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Finance Basics Overview

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Questions and Answers

What is the primary goal of the firm?

Prioritizing the interests of creditors

Increasing the number of employees

Maximizing the number of shareholders

Creating value for the firm's shareholders (correct)

In finance, what are the three basic issues addressed by the study of finance?

Maximizing profits, reducing expenses, and increasing stock price

Hiring decisions, marketing strategies, and product development

Legal matters, taxation decisions, and employee benefits

Capital budgeting decision, capital structure decision, and operating decision (correct)

What is the principle that states a dollar received today is worth more than a dollar received in the future?

Principle 1: Money Grows Over Time

Principle 3: Risk Requires a Reward

Principle 4: The Functions of Money

Principle 2: Money Has a Time Value (correct)

What drives the value of a business according to the text?

Cash flow Signup and view all the answers

What does the Net Present Value method involve?

Calculating present value of cash inflows and outflows, then subtracting them Signup and view all the answers

Who holds residual claims against the company?

Shareholders Signup and view all the answers

What is the role of choosing a discount rate in financial decision-making?

Calculating the cost of capital for investments Signup and view all the answers

Which type of assets are tangible things owned by persons and businesses?

Real Assets Signup and view all the answers

What is the role of management in finance as mentioned in the text?

To act as an arbitrator between conflicting interest groups Signup and view all the answers

What is the primary function of money that relates to how transactions are conducted?

Medium of Exchange Signup and view all the answers

What is the minimum annual return required for investments according to the text?

10% Signup and view all the answers