Principle of Finance 1 Final exam

Principle of Finance 1 Final exam






1.The marginal (added) benefits of the proposed new robotics is ;

The benefits from new robotics is $560,000

The benefits from the existing robotics is $400,000

The magical benefits is calculated by subtracting the new with the existing robotics.

Therefore; =$560,000 – $400,000


2.The marginal (added) cost of the proposed new robotics is

Marginal added cost will be calculated by subtracting the sale of old robotics with the initial cash investments.

=$220,000- $70,000


3.The net benefit of the proposed new robotics is $

The net benefits is calculated by subtracting marginal costs from marginal benefits.

= $160,000- $150,000


4.Ken Allen should recommend that the company: (Select the best answer below)

a. to not replace the existing robotics because the net profit is positive

b. replace the existing robotics because the net profit is positive.

This is because the net benefits that the shareholders get make them more profits.

5. Other factors that should be considered before the final decision is made are: (Choose all that apply)

a. What will the energy consumption of the new robotics.

c. Whether even better robotics may be available in a short while

d. Whether there will be additional training necessary with the new robotics


According to (Bryman & Bell, 2015), maximizing shareholders wealth involves weighing out the suggested or proposed ideas on the amount of cash flow, time and the risks to take. The use of “subject to ethical constraints” means that ethics play a big role in business whereby decisions that are important should be ethical. Some of the suggested or proposed ideas might either be ethical or unethical.

As shared by (Rothaermel, 2015), the unethical ideas never make it to be prioritized or considered for the business. An example of an ethical idea that can be made a decision in a business includes being careful with the quality and durability of a product, being careful with the environment despite having the community raise a complaint and not estimating the future’s cash flow for purposes of getting.

These examples are likely to delay the duration of cash inflows or put the cash flows at a higher risk in future which will lead to a reduction on the price of the stock which is in relation to what could be expected if one acted unethically. This is because the amount of money might be used might take a period or certain duration of time, but that time is likely to be similar when one wants to do it unethically.

The company or firm can be putting to consideration on the laws and regulations. There should be laws and regulations that are able to control the cash inflows and stock prices. These laws should involve controlling the capital needed in the firm and the stock prices. An agreement also should be put in paper for the number of shares or stock that ought to be given to shareholders and their percentage of ownership as well.

As much as cash outflows should be put to consideration in a company, unethical ways like hiring immigrants to work for the company or firm in order to reduce costs spent on paying employees and maximizing on the cash inflows of the company is wrong. This might be beneficial to the company but it would be illegal and unethical. This might make the company lose too much more when they are sued compared to what they spend.


Ethical issues might arise when a corporate insider wants to buy or sell shares in the firm where he or she works. Working in a company can have someone be tempted to tip other colleagues, friends or relatives on certain information concerning the shares of the company, which is usually nonpublic information which is forbidden and is Illegal. This is because it tempts an individual to either sell shares or buy for their own gain (Carroll & Buchholtz, 2014).

The non-public information is usually defined as that information that an investor who is rational would put into consideration before making a decision on either buying or selling in a firm. This usually limits trading in a company which will discourage the company from making profits. It is therefore necessary that there are no signs of unethical conduct when looking into buying or selling a firm’s shares.

Firm’s should encourage their employees to invest for a long period of time and not short term period to avoid such unethical decisions. Usually investing for a short term period of time in a firm one works for gives the impression that there is a possibility of being tipped with non-public information which promotes insider trading. Thus having long term will even give hope to other potential investors to put their investment in that firm.

In order to discourage insider trading and tipping and non-public information, policies in a firm should be set in order to regulate the unethical decisions. When an employee has access to that information, he or she might get tempted and use it unethically like for instance selling such an information to investors who have interests in the firm’s shares. Thus a security trading policy is very essential.

An employee can decide to boycott by refusing to work with other people, investors or a country because of the access to the shares. This might make some employees feel more superior to the others especially when they have many shares in the firm. This thus disrupts the work ethic of that employee and it also influences loses in the company. Such an act is very unethical. Anti-boycott laws should be applied in such cases.


I would select the provisions on audits and auditors. It is responsible for establishing the public company accounting oversight board which comprises of five members. The board works for a period of two hundred and seventy days. It is usually deformed by the issuers. The SEC exercises powers like approving rules and amending them, is responsible for disciplinary including on the board of members.

According to (Bryman & Bell, 2015) independent and registered public accounting firms must report to the oversight board. The independent public accounting firms ought to be registered first by the oversight board. An inspection of the public accounting firms are usually done for a period of at least three years by the oversight board to check on their progress and if at all there is any disciplinary problems.

It frequently does a review on the audit partner and is responsible for the rotation of the lead audit partner. It also does not grant permission an audit firm that is responsible for giving the issuer audit services from conducting some revives which are not for auditing. They also need some form of permission from the audit Committee on the services that are not for auditing which are usually not forbidden.

It restricts an audit firm from giving its services to a public company especially when one of the members in the management level of the issuer has been involved in engaging in audit for the past year. Audit and auditors are able to use the public company audit Committee standards. These standards deal with appointment, they are able to approve the audit and non-audit services for the firm.

