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Questions and Answers
What is the primary role of financial management function in a business?
What is the likely effect on demand in an economy if a government increases its spending by borrowing more?
What is the impact on a company's cash operating profit cycle if it offers an early settlement discount?
Why is working capital management important for a business?
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What is overtrading?
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What is the likely impact on reported profits if a company offers an early settlement discount?
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What is overtrading?
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What is the main difference between accounting profit and economic profit?
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What happens to a shareholder when a company goes bankrupt?
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What happens to Chinese exporters to the US if the US dollar weakens against the Chinese RMB?
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What is the effect of an increase in the cash operating cycle on profitability?
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Who determines the market price of a share of common stock?
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Which of the following is a characteristic of money markets?
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Which of the following actions would most likely lengthen the working capital cycle?
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Which of the following would be the LEAST likely to increase shareholder wealth?
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What would be the likely effect on businesses if the National Bank of Cambodia follows an expansionary monetary policy?
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Which of the following statements about monetary policy is correct?
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What type of security is Sihanoukville Autonomous Port (PAS) likely to issue if it borrows money from investors with 180 days to maturity?
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What is the main objective of a corporate governance best practice framework?
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What is the correct formula to calculate return on equity?
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What is the correct definition of net working capital?
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Which of the following would result in an increase in the money supply in Cambodia?
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What is the correct ranking of investment options from highest risk to lowest risk from the investor's perspective?
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Why is profit after interest and tax used for shareholder ratio calculations?
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Which of the following statements is NOT a correct objective of working capital management?
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Which of the following actions would be most likely to increase a company's refinancing risk?
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Which of the following stakeholders would be most affected if a company's financial position weakens?
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Which of the following is a characteristic of corporate governance?
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Which of the following is a limitation of the payback period method of investment appraisal?
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Which of the following is a fiscal policy action?
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What is the primary purpose of calculating the return on capital employed (ROCE)?
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Which of the following statements is true about the weighted average cost of capital (WACC)?
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What is the effect of an increase in the market interest rate on a company's cost of debt?
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Which of the following is a limitation of the capital asset pricing model (CAPM)?
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What is the purpose of calculating the dividend yield?
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Which of the following statements is true about the earnings per share (EPS)?
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What is the effect of an increase in a company's debt on its weighted average cost of capital (WACC)?
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Which of the following is a characteristic of the cost of equity?
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What is the purpose of calculating the price-to-earnings (P/E) ratio?
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Which of the following statements is true about the beta coefficient?
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Study Notes
Financial Management
- Financial management involves making decisions related to finance, such as financial planning, investment, and funding.
Fiscal Policy
- Fiscal policy is used to influence the economy and economic growth by increasing or decreasing government spending and taxation.
- Expansionary fiscal policy involves increasing government spending and/or reducing taxes to stimulate the economy.
- Contractionary fiscal policy involves reducing government spending and/or increasing taxes to slow down the economy.
Working Capital Management
- Working capital management involves managing the company's current assets and liabilities to ensure liquidity and profitability.
- The twin objectives of working capital management are profitability and liquidity.
- Overtrading occurs when a company grows too quickly and suffers from liquidity issues.
- Undercapitalization, also known as overtrading, occurs when a company does not have sufficient capital to support its growth.
Financial Performance
- Accounting profits may not be the best measure of a company's performance because they are affected by accounting policies and do not take into account risk.
- Economic profit takes into account the opportunity cost of capital and is a better measure of a company's performance.
Stakeholders
- Shareholders are the owners of a company and have a stake in its performance.
- Managers and employees are also stakeholders and have a vested interest in the company's success.
- Creditors, suppliers, and customers are also stakeholders and have an interest in the company's financial performance.
Corporate Governance
- Corporate governance involves the management of a company's resources and activities to ensure that it is operating in the best interests of its stakeholders.
- Good corporate governance involves separating the roles of the chairman and CEO, establishing audit and remuneration committees, and minimizing risk.
Capital Investment Appraisal
- Capital investment appraisal involves evaluating the costs and benefits of proposed investments in operating assets.
- The payback period method is a drawback because it does not measure potential impact on shareholder wealth.
- The net present value (NPV) method is a better way to evaluate investments because it takes into account the time value of money.
Risk Management
- Risk management involves identifying and managing risks to minimize their impact on the company.
- A company's risk profile is affected by its business risk, financial risk, and liquidity risk.
Financial Instruments
- Financial instruments include stocks, bonds, and derivatives.
- Stocks represent ownership in a company and offer a potential for long-term growth.
- Bonds represent a debt obligation and offer a fixed return.
- Derivatives are used to manage risk and can be used to hedge or speculate.
Weighted Average Cost of Capital (WACC)
- WACC is the minimum return that a company must earn on its existing asset base to satisfy its investors.
- WACC is calculated by weighting the cost of debt and equity by their proportion of the company's capital structure.
- An increase in the market interest rate environment or a reduction in the company's credit rating will increase WACC.
- A decrease in the applicable corporate tax rate will decrease WACC.
Capital Asset Pricing Model (CAPM)
- CAPM is a model that describes the relationship between risk and expected return.
- The CAPM formula is: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)
- The beta coefficient is adjusted to account for the systematic risk of a stock.
Financial Markets
- Financial markets include money markets, bond markets, and stock markets.
- The money market is a market for short-term capital.
- The bond market is a market for long-term debt.
- The stock market is a market for equity.
International Finance
- International finance involves managing financial transactions across borders.
- Exchange rates are the prices of currencies in terms of other currencies.
- A country's balance of payments is the sum of its current account and capital account.
Monetary Policy
- Monetary policy is used to control the money supply and interest rates in an economy.
- Expansionary monetary policy involves increasing the money supply and reducing interest rates to stimulate the economy.
- Contractionary monetary policy involves reducing the money supply and increasing interest rates to slow down the economy.
Cambodia-Specific Topics
- The National Bank of Cambodia (NBC) is the central bank of Cambodia.
- The NBC uses monetary policy to control the money supply and interest rates in the economy.
- The Royal Government of Cambodia uses fiscal policy to influence the economy and economic growth.
- The General Department of Taxation (GDT) is responsible for tax collection in Cambodia.
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Description
Test your knowledge of business finance and fiscal policy with these multiple-choice questions. Topics include financial management, financial accounting, and government economic policies.
