Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)  Corporations face few regulations and more favorable tax treatment than do sole proprietorships and partnerships. 
B)  Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value compared to managers who do not face the threat of hostile takeovers. 
C)  Bond covenants are an effective way to resolve conflicts between shareholders and managers. 
D)  Because of their simplified organization, it is easier for sole proprietors and partnerships to raise large amounts of outside capital than it is for corporations. 
E)  One advantage to forming a corporation is that the owners of the firm have limited liability. 
A)  Corporations face few regulations and more favorable tax treatment than do sole proprietorships and partnerships. 
B)  Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value compared to managers who do not face the threat of hostile takeovers. 
C)  Bond covenants are an effective way to resolve conflicts between shareholders and managers. 
D)  Because of their simplified organization, it is easier for sole proprietors and partnerships to raise large amounts of outside capital than it is for corporations. 
E)  One advantage to forming a corporation is that the owners of the firm have limited liability.

Question 2

If someone deliberately understates costs and thereby increases profits, then this can cause the price of the stock to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized.

Accepted Answer

A) True 
 B)False

Question 3

The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to

Accepted Answer

A)  Maximize its expected total corporate income. 
B)  Maximize its expected EPS. 
C)  Minimize the chances of losses. 
D)  Maximize the stock price per share over the long run, which is the stock's intrinsic value. 
E)  Maximize the stock price on a specific target date. 
A)  Maximize its expected total corporate income. 
B)  Maximize its expected EPS. 
C)  Minimize the chances of losses. 
D)  Maximize the stock price per share over the long run, which is the stock's intrinsic value. 
E)  Maximize the stock price on a specific target date.

Question 4

If management operates in a manner designed to maximize the firm's expected profits for the current year, this will also maximize the stockholders' wealth as of the current year.

Accepted Answer

A) True 
 B)False

Question 5

For a stock to be in equilibrium as the book defines it, its market price should exceed its intrinsic value.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and managers?

Accepted Answer

A)  Pay managers large cash salaries and give them no stock options. 
B)  Change the corporation's formal documents to make it easier for outside investors to acquire a controlling interest in the firm through a hostile takeover. 
C)  Beef up the restrictive covenants in the firm's debt agreements. 
D)  Eliminate a requirement that members of the board of directors must hold a high percentage of their personal wealth in the firm's stock. 
E)  For a firm that compensates managers with stock options, reduce the time before options are vested, i.e., the time before options can be exercised and the shares that are received can be sold. 
A)  Pay managers large cash salaries and give them no stock options. 
B)  Change the corporation's formal documents to make it easier for outside investors to acquire a controlling interest in the firm through a hostile takeover. 
C)  Beef up the restrictive covenants in the firm's debt agreements. 
D)  Eliminate a requirement that members of the board of directors must hold a high percentage of their personal wealth in the firm's stock. 
E)  For a firm that compensates managers with stock options, reduce the time before options are vested, i.e., the time before options can be exercised and the shares that are received can be sold.

Question 7

Which of the following actions would be most likely to reduce conflicts of interest between stockholders and bondholders?

Accepted Answer

A)  If a lower level person in a firm does something illegal, like "cooking the books" to understate costs and thereby artificially increase profits because he or she was ordered to do so by a superior, the lower level person cannot be prosecuted but the superior can be prosecuted. 
B)  There are many types of unethical business behavior. One example is where executives provide information that they know is incorrect to outsiders. It is illegal to provide such information to federally regulated banks, but it is not illegal to provide it to stockholders because they are the owners of the firm. 
C)  The bankruptcy of Enron Corporation, and the fraud committed by some of its officers, was much discussed, but it did not lead to any important changes in business practices. 
D)  If someone deliberately understates costs and thereby causes reported profits to increase, then this can cause the price of the stock to rise above its intrinsic value. The stock will probably fall in the future. Both those who participated in the fraud and the firm itself can be prosecuted. 
E)  Ethical behavior is not influenced by training and auditing procedures. People are either ethical or they are not, and this is what determines ethical behavior in business. 
A)  If a lower level person in a firm does something illegal, like "cooking the books" to understate costs and thereby artificially increase profits because he or she was ordered to do so by a superior, the lower level person cannot be prosecuted but the superior can be prosecuted. 
B)  There are many types of unethical business behavior. One example is where executives provide information that they know is incorrect to outsiders. It is illegal to provide such information to federally regulated banks, but it is not illegal to provide it to stockholders because they are the owners of the firm. 
C)  The bankruptcy of Enron Corporation, and the fraud committed by some of its officers, was much discussed, but it did not lead to any important changes in business practices. 
D)  If someone deliberately understates costs and thereby causes reported profits to increase, then this can cause the price of the stock to rise above its intrinsic value. The stock will probably fall in the future. Both those who participated in the fraud and the firm itself can be prosecuted. 
E)  Ethical behavior is not influenced by training and auditing procedures. People are either ethical or they are not, and this is what determines ethical behavior in business.

Which of the following statements is CORRECT?

If someone deliberately understates costs and thereby increases profits, then this can cause the price of the stock to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized.

The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to

If management operates in a manner designed to maximize the firm's expected profits for the current year, this will also maximize the stockholders' wealth as of the current year.

For a stock to be in equilibrium as the book defines it, its market price should exceed its intrinsic value.

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and managers?

Which of the following actions would be most likely to reduce conflicts of interest between stockholders and bondholders?

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

Which of the following statements is CORRECT?

If someone deliberately understates costs and thereby increases profits, then this can cause the price of the stock to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized.

The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to

If management operates in a manner designed to maximize the firm's expected profits for the current year, this will also maximize the stockholders' wealth as of the current year.

For a stock to be in equilibrium as the book defines it, its market price should exceed its intrinsic value.

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and managers?

Which of the following actions would be most likely to reduce conflicts of interest between stockholders and bondholders?

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