What is the primary objective of financial management?

The primary objective of financial management is to maximize shareholder's wealth through optimal capital structure and proper utilization of funds.

Fill in the blanks: Financial management is concerned with the planning, raising, controlling, and administering of funds used in the ___.

Business

True or False: The safety of funds in financial management refers to minimizing the chances of risk in investments.

True

Riddle: I am essential for starting and running a business, ensuring smooth operations and maximizing wealth. What am I?

Business finance

What must be maintained to ensure smooth operations of a business?

An adequate and regular supply of funds.

Fill in the blank: A sound and economical combination of shares and debentures is necessary to maintain ___ capital structure.

Optimum

Which aspect of financial management ensures that funds are effectively utilized?

Effective utilization of funds refers to using available resources in the most efficient way to achieve business goals.

What are the three main financial decisions every company must make?

Investment decision, financing decision, and dividend decision.

Investment decisions can be classified into two categories: ___ and ___.

Long-term and short-term.

True or False: Short-term investment decisions, also known as capital budgeting decisions, are reversible at little cost.

False. Short-term investment decisions are called working capital decisions, while long-term investment decisions are called capital budgeting decisions and are typically irreversible at little cost.

What is the primary consideration when evaluating investment proposals?

The series of cash flows, expected rate of return, and the associated risk of each proposal.

Riddle: I am a financial decision that determines how a company raises funds. I can involve debt or equity. What am I?

Financing decision.

Fill in the blank: The risk associated with borrowed funds is known as ___ risk.

Financial.

What distinguishes owner’s funds from borrowed funds in financing decisions?

Owner’s funds have no fixed repayment commitment, while borrowed funds must be repaid at a fixed time and incur interest regardless of profit.

Which type of investment decision involves high amounts of funds and is irreversible?

Long-term investment decision or capital budgeting decision.

What are the main factors that influence financing decisions in a business?

The main factors include cost, risk, flotation costs, cash flow position, control considerations, state of capital markets, and the period of finance.

True or False: Higher flotation costs make a source of finance more attractive.

False. Higher flotation costs make a source of finance less attractive.

Fill in the blank: If existing shareholders want to retain complete control of the business, they should raise finance through ___ funds.

Borrowed

Riddle: I can help you grow, but too much of me can lead to trouble. I have a cost, and I often need to be repaid. What am I?

Debt

Short Answer: Why is it important to consider the cash flow position of a business when making financing decisions?

Because a good cash flow position allows a company to use borrowed funds and pay interest on time.

During a boom in the capital markets, which type of finance is easier to raise by issuing shares?

Equity finance.

What is the relationship between the state of capital markets and the ease of raising finance?

During a boom, it is easier to raise finance through equity, while during a depression, it is easier to raise finance through debt.

Fill in the blank: The decision regarding how much profit to distribute as dividends and how much to retain should focus on maximizing ___ wealth.

Shareholder