Question 1

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.

Accepted Answer

A)  Compensation based on the value of the stock 
B)  Stock option plans 
C)  Threat of a company takeover 
D)  Threat of a proxy fight 
E)  Increasing managers' base salaries 
A)  Compensation based on the value of the stock 
B)  Stock option plans 
C)  Threat of a company takeover 
D)  Threat of a proxy fight 
E)  Increasing managers' base salaries

Question 2

Which one of the following parties has ultimate control of a corporation?

Accepted Answer

A)  Chairman of the board 
B)  Board of directors 
C)  Chief executive officer 
D)  Chief operating officer 
E)  Shareholders 
A)  Chairman of the board 
B)  Board of directors 
C)  Chief executive officer 
D)  Chief operating officer 
E)  Shareholders

Question 3

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

Accepted Answer

A)  corporation. 
B)  sole proprietorship. 
C)  general partnership. 
D)  limited partnership. 
E)  limited liability company. 
A)  corporation. 
B)  sole proprietorship. 
C)  general partnership. 
D)  limited partnership. 
E)  limited liability company.

Question 4

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

Accepted Answer

A)  general partner. 
B)  sole proprietor. 
C)  limited partner. 
D)  corporate shareholder. 
E)  zero partner. 
A)  general partner. 
B)  sole proprietor. 
C)  limited partner. 
D)  corporate shareholder. 
E)  zero partner.

Question 5

Which one of the following actions by a financial manager is most apt to create an agency problem?

Accepted Answer

A)  Refusing to borrow money when doing so will create losses for the firm 
B)  Refusing to lower selling prices if doing so will reduce the net profits 
C)  Refusing to expand the company if doing so will lower the value of the equity 
D)  Agreeing to pay bonuses based on the market value of the company's stock rather than on its level of sales 
E)  Increasing current profits when doing so lowers the value of the company's equity 
A)  Refusing to borrow money when doing so will create losses for the firm 
B)  Refusing to lower selling prices if doing so will reduce the net profits 
C)  Refusing to expand the company if doing so will lower the value of the equity 
D)  Agreeing to pay bonuses based on the market value of the company's stock rather than on its level of sales 
E)  Increasing current profits when doing so lowers the value of the company's equity

Question 6

Corporate dividends are:

Accepted Answer

A)  tax-free because the income is taxed at the personal level when earned by the firm. 
B)  tax-free because they are distributions of aftertax income. 
C)  tax-free since the corporation pays tax on that income when it is earned. 
D)  taxed at both the corporate and the personal level when the dividends are paid to shareholders. 
E)  taxable income of the recipient even though that income was previously taxed. 
A)  tax-free because the income is taxed at the personal level when earned by the firm. 
B)  tax-free because they are distributions of aftertax income. 
C)  tax-free since the corporation pays tax on that income when it is earned. 
D)  taxed at both the corporate and the personal level when the dividends are paid to shareholders. 
E)  taxable income of the recipient even though that income was previously taxed.

Question 7

A ________ has all the respective rights and privileges of a legal person.

Accepted Answer

A)  sole proprietorship 
B)  general partnership 
C)  limited partnership 
D)  corporation 
E)  limited liability company 
A)  sole proprietorship 
B)  general partnership 
C)  limited partnership 
D)  corporation 
E)  limited liability company

Question 8

Which one of the following statements concerning a sole proprietorship is correct?

Accepted Answer

A)  A sole proprietorship is designed to protect the personal assets of the owner. 
B)  The profits of a sole proprietorship are subject to double taxation. 
C)  The owner of a sole proprietorship is personally responsible for all of the company's debts. 
D)  There are very few sole proprietorships remaining in the U.S. today. 
E)  A sole proprietorship is structured the same as a limited liability company. 
A)  A sole proprietorship is designed to protect the personal assets of the owner. 
B)  The profits of a sole proprietorship are subject to double taxation. 
C)  The owner of a sole proprietorship is personally responsible for all of the company's debts. 
D)  There are very few sole proprietorships remaining in the U.S. today. 
E)  A sole proprietorship is structured the same as a limited liability company.

Question 9

Which one of the following functions should be the responsibility of the controller rather than the treasurer?

Accepted Answer

A)  Depositing cash receipts 
B)  Processing cost reports 
C)  Analyzing equipment purchases 
D)  Approving credit for a customer 
E)  Paying a vendor 
A)  Depositing cash receipts 
B)  Processing cost reports 
C)  Analyzing equipment purchases 
D)  Approving credit for a customer 
E)  Paying a vendor

Question 10

Which one of the following statements is generally correct?

Accepted Answer

A)  Private placements must be registered with the SEC. 
B)  All secondary markets are auction markets. 
C)  Dealer markets have a physical trading floor. 
D)  Auction markets match buy and sell orders. 
E)  Dealers arrange trades but never own the securities traded. 
A)  Private placements must be registered with the SEC. 
B)  All secondary markets are auction markets. 
C)  Dealer markets have a physical trading floor. 
D)  Auction markets match buy and sell orders. 
E)  Dealers arrange trades but never own the securities traded.

Question 11

Which one of the following is a working capital management decision?

Accepted Answer

A)  What type(s) of equipment is (are) needed to complete a current project? 
B)  Should the firm pay cash for a purchase or use the credit offered by the supplier? 
C)  What amount of long-term debt is required to complete a project? 
D)  How many shares of stock should the firm issue to fund an acquisition? 
E)  Should a project should be accepted? 
A)  What type(s) of equipment is (are) needed to complete a current project? 
B)  Should the firm pay cash for a purchase or use the credit offered by the supplier? 
C)  What amount of long-term debt is required to complete a project? 
D)  How many shares of stock should the firm issue to fund an acquisition? 
E)  Should a project should be accepted?

