Question 1

Globalization of business has been facilitated by improvements in telecommunications.

Accepted Answer

A) True 
 B)False  True

Question 2

Managers always attempt to maximize the long-run value of their firms' stocks, or the stocks' intrinsic values. This is exactly what stockholders desire. Thus, conflicts between stockholders and managers are not possible. However, there can be conflicts between stockholders and bondholders.

Accepted Answer

A) True 
 B)False  False

Question 3

Relaxant Inc. operates as a partnership. Now the partners have decided to convert the business into a corporation. Which of the following statements is CORRECT?

Accepted Answer

A)  Relaxant's shareholders (the ex-partners) will now be exposed to less liability. 
B)  The company will probably be subject to fewer regulations and required disclosures. 
C)  Assuming the firm is profitable, none of its income will be subject to federal income taxes. 
D)  The firm's investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. 
E)  The firm will find it more difficult to raise additional capital to support its growth. 
A)  Relaxant's shareholders (the ex-partners) will now be exposed to less liability. 
B)  The company will probably be subject to fewer regulations and required disclosures. 
C)  Assuming the firm is profitable, none of its income will be subject to federal income taxes. 
D)  The firm's investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. 
E)  The firm will find it more difficult to raise additional capital to support its growth. A

Question 4

If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all Federal taxes. This provision was put into the Federal Tax Code in order to encourage the formation of small businesses.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is CORRECT?

Accepted Answer

A)  Compensating managers with stock options can do nothing to help eliminate potential conflicts between stockholders and managers. 
B)  Restrictions can be included in credit agreements, but these restrictions can do nothing to protect bondholders from conflicts of interest between them and the firm's managers and stockholders. 
C)  The threat of takeovers reduces conflict of interest problems, but only between bondholders and stockholders. 
D)  Compensating managers with stock options can help reduce conflicts of interest between stockholders and managers, but if the options are all exercisable on a specific date in the near future, this can motivate managers to do something other than try to maximize the stock's intrinsic value. 
E)  Conflicts would not exist if the Security and Exchange Commission were abolished. 
A)  Compensating managers with stock options can do nothing to help eliminate potential conflicts between stockholders and managers. 
B)  Restrictions can be included in credit agreements, but these restrictions can do nothing to protect bondholders from conflicts of interest between them and the firm's managers and stockholders. 
C)  The threat of takeovers reduces conflict of interest problems, but only between bondholders and stockholders. 
D)  Compensating managers with stock options can help reduce conflicts of interest between stockholders and managers, but if the options are all exercisable on a specific date in the near future, this can motivate managers to do something other than try to maximize the stock's intrinsic value. 
E)  Conflicts would not exist if the Security and Exchange Commission were abolished.

Question 6

A stock's market price would equal its intrinsic value if all investors had all the information that is available about the stock. In this case the stock's market price would equal its intrinsic value.

Accepted Answer

A) True 
 B)False

Question 7

The Chairman of the Board must also be the CEO.

Accepted Answer

A) True 
 B)False

Question 8

A hostile takeover is said to occur when another corporation or group of investors gains voting control over a firm and replaces the old managers. If the old managers were managing the firm inefficiently, then hostile takeovers can improve the economy. However, hostile takeovers are controversial, and legislative actions have been taken to make them more difficult to undertake.

Accepted Answer

A) True 
 B)False

Question 9

In order to maximize its shareholders' value, a firm's management must attempt to maximize the expected EPS.

Accepted Answer

A) True 
 B)False

Question 10

The bankruptcy of Enron Corporation, and the fraud committed by some of its officers, has led to some important changes in business practices.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is CORRECT?

Accepted Answer

A)  Hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management. 
B)  The efficiency of the U.S. economy would probably be increased if hostile takeovers were absolutely forbidden. 
C)  Hostile takeovers are most likely to occur when a firm's stock sells at a price above its intrinsic value because its management has been issuing overly optimistic statements about its likely future performance. 
D)  In general, it is more in bondholders' interests than stockholders' interests for a firm to shift its investment focus away from safe, stable investments and into risky investments, especially those that involve primarily research and development. 
E)  Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value. 
A)  Hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management. 
B)  The efficiency of the U.S. economy would probably be increased if hostile takeovers were absolutely forbidden. 
C)  Hostile takeovers are most likely to occur when a firm's stock sells at a price above its intrinsic value because its management has been issuing overly optimistic statements about its likely future performance. 
D)  In general, it is more in bondholders' interests than stockholders' interests for a firm to shift its investment focus away from safe, stable investments and into risky investments, especially those that involve primarily research and development. 
E)  Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value.

Question 12

In most corporations, the CFO ranks under the CEO.

Accepted Answer

A) True 
 B)False

Question 13

It is generally

Accepted Answer

A) True 
 B)False

Question 14

It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required.

Accepted Answer

A) True 
 B)False

Question 15

There are many types of unethical business behavior. One example is where executives provide information that they know is incorrect to banks and to stockholders. It is illegal to provide such information to banks, but it is not illegal to provide it to stockholders because they are the owners of the firm, not outsiders.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is CORRECT?

