Question 1

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

Accepted Answer

1. Expenditures to structure the organiz

Question 2

____ equals the number of shares outstanding times the market price per share.

Accepted Answer

A)  Book value 
B)  Stakeholders wealth 
C)  Total shareholder wealth 
D)  Economic value 
A)  Book value 
B)  Stakeholders wealth 
C)  Total shareholder wealth 
D)  Economic value

Question 3

Sole proprietorships, partnerships and corporations are the three main forms of business organization. There are other types which are referred to as hybrids. Examples of hybrid business forms are:

Accepted Answer

A)  10K & 14B Corporations 
B)  Section 8 and Subchapter S Corporations 
C)  Subchapter S and LLCs 
D)  10K Corporations and LLCs 
A)  10K & 14B Corporations 
B)  Section 8 and Subchapter S Corporations 
C)  Subchapter S and LLCs 
D)  10K Corporations and LLCs

Question 4

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 5

____ deals with economic decisions of individuals, households, and firms.

Accepted Answer

A)  Economic accounting 
B)  Microeconomics 
C)  Blue Chip econometrics 
D)  Macroeconomics 
A)  Economic accounting 
B)  Microeconomics 
C)  Blue Chip econometrics 
D)  Macroeconomics

Question 6

The primary objective of the firm is:

Accepted Answer

A)  Shareholder wealth maximization 
B)  Social responsibility 
C)  Long run survival 
D)  Profit maximization 
A)  Shareholder wealth maximization 
B)  Social responsibility 
C)  Long run survival 
D)  Profit maximization

Question 7

Cash flow concepts are ____ but generally accepted accounting principles are ____ in the determination of a firm's net income.

Accepted Answer

A)  unambiguous, ambiguous 
B)  ambiguous, unambiguous 
C)  ambiguous, also ambiguous 
D)  unambiguous, straightforward 
A)  unambiguous, ambiguous 
B)  ambiguous, unambiguous 
C)  ambiguous, also ambiguous 
D)  unambiguous, straightforward

Question 8

Techniques identified by John Casey that managers could keep in mind when addressing the ethical dimensions of a business problem include all of the following except:

Accepted Answer

A)  collect all the facts bearing on the problem 
B)  clarify the parameters of the problem 
C)  involve all parties with a financial interest in the outcome 
D)  seek equity for those who may be affected 
A)  collect all the facts bearing on the problem 
B)  clarify the parameters of the problem 
C)  involve all parties with a financial interest in the outcome 
D)  seek equity for those who may be affected

Question 9

____ 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 10

The definition of the marginal analysis principle is that financial decisions are made and actions are taken

Accepted Answer

A)  within the global economic viewpoint. 
B)  with regard to governmental laws and cultural effectiveness. 
C)  when the added benefits exceed the added costs. 
D)  based on the impact of public opinion. 
A)  within the global economic viewpoint. 
B)  with regard to governmental laws and cultural effectiveness. 
C)  when the added benefits exceed the added costs. 
D)  based on the impact of public opinion.

Question 11

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 12

Shareholder returns can take the form of

Accepted Answer

A)  Periodic dividend payments 
B)  Proceeds from the sale of the stock 
C)  Periodic interest payments 
D)  Periodic dividend payments and proceeds from the sale of the stock 
A)  Periodic dividend payments 
B)  Proceeds from the sale of the stock 
C)  Periodic interest payments 
D)  Periodic dividend payments and proceeds from the sale of the stock

Question 13

The controller normally has responsibility for all ____ related activities, while the treasurer is normally concerned with ____.

Accepted Answer

A)  acquisition, data processing 
B)  tax, cost accounting 
C)  tax, financial accounting 
D)  accounting, expenditure of funds 
A)  acquisition, data processing 
B)  tax, cost accounting 
C)  tax, financial accounting 
D)  accounting, expenditure of funds

Question 14

Protective covenants in a company's bond indentures are used in agency relationships involving ____.

Accepted Answer

A)  stockholders and managers 
B)  stockholders and creditors 
C)  management and workers 
D)  management and creditors 
A)  stockholders and managers 
B)  stockholders and creditors 
C)  management and workers 
D)  management and creditors

Question 15

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 16

Giving top management ____ is one method that ensures managers will act in the interest of shareholders in merger decisions.

Accepted Answer

A)  "golden parachute" contracts 
B)  excellent pay 
C)  executive perks 
D)  job security 
A)  "golden parachute" contracts 
B)  excellent pay 
C)  executive perks 
D)  job security

Question 17

A major advantage of the corporate form of business over both sole proprietorships and partnerships is the

Accepted Answer

A)  limited liability 
B)  reduction in taxes 
C)  ease of formation 
D)  ability to maintain ownership 
A)  limited liability 
B)  reduction in taxes 
C)  ease of formation 
D)  ability to maintain ownership

Question 18

The limitations of the profit maximization goal include:

Accepted Answer

A)  It lacks a time dimension (i.e., it is static) 
B)  It fails to consider risk 
C)  The definition of profit is ambiguous 
D)  All the above are limitations 
A)  It lacks a time dimension (i.e., it is static) 
B)  It fails to consider risk 
C)  The definition of profit is ambiguous 
D)  All the above are limitations

Question 19

If a firm shows an accounting net income, then

Accepted Answer

A)  it will not have a cash flow problem 
B)  it will not have a problem obtaining a bank loan 
C)  it will be able to repay all current liabilities on time 
D)  none of the above 
A)  it will not have a cash flow problem 
B)  it will not have a problem obtaining a bank loan 
C)  it will be able to repay all current liabilities on time 
D)  none of the above

Question 20

All of the following are advantages of the corporate form of business organization EXCEPT:

Accepted Answer

A)  unlimited life 
B)  unlimited liability 
C)  flexibility in ownership change 
D)  ability to raise capital 
A)  unlimited life 
B)  unlimited liability 
C)  flexibility in ownership change 
D)  ability to raise capital

Exam 1: The Role and Objective of Financial Management

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

____ equals the number of shares outstanding times the market price per share.

Sole proprietorships, partnerships and corporations are the three main forms of business organization. There are other types which are referred to as hybrids. Examples of hybrid business forms are:

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

____ deals with economic decisions of individuals, households, and firms.

The primary objective of the firm is:

Cash flow concepts are ____ but generally accepted accounting principles are ____ in the determination of a firm's net income.

Techniques identified by John Casey that managers could keep in mind when addressing the ethical dimensions of a business problem include all of the following except:

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

The definition of the marginal analysis principle is that financial decisions are made and actions are taken

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

Shareholder returns can take the form of

The controller normally has responsibility for all ____ related activities, while the treasurer is normally concerned with ____.

Protective covenants in a company's bond indentures are used in agency relationships involving ____.

A major disadvantage of a sole proprietorship is the fact that

Giving top management ____ is one method that ensures managers will act in the interest of shareholders in merger decisions.

A major advantage of the corporate form of business over both sole proprietorships and partnerships is the

The limitations of the profit maximization goal include:

If a firm shows an accounting net income, then

All of the following are advantages of the corporate form of business organization EXCEPT:

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

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

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-term Financing

The Management of Cash and Marketable Securities

Management of Accounts Receivable and Inventories

Lease and Intermediate-term Financing

Financing With Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Continuous Compounding and Discounting

Mutually Exclusive Investments Having Unequal Lives

Breakeven Analysis

Bond Refunding Analysis

Taxes

Filters

Cash flow concepts are but generally accepted accounting principles are in the determination of a firm's net income.

The controller normally has responsibility for all related activities, while the treasurer is normally concerned with .