Question 1

The five basic principles of finance include all of the following EXCEPT

Accepted Answer

A)  Cash flow is what matters. 
B)  Money has a time value. 
C)  Risk requires a reward. 
D)  Incremental profits determine value. 
A)  Cash flow is what matters. 
B)  Money has a time value. 
C)  Risk requires a reward. 
D)  Incremental profits determine value. D

Question 2

A corporate treasurer is typically responsible for each of the following duties EXCEPT

Accepted Answer

A)  cash management. 
B)  credit management. 
C)  capital expenditures. 
D)  cost accounting. 
A)  cash management. 
B)  credit management. 
C)  capital expenditures. 
D)  cost accounting. D

Question 3

The sole proprietorship has no legal business structure separate from its owner.

Accepted Answer

A) True 
 B)False  True

Question 4

In which of the following cases will the agency problem between shareholders and managers be the greatest?

Accepted Answer

A)  100% of the common stock is owned by the founder of the company who decided to retire and hired a manager to run his business for him. 
B)  The Johnson family owns 50% of the common stock of the company. The other 50% is owned by 5 mutual funds. 
C)  The common stock of the company is owned by many diverse shareholders, with no shareholder owning more than 1% of the outstanding stock. 
D)  All top managers in the company own significant amounts of stock and stock options. 
A)  100% of the common stock is owned by the founder of the company who decided to retire and hired a manager to run his business for him. 
B)  The Johnson family owns 50% of the common stock of the company. The other 50% is owned by 5 mutual funds. 
C)  The common stock of the company is owned by many diverse shareholders, with no shareholder owning more than 1% of the outstanding stock. 
D)  All top managers in the company own significant amounts of stock and stock options.

Question 5

In order to reduce agency problems,managers may be provided compensation that includes

Accepted Answer

A)  a fixed salary so managers' pay is not at risk, allowing managers to focus on the company's business. 
B)  a bonus based on the level of profit achieved during the year. 
C)  an option to buy the company's stock. 
D)  incentive pay for achieving higher sales than last year. 
A)  a fixed salary so managers' pay is not at risk, allowing managers to focus on the company's business. 
B)  a bonus based on the level of profit achieved during the year. 
C)  an option to buy the company's stock. 
D)  incentive pay for achieving higher sales than last year.

Question 6

Which of the following is NOT considered to be a disadvantage of the sole proprietorship form of business organization?

Accepted Answer

A)  limited ability to raise capital 
B)  life is limited to that of the owner 
C)  unlimited liability of business owners 
D)  fewer regulations and reporting requirements 
A)  limited ability to raise capital 
B)  life is limited to that of the owner 
C)  unlimited liability of business owners 
D)  fewer regulations and reporting requirements

Question 7

The sole proprietorship is for all practical purposes the absence of any formal legal business structure.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following categories of owners enjoy limited liability?

Accepted Answer

A)  all partners in a limited partnership 
B)  common shareholders of a corporation 
C)  in a partnership, only the general partners 
D)  only B and C above 
A)  all partners in a limited partnership 
B)  common shareholders of a corporation 
C)  in a partnership, only the general partners 
D)  only B and C above

Question 9

Assume that an investor is offered a choice of a risk-free government bond that is expected to return 3.5% or a high-risk corporate stock.According to one of the principles of finance,what would induce the investor to purchase the corporate stock?

Accepted Answer

A)  a return that is substantially lower than 3.5% 
B)  cash dividends 
C)  a return that is substantially higher than 3.5% 
D)  none of the above 
A)  a return that is substantially lower than 3.5% 
B)  cash dividends 
C)  a return that is substantially higher than 3.5% 
D)  none of the above

Question 10

One of the causes of the recent financial crisis in the United States has been excessive risk taking due to underestimation of risk.How does this relate to shareholder wealth maximization and financial leverage? Can overestimation of risk also be detrimental?

Accepted Answer

Underestimation of risk can lead manager

Question 11

The goal of profit maximization ignores the risk of financial decisions.

Accepted Answer

A) True 
 B)False

Question 12

The purchase of a pool of mortgages is often financed through the sale of securities called mortgage-backed securities,or MBS.This is a key part of the securitization process.

Accepted Answer

A) True 
 B)False

Question 13

Beginning in 2007 the United States experienced its most severe financial crisis since the
Great Depression of the 1930s.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following categories of owners have limited liability?

Accepted Answer

A)  general partners 
B)  sole proprietors 
C)  shareholders of a corporation 
D)  both A and B 
A)  general partners 
B)  sole proprietors 
C)  shareholders of a corporation 
D)  both A and B

Question 15

The board of directors of Wireless,Inc.is considering two compensation plans for the CEO of the company.The first would pay the CEO a salary of $250,000 for the upcoming year.The second would pay the CEO a salary of $100,000 and provide the CEO with a stock option to buy 100,000 shares of stock for $11 per share.The current price per share of Wireless,Inc.stock is $10 per share.The stock option expires at the end of the year.Why might shareholders prefer the second payment plan? As part of your answer,calculate the breakeven point for the CEO to obtain the same compensation under option two as he or she would under option one.

