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1. What is the primary goal of financial management?
A) Maximizing profits
B) Minimizing risks
C) Maximizing shareholder wealth
D) Minimizing operational costs
Answer: C) Maximizing shareholder wealth
Rationale: The primary goal of financial management is to maximize
shareholder wealth, which is reflected in the market value of the
company's shares. This approach aligns the interests of management with
those of the shareholders.
2. Which financial statement reports a firm's financial performance over a
specific accounting period?
A) Balance Sheet
B) Income Statement
C) Cash Flow Statement
D) Statement of Retained Earnings
Answer: B) Income Statement
Rationale: The income statement provides a summary of the company's
financial performance over a specific period, typically a quarter or a year,
including revenues, expenses, and profits.
3. What is the concept of 'time value of money' in finance?
A) Money loses value over time due to inflation.
B) Money can earn interest, so it is worth more in the future.
C) The value of money is constant over time.
D) Money is more valuable when invested in long-term assets.
Answer: B) Money can earn interest, so it is worth more in the future.
Rationale: The time value of money is a core principle of finance that
reflects the idea that a sum of money is worth more now than the same
sum will be in the future due to its potential earning capacity.
4. What does the 'cost of capital' represent?
A) The total expenses of a company
B) The cost of a company's debt and equity financing
C) The operational costs of producing goods
D) The cost of long-term assets
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