Financial Management Overview
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Financial Management Overview

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Questions and Answers

Which of the following questions should a financial manager focus on when making decisions?

  • Should the firm acquire new equipment? (correct)
  • Should the firm reduce its marketing expenses?
  • Should customers be offered 30 or 45 days to pay? (correct)
  • How should a product be marketed?

    • What is considered the primary goal of financial management?

  • Minimize operational costs
  • Increase market share rapidly
  • Maximize current dividends per share
  • Maximize the current value per share (correct)

    • Which action demonstrates adherence to the goals of financial management?

  • Acquiring a competitor company
  • Increasing the amount of debt
  • Reducing the price of the product
  • Increasing the market value per share (correct)

    • Which statement about corporate ethics would most business professionals support?

    <p>Ethical education in business schools is essential.</p> Signup and view all the answers

    Which financial decision illustrates an inappropriate focus for a financial manager?

    <p>Increasing dividends at the cost of reducing cash reserves</p> Signup and view all the answers

    How should financial managers prioritize their objectives?

    <p>Balance the interests of shareholders and stakeholders</p> Signup and view all the answers

    What indicator would best suggest that a firm's financial health is improving?

    <p>Increasing stock prices over time</p> Signup and view all the answers

    What is the net present value of the proposed switch using the accounts receivable approach?

    <p>P46,992</p> Signup and view all the answers

    What is the firm's average balance sheet amount in accounts receivable?

    <p>P1,786,521</p> Signup and view all the answers

    What is the amount of net savings from subscribing to the credit agency?

    <p>P4,080</p> Signup and view all the answers

    Which statement most accurately describes the implications of managing accounts receivable?

    <p>Increasing credit sales can keep accounts receivable steady if the collection period is shortened.</p> Signup and view all the answers

    Which of the following would indicate that a firm's receivables management needs to be reviewed?

    <p>A large percentage of accounts over 30 days old.</p> Signup and view all the answers

    What impact does offering credit during the spring selling season have on the ABC Shop's sales?

    <p>May enhance sales volume due to customer flexibility.</p> Signup and view all the answers

    What will the initial charge for subscribing to a credit agency be for the ABC Shop?

    <p>P540</p> Signup and view all the answers

    Which scenario best illustrates the relationship between receivables and sales transactions?

    <p>A high receivables-to-sales ratio typically indicates poor collections.</p> Signup and view all the answers

    What is the total annual ordering cost for ABC if the order size is 600 units and the ordering cost is P15 per order?

    <p>P1,350</p> Signup and view all the answers

    How many packages should ABC aim to order based on its economic order quantity model?

    <p>228 packages</p> Signup and view all the answers

    Which statement regarding EOQ and JIT inventory systems is incorrect?

    <p>JIT advocates for larger inventory investments.</p> Signup and view all the answers

    Which of the following costs should not be categorized as an ordering cost?

    <p>Cost of storing the inventory</p> Signup and view all the answers

    How does direct labor change under the JIT philosophy?

    <p>Machine operators run multiple machines and manage maintenance.</p> Signup and view all the answers

    If ABC Jewels Corporation's EOQ is 100 ounces of gold, what is the cost per order if carrying costs for gold are P2 per ounce?

    <p>P20</p> Signup and view all the answers

    What is the approximate annual carrying cost for 50,000 lbs of material X if the carrying cost is P0.30 per lb?

    <p>P15,000</p> Signup and view all the answers

    What is the reorder point for ABC Graphics given an annual usage of 2,600 packages and a lead time of 1 week?

    <p>50 packages</p> Signup and view all the answers

    What is the economic order quantity (EOQ) for ABC Corporation's car window, given an annual demand of 12,000 units, a setup cost of P1,200, and a carrying cost of P3 per unit per year?

    <p>5,774 lbs</p> Signup and view all the answers

    What is the most economical production run for ABC Corporation when the setup cost is P1,200 and the annual demand is 12,000 units?

    <p>6,000 units</p> Signup and view all the answers

    If the annual demand for the car window increases to 15,000 units, which of the following is true?

    <p>The total carrying costs would increase</p> Signup and view all the answers

    Which factor does NOT directly affect the size of safety stock?

    <p>Economic order quantity</p> Signup and view all the answers

    The economic production run quantity directly affects which of the following?