Accepted Answer

A)  One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership. 
B)  Corporations face fewer regulations than sole proprietorships. 
C)  One disadvantage of operating a business as a sole proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the owner level. 
D)  It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required. 
E)  If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business. 
A)  One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership. 
B)  Corporations face fewer regulations than sole proprietorships. 
C)  One disadvantage of operating a business as a sole proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the owner level. 
D)  It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required. 
E)  If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.

Question 17

Which of the following statements is CORRECT?

Accepted Answer

A)  One of the advantages of the corporate form of organization is that it avoids double taxation. 
B)  It is easier to transfer one's ownership interest in a partnership than in a corporation. 
C)  One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. 
D)  One of the advantages of a corporation from a social standpoint is that estockholder has equal voting rights, i.e., "one person, one vote." 
E)  Corporations of all types are subject to the corporate income tax. 
A)  One of the advantages of the corporate form of organization is that it avoids double taxation. 
B)  It is easier to transfer one's ownership interest in a partnership than in a corporation. 
C)  One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. 
D)  One of the advantages of a corporation from a social standpoint is that estockholder has equal voting rights, i.e., "one person, one vote." 
E)  Corporations of all types are subject to the corporate income tax.

Question 18

Which of the following statements is CORRECT?

Accepted Answer

A)  Corporations generally face fewer regulations than sole proprietorships. 
B)  Corporate shareholders are exposed to unlimited liability. 
C)  It is usually easier to transfer ownership in a corporation than in a partnership. 
D)  Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. 
E)  There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is small. 
A)  Corporations generally face fewer regulations than sole proprietorships. 
B)  Corporate shareholders are exposed to unlimited liability. 
C)  It is usually easier to transfer ownership in a corporation than in a partnership. 
D)  Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. 
E)  There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is small.

Question 19

If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy.

Accepted Answer

A) True 
 B)False

Question 20

If a stock's intrinsic value is greater than its market price, then the stock is overvalued and should be sold.

Accepted Answer

A) True 
 B)False

Globalization of business has been facilitated by improvements in telecommunications.

Managers always attempt to maximize the long-run value of their firms' stocks, or the stocks' intrinsic values. This is exactly what stockholders desire. Thus, conflicts between stockholders and managers are not possible. However, there can be conflicts between stockholders and bondholders.

Relaxant Inc. operates as a partnership. Now the partners have decided to convert the business into a corporation. Which of the following statements is CORRECT?

If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all Federal taxes. This provision was put into the Federal Tax Code in order to encourage the formation of small businesses.

Which of the following statements is CORRECT?

A stock's market price would equal its intrinsic value if all investors had all the information that is available about the stock. In this case the stock's market price would equal its intrinsic value.

The Chairman of the Board must also be the CEO.

In order to maximize its shareholders' value, a firm's management must attempt to maximize the expected EPS.

The bankruptcy of Enron Corporation, and the fraud committed by some of its officers, has led to some important changes in business practices.

Which of the following statements is CORRECT?

In most corporations, the CFO ranks under the CEO.

It is generally

It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy.

If a stock's intrinsic value is greater than its market price, then the stock is overvalued and should be sold.

Financial Markets and Institutions

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds and Their Valuation

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Real Options and Other Topics in Capital Budgeting

Capital Structure and Leverage

Distributions to Shareholders: Dividends and

Working Capital Management

Financial Planning and Forecasting

Derivatives and Risk Management

Multinational Financial Management

Hybrid Financing: Preferred Stock, Leasing, Warrants, and Convertibles

Mergers and Acquisitions

Financial Management and Stock Equilibrium

Filters

Exam 1: An Overview of Financial Management

Globalization of business has been facilitated by improvements in telecommunications.

Managers always attempt to maximize the long-run value of their firms' stocks, or the stocks' intrinsic values. This is exactly what stockholders desire. Thus, conflicts between stockholders and managers are not possible. However, there can be conflicts between stockholders and bondholders.

Relaxant Inc. operates as a partnership. Now the partners have decided to convert the business into a corporation. Which of the following statements is CORRECT?

If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all Federal taxes. This provision was put into the Federal Tax Code in order to encourage the formation of small businesses.

Which of the following statements is CORRECT?

A stock's market price would equal its intrinsic value if all investors had all the information that is available about the stock. In this case the stock's market price would equal its intrinsic value.

The Chairman of the Board must also be the CEO.

In order to maximize its shareholders' value, a firm's management must attempt to maximize the expected EPS.

The bankruptcy of Enron Corporation, and the fraud committed by some of its officers, has led to some important changes in business practices.

Which of the following statements is CORRECT?

In most corporations, the CFO ranks under the CEO.

It is generally

It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy.

If a stock's intrinsic value is greater than its market price, then the stock is overvalued and should be sold.

Financial Markets and Institutions

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds and Their Valuation

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Real Options and Other Topics in Capital Budgeting

Capital Structure and Leverage

Distributions to Shareholders: Dividends and

Working Capital Management

Financial Planning and Forecasting

Derivatives and Risk Management

Multinational Financial Management

Hybrid Financing: Preferred Stock, Leasing, Warrants, and Convertibles

Mergers and Acquisitions

Financial Management and Stock Equilibrium

Filters