Question 1

Which of the following is not a financial asset?

Accepted Answer

A) common stock 
B) bank loans 
C) preferred stock 
D) buildings 
A) common stock 
B) bank loans 
C) preferred stock 
D) buildings D

Question 2

Mr. Free has $100 income this year and zero income next year. The market interest rate is 10 percent per year. If Mr. Free consumes $30 this year and invests the rest in the market, what will be his consumption next year?

Accepted Answer

A) $50 
B) $55 
C) $77 
D) $100 
A) $50 
B) $55 
C) $77 
D) $100 C

Question 3

The ultimate financial goal of a corporation is to:

Accepted Answer

A) minimize stockholder risk. 
B) maximize profit. 
C) maximize the value of the corporation to the stockholders. 
D) increase size of the firm. 
A) minimize stockholder risk. 
B) maximize profit. 
C) maximize the value of the corporation to the stockholders. 
D) increase size of the firm. C

Question 4

Which of the following assets is tangible?

Accepted Answer

A) ExxonMobil's corporate headquarters building 
B) Apple Inc.'s trademark 
C) Hewlett-Packard's most recent printer patent 
D) Microsoft's technical expertise 
A) ExxonMobil's corporate headquarters building 
B) Apple Inc.'s trademark 
C) Hewlett-Packard's most recent printer patent 
D) Microsoft's technical expertise

Question 5

Briefly explain the term limited liability.

Accepted Answer

The shareholders of a corporation cannot

Question 6

A corporation, potentially, has infinite life because it

Accepted Answer

A) is a legal entity. 
B) has the same ownership and management. 
C) has limited liability. 
D) is closely regulated. 
A) is a legal entity. 
B) has the same ownership and management. 
C) has limited liability. 
D) is closely regulated.

Question 7

A corporation may incur agency costs because:

Accepted Answer

A) Managers may not attempt to maximize the value of the firm to shareholders. 
B) Shareholders incur monitoring costs. 
C) Of the separation of ownership and management. 
D) All of the responses are correct. 
A) Managers may not attempt to maximize the value of the firm to shareholders. 
B) Shareholders incur monitoring costs. 
C) Of the separation of ownership and management. 
D) All of the responses are correct.

Question 8

The following are examples of tangible assets except:

Accepted Answer

A) machinery only. 
B) machinery and office buildings only. 
C) training courses for employees only. 
D) machinery, office buildings, and warehouses only. 
A) machinery only. 
B) machinery and office buildings only. 
C) training courses for employees only. 
D) machinery, office buildings, and warehouses only.

Question 9

Costs associated with the conflicts of interest between the managers and the shareholders of a corporation are called:

Accepted Answer

A) legal costs. 
B) bankruptcy costs. 
C) administrative costs. 
D) agency costs. 
A) legal costs. 
B) bankruptcy costs. 
C) administrative costs. 
D) agency costs.

Question 10

Explain the term corporation.

Accepted Answer

A corporation is a legal entit

Question 11

Briefly explain the functions of financial markets.

Accepted Answer

There are five important functions of fi

Question 12

Explain why "maximization of shareholders' wealth" is the appropriate ultimate, long-term goal of the firm.

Accepted Answer

Under perfect market conditions, everyon

Question 13

Shareholders of a corporation may be, among others,

Accepted Answer

A) individuals. 
B) individuals and pension funds. 
C) pension funds. 
D) individuals, pension funds, and insurance companies. 
A) individuals. 
B) individuals and pension funds. 
C) pension funds. 
D) individuals, pension funds, and insurance companies.

Question 14

Briefly explain the term agency costs as related to a corporation.

Accepted Answer

Agency costs arise in a corporation as a

Question 15

Briefly explain how individuals can adjust their current and future consumption according to their preferences.

Accepted Answer

Individuals can adjust their preferences

Question 16

Mr. Smith has an income of $40,000 this year and $60,000 next year. He can invest in a project that costs $30,000 this year, which generates an income of $36,000 next year. The market interest rate is 10 percent. What will be his consumption next year if Mr. Smith invests in the project and consumes $50,000 this year?

Accepted Answer

A) $40,000 
B) $52,000 
C) $60,000 
D) $62,000 
A) $40,000 
B) $52,000 
C) $60,000 
D) $62,000

Question 17

The sale of financial assets by a corporation is also referred to as the

Accepted Answer

A) capital budgeting decision. 
B) CFO decision. 
C) financing decision. 
D) investment decision. 
A) capital budgeting decision. 
B) CFO decision. 
C) financing decision. 
D) investment decision.

Question 18

Generally, a corporation is owned by its

Accepted Answer

A) managers. 
B) board of directors and shareholders. 
C) shareholders. 
D) managers, board of directors, and shareholders. 
A) managers. 
B) board of directors and shareholders. 
C) shareholders. 
D) managers, board of directors, and shareholders.

Question 19

Briefly explain the sequence of cash flows between financial markets and the firm.

Accepted Answer

• Cash is raised by selling financial as

Question 20

Briefly discuss the role of financial managers.

Accepted Answer

Chief financial officer (CFO): Supervise

Exam 1: Introduction to Corporate Finance

Which of the following is not a financial asset?

Mr. Free has $100 income this year and zero income next year. The market interest rate is 10 percent per year. If Mr. Free consumes $30 this year and invests the rest in the market, what will be his consumption next year?

The ultimate financial goal of a corporation is to:

Which of the following assets is tangible?

Briefly explain the term limited liability.

A corporation, potentially, has infinite life because it

A corporation may incur agency costs because:

The following are examples of tangible assets except:

Costs associated with the conflicts of interest between the managers and the shareholders of a corporation are called:

Explain the term corporation.

Briefly explain the functions of financial markets.

Explain why "maximization of shareholders' wealth" is the appropriate ultimate, long-term goal of the firm.

Shareholders of a corporation may be, among others,

Briefly explain the term agency costs as related to a corporation.

Briefly explain how individuals can adjust their current and future consumption according to their preferences.

The sale of financial assets by a corporation is also referred to as the

Generally, a corporation is owned by its

Briefly explain the sequence of cash flows between financial markets and the firm.

Briefly discuss the role of financial managers.

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters