in order to

obtain the highest possible return”?

• accounting
• marketing management
• general management
• financial management

ANS: D PTS: 1 REF: 7 OBJ: LO 2

BLM: Remember

• / 4

Chapter 1 Overview of Financial Management Copyright © 2014 Nelson Education Ltd. 1-4

• Why is it important for managers to ask, "How are we doing?"
• It is required by their employment contract.
• Investors want to know about a company’s financial performance.
• Interest groups have illegitimate and corresponding objectives.
• Government agencies want to know about a company’s financial performance.

ANS: B PTS: 1 REF: 8 OBJ: LO 3

BLM: Remember

• Who is responsible for credit and collection in a company?
• the bookkeeper
• the controller
• the accountant
• the treasurer

ANS: B PTS: 1 REF: 11 OBJ: LO 3

BLM: Remember

• What term refers to the relationship between assets and profit for the year?
• stability
• efficiency
• liquidity
• prosperity

ANS: B PTS: 1 REF: 13 OBJ: LO 4

BLM: Remember

• What does ROA measure?
• efficiency
• liquidity
• fluency
• prosperity

ANS: A PTS: 1 REF: 13 OBJ: LO 4

BLM: Remember

• What type of decision is made when a company decides whether to arrange a mortgage, sell

bonds, or issue shares?

• a financing decision using internal financing
• an operating decision using internal financing
• a financing decision using external financing
• an operating decision using external financing

ANS: C PTS: 1 REF: 20 OBJ: LO 5

BLM: Remember

• / 4