Question 1

In order to maximize its shareholders' value,a firm's management must attempt to maximize the stock price in the long run,or the stock's "intrinsic value."

Accepted Answer

A) True 
 B)False  True

Question 2

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)  The managers of established,stable companies sometimes attempt to get their state legislatures to remove rules that make it more difficult for raiders to succeed with hostile takeovers. 
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 primarily involve 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)  The managers of established,stable companies sometimes attempt to get their state legislatures to remove rules that make it more difficult for raiders to succeed with hostile takeovers. 
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 primarily involve 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

Question 3

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  True

Question 4

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 proprietorship is that the proprietor is exposed to unlimited liability. 
D)  One of the advantages of a corporation from a social standpoint is that every stockholder 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 proprietorship is that the proprietor is exposed to unlimited liability. 
D)  One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights,i.e. ,"one person,one vote." 
E)  Corporations of all types are subject to the corporate income tax.

Question 5

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

Question 6

The Chairman of the Board must also be the CEO.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is CORRECT?

Accepted Answer

A)  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. 
B)  The more capital a firm is likely to require,the smaller the probability that it will be organized as a corporation. 
C)  It is generally easier to transfer one's ownership interest in a partnership than in a corporation. 
D)  One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt.This problem would be avoided if you formed a corporation to operate the business. 
E)  Corporate shareholders are exposed to unlimited liability,but this factor is offset by the tax advantages of incorporation. 
A)  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. 
B)  The more capital a firm is likely to require,the smaller the probability that it will be organized as a corporation. 
C)  It is generally easier to transfer one's ownership interest in a partnership than in a corporation. 
D)  One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt.This problem would be avoided if you formed a corporation to operate the business. 
E)  Corporate shareholders are exposed to unlimited liability,but this factor is offset by the tax advantages of incorporation.

Question 8

The primary operating goal of a publicly-owned firm trying to best serve its stockholders should be to

Accepted Answer

A)  Maximize managers' own interests,which are by definition consistent with maximizing shareholders' wealth. 
B)  Maximize the firm's expected EPS,which must also maximize the firm's price per share. 
C)  Minimize the firm's risks because most stockholders dislike risk.In turn,this will maximize the firm's stock price. 
D)  Use a well-structured managerial compensation package to reduce conflicts that may exist between stockholders and managers. 
E)  Since it is impossible to measure a stock's intrinsic value,the text states that it is better for managers to attempt to maximize the current stock price than its intrinsic value. 
A)  Maximize managers' own interests,which are by definition consistent with maximizing shareholders' wealth. 
B)  Maximize the firm's expected EPS,which must also maximize the firm's price per share. 
C)  Minimize the firm's risks because most stockholders dislike risk.In turn,this will maximize the firm's stock price. 
D)  Use a well-structured managerial compensation package to reduce conflicts that may exist between stockholders and managers. 
E)  Since it is impossible to measure a stock's intrinsic value,the text states that it is better for managers to attempt to maximize the current stock price than its intrinsic value.

Question 9

Which of the following statements is CORRECT?

Accepted Answer

A)  Corporations face few regulations and more favorable tax treatment than do 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 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 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 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 10

In most corporations,the CFO ranks under the CEO.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Which of the following statements is CORRECT?

Accepted Answer

A)  One disadvantage of organizing a business as a corporation rather than a partnership is that the equity investors in a corporation are exposed to unlimited liability. 
B)  Using restrictive covenants in debt agreements is an effective way to reduce conflicts between stockholders and managers. 
C)  Managers generally welcome hostile takeovers since the "raider" generally offers a price for the stock that is higher than the price before the takeover action started. 
D)  The managers of established,stable companies sometimes attempt to get their state legislatures to ​impose rules that make it more difficult for raiders to succeed with hostile takeovers. 
E)  Most business in U.S.is conducted by corporations,and corporations' popularity results primarily from their favorable tax treatment. 
A)  One disadvantage of organizing a business as a corporation rather than a partnership is that the equity investors in a corporation are exposed to unlimited liability. 
B)  Using restrictive covenants in debt agreements is an effective way to reduce conflicts between stockholders and managers. 
C)  Managers generally welcome hostile takeovers since the "raider" generally offers a price for the stock that is higher than the price before the takeover action started. 
D)  The managers of established,stable companies sometimes attempt to get their state legislatures to ​impose rules that make it more difficult for raiders to succeed with hostile takeovers. 
E)  Most business in U.S.is conducted by corporations,and corporations' popularity results primarily from their favorable tax treatment.

Question 13

Which of the following statements is CORRECT?

Accepted Answer

A)  Due to limited liability,unlimited lives,and ease of ownership transfer,the vast majority of U.S.businesses (in terms of number of businesses)are organized as corporations. 
B)  Most businesses (by number and total dollar sales)are organized as proprietorships or partnerships because it is easier to set up and operate one of these forms rather than as a corporation.However,if the business gets very large,it becomes advantageous to convert to a corporation,primarily because corporations have important tax advantages over proprietorships and partnerships. 
C)  Due to legal considerations related to ownership transfers and limited liability,which affect the ability to attract capital,most business (measured by dollar sales)is conducted by corporations in spite of large corporations' less favorable tax treatment. 
D)  Large corporations are taxed more favorably than proprietorships. 
E)  Corporate stockholders are exposed to unlimited liability. 
A)  Due to limited liability,unlimited lives,and ease of ownership transfer,the vast majority of U.S.businesses (in terms of number of businesses)are organized as corporations. 
B)  Most businesses (by number and total dollar sales)are organized as proprietorships or partnerships because it is easier to set up and operate one of these forms rather than as a corporation.However,if the business gets very large,it becomes advantageous to convert to a corporation,primarily because corporations have important tax advantages over proprietorships and partnerships. 
C)  Due to legal considerations related to ownership transfers and limited liability,which affect the ability to attract capital,most business (measured by dollar sales)is conducted by corporations in spite of large corporations' less favorable tax treatment. 
D)  Large corporations are taxed more favorably than proprietorships. 
E)  Corporate stockholders are exposed to unlimited liability.

