Question 1

What is the function of the CFO?

Accepted Answer

A) Control of the accounting functions of the firm. 
B) Effective communication with the investment community about the firm's performance. 
C) Oversight of the financial statements. 
D) Determination of effective tax reduction strategies. 
A) Control of the accounting functions of the firm. 
B) Effective communication with the investment community about the firm's performance. 
C) Oversight of the financial statements. 
D) Determination of effective tax reduction strategies.

Question 2

When considering the risk of receiving cash flows, financial managers must be aware that:

Accepted Answer

A) investors want higher returns for perceived greater risk. 
B) investors want a lower valued firm to discourage future investors which might dilute their existing control. 
C) investors expect dividends and capital gains regardless of the risks associated with achieving them. 
D) investors always want lower returns so that the risk is minimized. 
A) investors want higher returns for perceived greater risk. 
B) investors want a lower valued firm to discourage future investors which might dilute their existing control. 
C) investors expect dividends and capital gains regardless of the risks associated with achieving them. 
D) investors always want lower returns so that the risk is minimized.

Question 3

Financial management draws heavily on the following related disciplines:

Accepted Answer

A) accounting 
B) macroeconomics 
C) microeconomics 
D) all of these 
A) accounting 
B) macroeconomics 
C) microeconomics 
D) all of these

Question 4

Explain the chain of command in a corporation.

Accepted Answer

The stockholders, who own a pro-rata sha

Question 5

An advantage that the corporate form of business has over either the sole proprietorship or partnership is the:

Accepted Answer

A) ability to raise capital 
B) ease of changing ownership 
C) limited liability 
D) elimination of double taxes 
A) ability to raise capital 
B) ease of changing ownership 
C) limited liability 
D) elimination of double taxes

Question 6

The net present value rule provides appropriate guidance for financial decision makers when costs are incurred immediately but

Accepted Answer

A) future cash flows are not known with certainty 
B) marginal costs are equal to marginal revenue 
C) result in a stream of benefits over several future time periods 
D) marginal costs are greater than marginal revenue 
A) future cash flows are not known with certainty 
B) marginal costs are equal to marginal revenue 
C) result in a stream of benefits over several future time periods 
D) marginal costs are greater than marginal revenue

Question 7

A major disadvantage of a sole proprietorship is the fact that

Accepted Answer

A) it is expensive to establish 
B) the owner has unlimited personal liability 
C) it is easy to finance growth 
D) the owner pays taxes on all the income 
A) it is expensive to establish 
B) the owner has unlimited personal liability 
C) it is easy to finance growth 
D) the owner pays taxes on all the income

Question 8

The advantages of the corporate form of organization over both sole proprietorships and partnerships include .

Accepted Answer

A) limited liability 
B) permanency 
C) limited liability and permanency 
D) lower tax rates 
A) limited liability 
B) permanency 
C) limited liability and permanency 
D) lower tax rates

Question 9

The financial manager uses when determining the firm's most appropriate capital structure.

Accepted Answer

A) accounting data 
B) employment benefit data 
C) federal regulations 
D) computer software design 
A) accounting data 
B) employment benefit data 
C) federal regulations 
D) computer software design

Question 10

Generally accepted accounting principles are ambiguous in the determination of a firm's net income because:

Accepted Answer

A) it does not reflect actual cash inflows and outflows of the firm 
B) stock dividends are difficult to forecast 
C) depreciation is a cash outlay but is not reflected as such 
D) tax laws change regularly which cause the firm to misjudge its true tax obligation 
A) it does not reflect actual cash inflows and outflows of the firm 
B) stock dividends are difficult to forecast 
C) depreciation is a cash outlay but is not reflected as such 
D) tax laws change regularly which cause the firm to misjudge its true tax obligation

Question 11

is (are) referred to as a residual form of ownership in a corporation.

Accepted Answer

A) Common stock 
B) Preferred stock 
C) Bonds 
D) Dividends 
A) Common stock 
B) Preferred stock 
C) Bonds 
D) Dividends

Question 12

The type of corporate security that pays periodic interest as well as the eventual return of principal is:

Accepted Answer

A) Preferred stock 
B) Debt Securities 
C) Equity Securities 
D) Fixed asset loans 
A) Preferred stock 
B) Debt Securities 
C) Equity Securities 
D) Fixed asset loans

Question 13

The shareholder wealth maximization goal states that management should seek to maximize the of the expected future returns to the owners of the firm.