Question 12

Which one of the following statements concerning a sole proprietorship is correct?

Accepted Answer

A)  The life of a sole proprietorship is limited. 
B)  A sole proprietor can generally raise large sums of capital quite easily. 
C)  Transferring ownership of a sole proprietorship is easier than transferring ownership of a corporation. 
D)  A sole proprietorship is taxed the same as a C corporation. 
E)  A sole proprietorship is the most regulated form of organization. 
A)  The life of a sole proprietorship is limited. 
B)  A sole proprietor can generally raise large sums of capital quite easily. 
C)  Transferring ownership of a sole proprietorship is easier than transferring ownership of a corporation. 
D)  A sole proprietorship is taxed the same as a C corporation. 
E)  A sole proprietorship is the most regulated form of organization.

Question 13

Sally and Alicia are equal general partners in a business. They are content with their current management and tax situation but are uncomfortable with their unlimited liability. Which form of business entity should they consider as a replacement to their current arrangement assuming they wish to remain the only two owners of the business?

Accepted Answer

A)  Sole proprietorship 
B)  Joint stock company 
C)  Limited partnership 
D)  Limited liability company 
E)  Corporation 
A)  Sole proprietorship 
B)  Joint stock company 
C)  Limited partnership 
D)  Limited liability company 
E)  Corporation

Question 14

Which one of the following statements is correct?

Accepted Answer

A)  The majority of firms in the U.S. are structured as corporations. 
B)  Corporate profits are taxable income to the shareholders when earned. 
C)  Corporations can have an unlimited life. 
D)  Shareholders are protected from all potential losses. 
E)  Shareholders directly elect the corporate president. 
A)  The majority of firms in the U.S. are structured as corporations. 
B)  Corporate profits are taxable income to the shareholders when earned. 
C)  Corporations can have an unlimited life. 
D)  Shareholders are protected from all potential losses. 
E)  Shareholders directly elect the corporate president.

Question 15

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

Accepted Answer

A)  took place in the primary market. 
B)  occurred in a dealer market. 
C)  was facilitated in the secondary market. 
D)  involved a proxy. 
E)  was a private placement. 
A)  took place in the primary market. 
B)  occurred in a dealer market. 
C)  was facilitated in the secondary market. 
D)  involved a proxy. 
E)  was a private placement.

Question 16

Which one of the following is an agency cost?

Accepted Answer

A)  Accepting an investment opportunity that will add value to the firm 
B)  Increasing the quarterly dividend 
C)  Investing in a new project that creates firm value 
D)  Hiring outside accountants to audit the company's financial statements 
E)  Closing a division of the firm that is operating at a loss 
A)  Accepting an investment opportunity that will add value to the firm 
B)  Increasing the quarterly dividend 
C)  Investing in a new project that creates firm value 
D)  Hiring outside accountants to audit the company's financial statements 
E)  Closing a division of the firm that is operating at a loss

Question 17

Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following?

Accepted Answer

A)  Primary, dealer market 
B)  Secondary, dealer market 
C)  Primary, auction market 
D)  Secondary, auction market 
E)  Secondary, OTC market 
A)  Primary, dealer market 
B)  Secondary, dealer market 
C)  Primary, auction market 
D)  Secondary, auction market 
E)  Secondary, OTC market

Question 18

The primary advantage of being a limited partner is:

Accepted Answer

A)  the receipt of tax-free income. 
B)  the partner's active participation in the firm's activities. 
C)  the lack of any potential financial loss. 
D)  the daily control over the business affairs of the partnership. 
E)  the partner's maximum loss is limited to their capital investment. 
A)  the receipt of tax-free income. 
B)  the partner's active participation in the firm's activities. 
C)  the lack of any potential financial loss. 
D)  the daily control over the business affairs of the partnership. 
E)  the partner's maximum loss is limited to their capital investment.

Question 19

A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:

Accepted Answer

A)  must continue to provide audited financial statements to the public. 
B)  must continue to provide a detailed list of internal control deficiencies on an annual basis. 
C)  can provide less information to its shareholders than it did prior to "going dark". 
D)  can continue publicly trading its stock but only on the exchange on which it was previously listed. 
E)  ceases to exist. 
A)  must continue to provide audited financial statements to the public. 
B)  must continue to provide a detailed list of internal control deficiencies on an annual basis. 
C)  can provide less information to its shareholders than it did prior to "going dark". 
D)  can continue publicly trading its stock but only on the exchange on which it was previously listed. 
E)  ceases to exist.

Question 20

The Sarbanes-Oxley Act of 2002 is a governmental response to:

Accepted Answer

A)  decreasing corporate profits. 
B)  the terrorist attacks on 9/11/2001. 
C)  a weakening economy. 
D)  deregulation of the stock exchanges. 
E)  management greed and abuses. 
A)  decreasing corporate profits. 
B)  the terrorist attacks on 9/11/2001. 
C)  a weakening economy. 
D)  deregulation of the stock exchanges. 
E)  management greed and abuses.

Exam 1: Introduction to Corporate Finance

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.

Which one of the following parties has ultimate control of a corporation?

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

Which one of the following actions by a financial manager is most apt to create an agency problem?

Corporate dividends are:

A ________ has all the respective rights and privileges of a legal person.

Which one of the following statements concerning a sole proprietorship is correct?

Which one of the following functions should be the responsibility of the controller rather than the treasurer?

Which one of the following statements is generally correct?

Which one of the following is a working capital management decision?

Which one of the following statements concerning a sole proprietorship is correct?

Which one of the following statements is correct?

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

Which one of the following is an agency cost?

Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following?

The primary advantage of being a limited partner is:

A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:

The Sarbanes-Oxley Act of 2002 is a governmental response to:

Financial Statements, Taxes, and Cash Flow

Working with Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons from Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters