One of the key functions of financial management is the allocation of existing r

Question

1. One of the key functions of financial management is the allocation of existing resources with the expectation of reaping benefits in the present. True/False.
2. The relationship between investment, that is, allocation of resources and returns (future benefits) is symmetrical. True/False.
3. The benefit stream from investments is uncertain because it may fall short of the expected return or it may exceed the initial estimate. True/False.
4. Uncertainty can be managed and avoided. True/False.
5. For successful financial management, the external environment is not important. True/False.
6. An important part of any planning discipline is the sensitivity testing of the results to approximate the probable impacts of changing circumstances. True/False.
7. It is prudent to predict the impact of changed sales volume on profitability in the abstract. True/False.
8. The uncertainties that make forecasting such a hazardous endeavor are viewed by management as business risks. True/False.
9. In monopolistic situations, the risk is very high. True/False.
10. Risk is the convergence likely to be experienced from the expected returns. True/False.
11. A risk averse manager will accept an even bet. True/False.
12. All investments that lie on the Capital Market Line (CML) is inefficient. True/False.
13. Interest, the time value of money, is the price paid to potential lenders and investors to induce them to consume. True/False.
14. The use of any fund entails an opportunity cost as it can be invested elsewhere and earns a return. True/False.

Explanation / Answer

One of the key functions of financial management is the allocation of existing resources with the expectation of reaping benefits in the present. True/False. It is future benefits. Not present The relationship between investment, that is, allocation of resources and returns (future benefits) is symmetrical. True/False. The benefit stream from investments is uncertain because it may fall short of the expected return or it may exceed the initial estimate. True/This is why we have risk associated with investments Uncertainty can be managed and avoided. True/False. We can manage it to some degree and try to minimize it (risk averse) but we cannot completely eliminate or avoid it. For successful financial management, the external environment is not important. True/False. An important part of any planning discipline is the sensitivity testing of the results to approximate the probable impacts of changing circumstances. True/False. It is prudent to predict the impact of changed sales volume on profitability in the abstract. True/False. The uncertainties that make forecasting such a hazardous endeavor are viewed by management as business risks. True/False. In monopolistic situations, the risk is very high. True/False. Risk is the convergence likely to be experienced from the expected returns. True/False. A risk averse manager will accept an even bet. True/False. A risk averse manager would not accept a 50/50 bet. All investments that lie on the Capital Market Line (CML) is inefficient. True/False. Just the opposite, these are efficient. Interest, the time value of money, is the price paid to potential lenders and investors to induce them to consume. True/False. The use of any fund entails an opportunity cost as it can be invested elsewhere and earns a return. True/False.

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