Question 14

Which of the following statements is CORRECT?

Accepted Answer

A)  A good goal for a firm's management is the maximization of expected EPS. 
B)  Most business in the U.S.is conducted by corporations,and corporations' popularity results primarily from their favorable tax treatment. 
C)  Conflicts can exist between stockholders and managers,but potential conflicts are reduced by the possibility of hostile takeovers. 
D)  Corporations and partnerships have an advantage over proprietorships because a proprietor is exposed to unlimited liability,but the liability of all investors in the other types of businesses is more limited. 
E)  For a stock to be in equilibrium,its intrinsic value must be greater than the actual market price. 
A)  A good goal for a firm's management is the maximization of expected EPS. 
B)  Most business in the U.S.is conducted by corporations,and corporations' popularity results primarily from their favorable tax treatment. 
C)  Conflicts can exist between stockholders and managers,but potential conflicts are reduced by the possibility of hostile takeovers. 
D)  Corporations and partnerships have an advantage over proprietorships because a proprietor is exposed to unlimited liability,but the liability of all investors in the other types of businesses is more limited. 
E)  For a stock to be in equilibrium,its intrinsic value must be greater than the actual market price.

Question 15

Which of the following statements is CORRECT?

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)  If someone deliberately understates costs and thereby causes reported profits to increase,this can cause the stock price 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. 
D)  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. 
E)  ​Ethics is not an important consideration in business and in business schools. 
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)  If someone deliberately understates costs and thereby causes reported profits to increase,this can cause the stock price 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. 
D)  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. 
E)  ​Ethics is not an important consideration in business and in business schools.

Question 16

Which of the following statements is CORRECT?

Accepted Answer

A)  One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than are partners. 
B)  Relative to proprietorships,corporations generally face fewer regulations,and they also find it easier to raise capital. 
C)  There is no good reason to expect a firm's stockholders and bondholders to react differently to the types of assets in which it invests. 
D)  Stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns. 
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)  One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than are partners. 
B)  Relative to proprietorships,corporations generally face fewer regulations,and they also find it easier to raise capital. 
C)  There is no good reason to expect a firm's stockholders and bondholders to react differently to the types of assets in which it invests. 
D)  Stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns. 
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 17

The board of directors is the highest ranking body in a corporation,and the chairman of the board is the highest ranking individual.The CEO generally works under the board and its chairman,and the board generally has the authority to remove the CEO under certain conditions.The CEO,however,cannot remove the board,but he or she can endeavor to have the board voted out and a new board voted in should a conflict arise.It is possible for a person to simultaneously serve as CEO and chairman of the board,though many corporate control experts believe it is bad to vest both offices in the same person.

Accepted Answer

A) True 
 B)False

Question 18

Assume that the corporate tax rate is 34% and the personal tax rate is 30%.The founders of a newly formed business are debating between setting up the firm as a partnership versus a corporation.The firm will not need to retain any earnings,so all of its after-tax income will be paid out to its investors,who will have to pay personal taxes on whatever they receive.What is the difference in the percentage of the firm's pre-tax income that investors actually receive and can spend under the corporate and partnership forms of organization ?

Accepted Answer

A)  22.61% 
B)  23.80% 
C)  21.90% 
D)  23.56% 
E)  28.56% 
A)  22.61% 
B)  23.80% 
C)  21.90% 
D)  23.56% 
E)  28.56%

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

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.

In order to maximize its shareholders' value,a firm's management must attempt to maximize the stock price in the long run,or the stock's "intrinsic value."

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.

Which of the following statements is CORRECT?

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

The Chairman of the Board must also be the CEO.

Which of the following statements is CORRECT?

The primary operating goal of a publicly-owned firm trying to best serve its stockholders should be to

Which of the following statements is CORRECT?

In most corporations,the CFO ranks under the CEO.

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.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

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.

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

Financial Markets and Institutions

Financial Statements,cash Flow and Taxes

Analysis of Financial Statements

Time Value of Money

Interest Rates

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 Share Repurchases

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

Filters

Exam 1: An Overview of Financial Management

In order to maximize its shareholders' value,a firm's management must attempt to maximize the stock price in the long run,or the stock's "intrinsic value."

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.

Which of the following statements is CORRECT?

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

The Chairman of the Board must also be the CEO.

Which of the following statements is CORRECT?

The primary operating goal of a publicly-owned firm trying to best serve its stockholders should be to

Which of the following statements is CORRECT?

In most corporations,the CFO ranks under the CEO.

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.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

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.

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

Financial Markets and Institutions

Financial Statements,cash Flow and Taxes

Analysis of Financial Statements

Time Value of Money

Interest Rates

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 Share Repurchases

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

Filters