(Babbie, 2015) shares how the public company audit Committee standards has its perspective issues have them reported to the firm. The process for raising complaints that focuses on accounting in general and auditing firms should be established. Confidential information and the complaints from employees are established as well. Authority is usually needed when independent advisors should be involved.


The financial manager will be seen ethical when he or she will deliver the news before announcing or going public. The investors are among one of the most important people or corporation in a company. They are the determinants of the company’s future. Thus before making a decision it is always ethical to inform them so that they can be on he know and be prepared psychologically and economically for those changes (Babbie, 2015).

The sudden material change needs the approval of the investors. Thus the financial manager should make an effort and present some of the materials that he or she has in mind and wait for an approval. The approval of the material changes can be done by the firm’s board of members. They are usually the determinant of a company or firm’s future. A positive approval from the board will reduce the time spent in further tests and investigations.

Preparing the customers as well is very essential. (Carroll & Buchholtz, 2014) states that any firm or company cannot prosper alone without having its customers. This can be done by good advertisement. Before the press release good advertisement on the new product in the market should be put as a priority. This will enable the customers have the knowledge they need concerning the project and they will be looking forward to promoting the same company.

A feasibility study on that change should be done before any presentation or advertisement. This should not be done drastically because of the greed for money but for the long term prosperity of the company. The results should give enough reasons why it essential to introduce or make that drastic decision to change a product. This should also come with a financial projection once the material has been introduced in the market (Carroll & Buchholtz, 2014).

A financial manager should also be interested in looking at the amount of money used in the new materials and the expected profit margin. If the analyzed prediction is positive and the profit margin is positive then it is worth being invested in. The money invested in the project should be able to pay for a consistent flow of that project and also for the profits of the firm and the investors.


Payday loans are loans given to individuals that lasts till the last payday. It is usually a small type of loan and it is the easiest way to get a loan. It is a personal loan that is meant for a short period of time. Its industry works within the economic sector. However the pay day loans do not have very high, extreme interest rates that would threaten the potential entrepreneur in investing.

I would first listen to the arguments claimed by the manager. The reasons behind the utterance of such words and identify whether he or she is involved in any unethical activities. As the manager, the company should be running smoothly and the customers should not just be walking in because they have no other choice but because they get good customer services from that company.

According to (Carroll & Buchholtz, 2014)), an evaluation on the normal functionality of the firm is also very essential. Looking into the best interests of the borrowers. First I would identify the interest rates in order to ensure that they are not exaggerated. Exaggerated interest rates make the manager or the company fail, look bad and unethical. These loans usually take a period measured in weeks or a month, thus hiking interest rates will strain the borrower.

I old disagree with the manager and have him understand the benefits of having good customer service, how it is very essential for having a good relationship with customers and regulated interest rates that are not exaggerated. I would also advise him on how he or she should market his company and win the affection of the customers, those kind of customers who will be constantly going there.

As much as the manager might not force the customers to acquire his services, however much a business is prospering or it might be the only one offering those services, being able to deliver to the expectations of the customer and satisfying their urgency or need is very essential. This not only applies to payday companies or firms only but several other companies as well.


I do not believe or support that practice. The bonds have their ratings issued out in times when the bonds are being rated. The bond and the issuers of the bond are usually interested in seeing that their change can be warranted. (Ferrell & Fraedrich, 2015) shares that bond ratings are usually very important for both the firm and company and for the investor. It gives out clear information concerning the company or firm which the investor should know and it also motivates the firm to set better goals.

The ratters get a lot of money as payment in return for their services of rating bonds. They acquire benefits inform of profits for being able to analyze those bonds. The nonpublic information provided to the ratters is very much legal. Having companies and investors pay for that analysis is illegal. It might seem that they are using some form of manipulation in order to get their funds.

That practice is illegal according to the law. Once that agency is caught performing such an act it becomes very bad for their business which eventually hinder their profits. The agency might waste a period of time trying to clean their agency’s name which will be very difficult. The information provided by the agency will be limited to certain people because of lack of financing.

This practice is also very unethical. As an agency company, it should be able to acquire those ratings from a credible and reliable source which is not acquired through improper channels. This practice will have employees betraying their firms or employers because of greed, and sharing out information that they should not be sharing. Thus making the employees commit a crime and support poor work ethics.

This can have certain companies encounter loses that won’t be good for business. With such information the investors might decide to either invest or pull out their shares from the company depending on its performance. This determines the future of a company. It can either contribute to building it or lead it to its doom. All these are based on the bond analyzed rates that show clear prediction of the firm or company.

12. What should be the primary goal of Sirius XM management?

A. generate efficiency.

B. maximize profits.

C. minimize costs.

D. maximize stock price.

13. Stock prices responding instantly to the release of new information illustrate which of the following concepts?

A. investor acumen.

B. profitability.

C. market efficiency.

D. none of the above.

14. Which of the following is not a form of the efficient markets hypothesis?

A. semi-strong form.

B. weak form.

C. super-strong form.

D. strong form.


A Bryman, E Bell, (2015), Business research methods

OC Ferrell, J Fraedrich, (2015), Business ethics: Ethical decision making and cases

FT Rothaermel, (2015), Strategic management

A Carroll, A Buchholtz, (2014), Business and society: Ethics, sustainability and stakeholder management

ER Babbie, (2015), The practice of social research.