Accepted Answer

Shareholders may prefer the compensation

Question 16

In finance,we assume that investors are generally

Accepted Answer

A)  neutral to risk. 
B)  averse to risk. 
C)  fond of risk. 
D)  none of the above 
A)  neutral to risk. 
B)  averse to risk. 
C)  fond of risk. 
D)  none of the above

Question 17

The owners of a corporation enjoy limited liability.

Accepted Answer

A) True 
 B)False

Question 18

The root cause of agency problems is conflicts of interest.

Accepted Answer

A) True 
 B)False

Question 19

The financial manager most directly responsible for producing the company's financial statements and directing its cost accounting functions is the

Accepted Answer

A)  chief financial officer. 
B)  controller. 
C)  treasurer. 
D)  vice president-financier. 
A)  chief financial officer. 
B)  controller. 
C)  treasurer. 
D)  vice president-financier.

Question 20

As of today,the most severe economic crisis to afflict the United States economy is considered to be

Accepted Answer

A)  the Great Depression of the 1930s. 
B)  the Great Recession of 2007-2009. 
C)  the Reagan Tax Law Changes of 1985. 
D)  the Savings and Loan Crisis of 1978-1982. 
A)  the Great Depression of the 1930s. 
B)  the Great Recession of 2007-2009. 
C)  the Reagan Tax Law Changes of 1985. 
D)  the Savings and Loan Crisis of 1978-1982.

The five basic principles of finance include all of the following EXCEPT

A corporate treasurer is typically responsible for each of the following duties EXCEPT

The sole proprietorship has no legal business structure separate from its owner.

In which of the following cases will the agency problem between shareholders and managers be the greatest?

In order to reduce agency problems,managers may be provided compensation that includes

Which of the following is NOT considered to be a disadvantage of the sole proprietorship form of business organization?

The sole proprietorship is for all practical purposes the absence of any formal legal business structure.

Which of the following categories of owners enjoy limited liability?

Assume that an investor is offered a choice of a risk-free government bond that is expected to return 3.5% or a high-risk corporate stock.According to one of the principles of finance,what would induce the investor to purchase the corporate stock?

One of the causes of the recent financial crisis in the United States has been excessive risk taking due to underestimation of risk.How does this relate to shareholder wealth maximization and financial leverage? Can overestimation of risk also be detrimental?

The goal of profit maximization ignores the risk of financial decisions.

The purchase of a pool of mortgages is often financed through the sale of securities called mortgage-backed securities,or MBS.This is a key part of the securitization process.

Beginning in 2007 the United States experienced its most severe financial crisis since the Great Depression of the 1930s.

Which of the following categories of owners have limited liability?

In finance,we assume that investors are generally

The owners of a corporation enjoy limited liability.

The root cause of agency problems is conflicts of interest.

The financial manager most directly responsible for producing the company's financial statements and directing its cost accounting functions is the

As of today,the most severe economic crisis to afflict the United States economy is considered to be

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters

Exam 1: An Introduction to the Foundations of Financial Management

The five basic principles of finance include all of the following EXCEPT

A corporate treasurer is typically responsible for each of the following duties EXCEPT

The sole proprietorship has no legal business structure separate from its owner.

In which of the following cases will the agency problem between shareholders and managers be the greatest?

In order to reduce agency problems,managers may be provided compensation that includes

Which of the following is NOT considered to be a disadvantage of the sole proprietorship form of business organization?

The sole proprietorship is for all practical purposes the absence of any formal legal business structure.

Which of the following categories of owners enjoy limited liability?

Assume that an investor is offered a choice of a risk-free government bond that is expected to return 3.5% or a high-risk corporate stock.According to one of the principles of finance,what would induce the investor to purchase the corporate stock?

One of the causes of the recent financial crisis in the United States has been excessive risk taking due to underestimation of risk.How does this relate to shareholder wealth maximization and financial leverage? Can overestimation of risk also be detrimental?

The goal of profit maximization ignores the risk of financial decisions.

The purchase of a pool of mortgages is often financed through the sale of securities called mortgage-backed securities,or MBS.This is a key part of the securitization process.

Beginning in 2007 the United States experienced its most severe financial crisis since the Great Depression of the 1930s.

Which of the following categories of owners have limited liability?

In finance,we assume that investors are generally

The owners of a corporation enjoy limited liability.

The root cause of agency problems is conflicts of interest.

The financial manager most directly responsible for producing the company's financial statements and directing its cost accounting functions is the

As of today,the most severe economic crisis to afflict the United States economy is considered to be

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters