Finance is a critical aspect of our personal and professional lives. Whether you’re managing your personal budget or making strategic decisions for a business, a solid understanding of financial concepts is essential. To help you navigate the complex world of finance, we’ve compiled a list of the top 15 finance questions with comprehensive answers. These questions cover a wide range of financial topics, from basic principles to more advanced concepts. Whether you’re a beginner looking to grasp the fundamentals or a seasoned professional seeking to refine your knowledge, this list aims to provide valuable insights and answers to the most pressing financial inquiries. Let’s dive into these essential finance questions and equip ourselves with the knowledge needed to make informed financial decisions.
Now, let’s move on to the Top 15 Finance Questions and Answers
Q1. Last year Aldrin Co. had negative net cash flow, yet its cash on the balance sheet increased. What could explain these events?
a. Aldrin issued long-term debt.
b. Aldrin repurchased some of its common stock.
c. Aldrin sold some of its assets.
d. Statements a and b are correct.
e. Statements a and c are correct.
Q2. Last year, Blanda Brothers had positive net cash flow, yet cash on the balance sheet decreased. Which of the following could explain the company’s financial performance?
a. The company issued new common stock.
b. The company issued new long-term debt.
c. The company sold off some of its assets.
d. The company purchased a lot of new fixed assets.
e. The company eliminated its dividend.
Q3. On its 2016 balance sheet, Sherman Books showed a balance of retained earnings equal to $510 million. On its 2017 balance sheet, the balance of retained earnings was also equal to $510 million. Which of the following statements is most correct?
a. The company must have had net income equal to zero in 2017.
b. The company did not pay a dividend in 2017.
c. If the company’s net income in 2017 was $200 million, dividends paid must have also equaled $200 million.
d. If the company lost money in 2017, they must have paid a dividend.
e. None of the statements above is correct.
Q4. The CFO of Mulroney Brothers has suggested that the company should issue $300 million worth of common stock and use the proceeds to reduce some of the company’s outstanding debt. Assume that the company adopts this policy, and that total assets and operating income (EBIT) remain the same. The company’s tax rate will also remain the same. Which of the following will occur:
a. The company’s net income will increase.
b. The company’s taxable income will fall.
c. The company will pay less in taxes.
d. All of the answers above are correct.
e. Answers b and c are correct.
Q5. Your corporation has the following cash flows:
Operating income $250,000
Interest received 10,000
Interest paid 45,000
Dividends received 20,000
If the applicable income tax rate is 40 percent (federal and state combined), and if 70 percent of dividends received are exempt from taxes, what is the corporation’s tax liability?
Q6. Financial managers should strive to maximize the current value per share of the existing stock because:
a. doing so guarantees the company will grow in size at the maximum possible rate.
b. doing so increases the salaries of all the employees.
c. the current stockholders are the owners of the corporation.
d. doing so means the firm is growing in size faster than its competitors.
e. the managers often receive shares of stock as part of their compensation.
Q7. The decisions made by financial managers should all be ones which increase the:
a. size of the firm.
b. growth rate of the firm.
c. marketability of the managers.
d. market value of the existing owners’ equity.
e. financial distress of the firm.
Q8. What is the primary goal of financial management?
a. Increased earnings
b. Maximizing cash flow
c. Maximizing shareholder wealth
d. Minimizing risk of the firm
e. All of the above
Q9. The Sarbanes-Oxley Act was passed in an effort to
a. protect small business from large corporations dominating the market.
b. ensure that partnerships divide profits among partners in a fair manner.
c. guarantee outside auditors can control corporate accounting practices.
d. control corrupt corporate behavior.
e. a and b above
Q10. The Sarbanes-Oxley Act set up the Public Company Accounting Oversight Board with the responsibility for all of the following except
a. auditing standards within companies.
b. controlling the quality of audits.
c. Certifying the competence of financial executives.
d. setting rules and standards for the independence of auditors.
e. All the above
Q11. Which of the following is not one of the three basic financial statements?
a. Income Statement
b. Statement of Retained Earnings
c. Statement of Cash Flows
d. Balance Sheet
e. All the above
Q12. A firm has $2,000,000 in its common stock account and $20,000,000 in its paid-in capital account. The firm issued 500,000 shares of common stock. What is the par value of the common stock?
a. $40 per share
b. $44 per share
$4 per share
d. $3 per share
e. None of the above
Q13. Which of the following would not be classified as a current asset?
a. Marketable securities
c. Prepaid expenses
Q14. Asset accounts on the balance sheet are listed in the order of:
e. c and d above
Q15. How many of the following items are found on the balance sheet, rather than the income statement?
Income tax expense
Selling and administrative expenses
Plant and equipment
a. 3 of these items are found on the balance sheet
b. 4 of these items are found on the balance sheet
c. 5 of these items are found on the balance sheet
d. 6 of these items are found on the balance sheet
e. All the items can be found in the balance sheet.