Financial Management - Study Mode

[#1181] Financial risk is most associated with_______________.
Correct Answer

(B) the use of debt financing by corporations

Explanation

Solution: Financial risk is most associated with the use of debt financing by corporations. Financial risk is the risk that a company won't be able to meet its obligations to pay back its debts. Which in turn could mean that potential investors will lose the money invested in the company. The more debt a company has, the higher the potential financial risk.

[#1182] Retained earnings are ?
Correct Answer

(D) the cumulative earnings of the company after dividends.

Explanation

Solution: Retained earnings are the cumulative earnings of the company after dividends. Retained earnings are the profits that a company has earned to date, less any dividends or other distributions paid to investors. This amount is adjusted whenever there is an entry to the accounting records that impacts a revenue or expense account.

[#1183] Which of the following factors does not affect the capital structure of a company?
Correct Answer

(B) Composition of the current assets

Explanation

Solution: Composition of the current assets does not affect the capital structure of a company. Current assets include cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities, and other liquid assets.

[#1184] Political stability is the major factor concerning_______________.
Correct Answer

(D) country risk

Explanation

Solution: Political stability is the major factor concerning country risk. Political stability in this case refers to the lack of real competition for the governing elite. The 'politically stable' system enforces stringent barriers to personal freedoms.

[#1185] Arbitrage is the level processing technique introduced in _________.
Correct Answer

(B) MM approach

Explanation

Solution: Arbitrage is the level processing technique introduced in MM approach. Arbitrage is the simultaneous purchase and sale of an asset to profit from an imbalance in the price.