Ch-1 Quiz 2 Financial Management

The main function of a finance manager is to make decisions related to the financial aspects of a company. This includes investment decisions, working capital decisions, and dividend decisions. Planning the material, on the other hand, is not directly related to the financial aspect of the company. It is more of a responsibility for the operations or production department. Therefore, planning the material is not a main function of a finance manager.

The optimum capital structure refers to the ideal combination of debt and equity financing that maximizes the market value of a company's shares. By achieving the maximum market value of shares, a company can attract more investors and increase its overall value. This can be achieved by minimizing the risk associated with the capital structure, as lower risk tends to attract more investors. Additionally, a high dividend payout can also contribute to increasing the market value of shares, as it indicates profitability and attracts income-seeking investors. The cut-off rate is a reference to the minimum acceptable return on investment, which should be considered when determining the optimum capital structure.

Financial management is the process of planning, organizing, directing, and controlling the financial activities of an organization. It encompasses various aspects, including the procurement of funds, effective utilization of funds, and wealth maximization. Procurement of funds involves obtaining the necessary capital to meet the organization's financial needs, while effective utilization of funds focuses on allocating and managing these funds efficiently to achieve the organization's objectives. Wealth maximization aims to increase the value of the organization and its shareholders' wealth. Therefore, financial management is concerned with all of the above aspects.

The correct answer is Harry Markowitz. He is known for developing the theory of portfolio management, which revolutionized the field of finance. Markowitz's theory emphasizes the importance of diversification and the trade-off between risk and return in constructing an investment portfolio. His work laid the foundation for modern portfolio theory and earned him the Nobel Prize in Economics in 1990.

Investment decision is related to capital assets. This is because investment decisions involve allocating funds towards the acquisition or expansion of long-term assets, such as buildings, machinery, equipment, or technology, that are expected to generate future income or provide long-term benefits to the organization. These capital assets are typically held for a longer duration and play a crucial role in the company's operations, productivity, and growth.

The financing decision is related to identifying different sources of funds for a company. This decision involves determining how the company will raise capital to finance its activities. It includes evaluating various options such as taking on debt, issuing equity, or seeking external funding. By identifying different sources of funds, the company can make informed decisions about the most suitable and cost-effective ways to finance its operations and investments.

The given options are related to finance and funding. The correct answer, "effective utilization of fund," refers to the proper and efficient use of funds. This means that it is important to ensure that funds are used in the most effective way possible to achieve the desired outcomes and goals. It involves making strategic decisions on how to allocate and invest funds to maximize their impact and generate the desired returns or benefits. This is crucial for the financial success and sustainability of any organization.

In the modern phase, the feature of effective utilization of funds is added, which was not included in the other phases. This means that in the modern phase, there is a focus on ensuring that the funds available are utilized efficiently and effectively to achieve the desired goals and objectives of the organization. This involves careful planning, monitoring, and controlling of the funds to maximize their impact and avoid any wastage or misuse. By emphasizing effective utilization of funds, organizations can optimize their financial resources and improve overall performance.

The traditional phase of FM is not related to the effective utilization of funds. The traditional phase focuses on the basic functions of financial management, such as financial planning, budgeting, and financial control. It does not specifically address the effective utilization of funds, which is more commonly associated with the modern phase of FM.

The liquidity decision is related to capital assets because capital assets are long-term investments that cannot be easily converted into cash. When making liquidity decisions, a company needs to consider the availability and ease of converting their capital assets into cash to meet short-term financial obligations. Current assets, on the other hand, are more readily convertible to cash and are typically used to meet short-term obligations. Fixed assets and net worth are not directly related to liquidity decisions as they represent long-term investments and the overall value of a company, respectively.