Accepted Answer

A) Future value 
B) Compound value 
C) Percentage value 
D) Present value 
A) Future value 
B) Compound value 
C) Percentage value 
D) Present value

Question 14

The objective of maximizing shareholder wealth, as measured by the market value of the firm's stock

Accepted Answer

A) does not consider the timing of the benefits received 
B) provides a way to consider the risk of the returns being offered 
C) benefits only certain stockholders 
D) neither considers the timing of the benefits received nor benefits only certain stockholders 
A) does not consider the timing of the benefits received 
B) provides a way to consider the risk of the returns being offered 
C) benefits only certain stockholders 
D) neither considers the timing of the benefits received nor benefits only certain stockholders

Question 15

Maximization of shareholder wealth is not an accounting concept.A corporation's value should be based on

Accepted Answer

A) liquidation value 
B) book value 
C) market value 
D) stock value 
A) liquidation value 
B) book value 
C) market value 
D) stock value

Question 16

Creditors have a fixed financial claim on a company's resources through all of the following EXCEPT:

Accepted Answer

A) long term debt 
B) bank loans 
C) preferred stock 
D) commercial paper 
A) long term debt 
B) bank loans 
C) preferred stock 
D) commercial paper

Question 17

The chief financial officer (CFO) normally has responsibility for all the following except:

Accepted Answer

A) advertising strategy 
B) managing interest rate risk 
C) trading foreign currencies 
D) accounting functions 
A) advertising strategy 
B) managing interest rate risk 
C) trading foreign currencies 
D) accounting functions

Question 18

List examples of agency costs which are incurred by shareholders in trying to minimize agency problems.

Accepted Answer

1.Expenditures to structure the organiza

Question 19

There is often a divergence between the shareholder wealth maximization goal and the actual goals pursued by management.The primary reason for this is .

Accepted Answer

A) geographical dispersion of shareholders 
B) separation of ownership and control 
C) age differences between managers and shareholders 
D) that both have their own agendas 
A) geographical dispersion of shareholders 
B) separation of ownership and control 
C) age differences between managers and shareholders 
D) that both have their own agendas

Question 20

As a result of accounting scandals, several methods have been developed to deal with the issues of corporate governance.They are all of the following EXCEPT:

Accepted Answer

A) The Board must select only SEC approved consultants. 
B) Chairman of the Board position should be split from the CEO position. 
C) Board of Directors should have a majority of independent directors. 
D) The Board of Directors must explain its approach for adopting a code of ethics for the CEO and senior financial officers. 
A) The Board must select only SEC approved consultants. 
B) Chairman of the Board position should be split from the CEO position. 
C) Board of Directors should have a majority of independent directors. 
D) The Board of Directors must explain its approach for adopting a code of ethics for the CEO and senior financial officers.

Exam 1: The Role and Objective of Financial Management

What is the function of the CFO?

When considering the risk of receiving cash flows, financial managers must be aware that:

Financial management draws heavily on the following related disciplines:

Explain the chain of command in a corporation.

An advantage that the corporate form of business has over either the sole proprietorship or partnership is the:

The net present value rule provides appropriate guidance for financial decision makers when costs are incurred immediately but

A major disadvantage of a sole proprietorship is the fact that

The advantages of the corporate form of organization over both sole proprietorships and partnerships include .

The financial manager uses when determining the firm's most appropriate capital structure.

Generally accepted accounting principles are ambiguous in the determination of a firm's net income because:

is (are) referred to as a residual form of ownership in a corporation.

The type of corporate security that pays periodic interest as well as the eventual return of principal is:

The shareholder wealth maximization goal states that management should seek to maximize the of the expected future returns to the owners of the firm.

The objective of maximizing shareholder wealth, as measured by the market value of the firm's stock

Maximization of shareholder wealth is not an accounting concept.A corporation's value should be based on

Creditors have a fixed financial claim on a company's resources through all of the following EXCEPT:

The chief financial officer (CFO) normally has responsibility for all the following except:

List examples of agency costs which are incurred by shareholders in trying to minimize agency problems.

There is often a divergence between the shareholder wealth maximization goal and the actual goals pursued by management.The primary reason for this is .

As a result of accounting scandals, several methods have been developed to deal with the issues of corporate governance.They are all of the following EXCEPT:

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

A: The Time Value of Money

Fixed-Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

Working Capital Management

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

Corporate Restructuring

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