    <p>Level of finished goods inventory</p> Signup and view all the answers

    Where is the optimal size of safety stock defined?

    <p>Where costs of carrying the safety stock equal stockout costs</p> Signup and view all the answers

    Given that a company consumes 10,000 units of Part C annually with a carrying cost of P2 per year and ordering costs of P100 while using an order quantity of 500 units, what is the order point if the lead time is 5 days?

    <p>1,000 units</p> Signup and view all the answers

    If the same company were to purchase the economic order quantity instead of 500 units, by how much could they potentially reduce total costs?

    <p>P2,500</p> Signup and view all the answers

    What formula yields the total annual carrying costs if a company carries safety stock and its annual carrying costs per unit are P0.30?

    <p>P0.30 x [(EOQ/2) + Safety stock)]</p> Signup and view all the answers

    What is the effective annual interest rate on the revolving credit arrangement if no money is borrowed during the year?

    <p>5.0 percent</p> Signup and view all the answers

    How much will the firm borrow or repay this quarter if the quarterly receipts are P3,918 and the quarterly disbursements are P3,774, with a minimum cash balance requirement?

    <p>borrow P16</p> Signup and view all the answers

    If ABC's Craft Shack has a net cash flow for the quarter of -P280 and maintains a minimum cash balance of P1,000, how much will the store borrow or repay?

    <p>P154</p> Signup and view all the answers

    What is the projected ending cash balance at the end of March for ABC Store with the given sales and expenses?

    <p>P164</p> Signup and view all the answers

    Given a loan outstanding of P1,260, how should the firm manage its cash balance based on quarterly receipts and disbursements?

    <p>Decrease loan by P128</p> Signup and view all the answers

    What impact does the 10-day accounts receivable period have on the cash flow for ABC Store?

    <p>Decreases cash flow by delaying collections</p> Signup and view all the answers

    How does the 30-day accounts payable period affect ABC Store’s cash management?

    <p>Improves cash management by delaying payments</p> Signup and view all the answers

    Study Notes

    Financial Management

    • Financial managers are responsible for making crucial financial decisions, including:

      • Determining the best way to market a product.
      • Setting payment terms for customers.
      • Deciding whether to borrow more money.
      • Evaluating the acquisition of new equipment.

    • The primary goal of financial management is maximizing the current value per share.

    • This objective is achieved by focusing on increasing the market value per share.

    • Business ethics plays a vital role in financial management. While a formal set of ethical rules might not cover every situation, establishing clear guidelines helps organizations and individuals navigate ethical dilemmas.

    • The primary goal of financial management is not to maximize profits in the short-term, but to maximize the firm's expected cash flows, as this directly contributes to the wealth of individual shareholders.

    • Net present value (NPV) is a commonly used financial metric for evaluating investment decisions. It helps determine the value of an investment by considering the time value of money.

    • Accounts receivable approach is a method used for evaluating the impact of credit policies on the net present value.

    • Credit terms offer discounts to customers for early payments, impacting accounts receivable and cash flow.

    • Credit agencies can help businesses manage risk by providing information about creditworthiness of potential customers.

    • Inventory management focuses on optimizing the balance between inventory levels and the costs associated with holding and acquiring inventory.

    • Economic order quantity (EOQ) is a tool for calculating the optimal order size that minimizes the combined costs of ordering and holding inventory.

    • Just-in-time (JIT) inventory system aims to minimize inventory by having materials arrive just in time for production.

    • Safety stock is an additional inventory buffer held to avoid stockouts due to demand fluctuations or supply disruptions.

    • The optimal safety stock level is determined by balancing carrying costs and stockout costs.

    • Order point is a threshold that triggers a new order when inventory reaches a predetermined level.

    • Focused factory arrangements aim to improve efficiency by specializing production facilities for specific products or processes.

    • Revolving credit arrangements provide short-term financing lines with flexible borrowing limits.

    • Compensating balances are required deposits held by borrowers in non-interest-bearing accounts, impacting effective interest rates.

    • Cash management involves managing cash inflows and outflows to optimize liquidity and minimize borrowing needs.

    • A minimum cash balance helps ensure sufficient liquidity to meet short-term obligations.

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    Description

    This quiz covers key concepts of financial management, including decision-making processes by financial managers and the objective of maximizing shareholder value. Explore the importance of business ethics in financial practices and understand how net present value relates to cash flow maximization.

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