Question 1

Capital budgeting decisions are used to determine how to raise the cash necessary for investments.

Accepted Answer

A) True 
 B)False

Question 2

Agency problems can best be characterized as a:

Accepted Answer

A)  dislike of firm's bondholders by its equity holders. 
B)  differing incentives between managers and owners. 
C)  spending corporate resources. 
D)  friction between the primary and secondary markets. 
A)  dislike of firm's bondholders by its equity holders. 
B)  differing incentives between managers and owners. 
C)  spending corporate resources. 
D)  friction between the primary and secondary markets.

Question 3

Corporations are referred to as public companies when their:

Accepted Answer

A)  shareholders have no tax liability. 
B)  shares are held by the federal or state government. 
C)  shares are widely traded. 
D)  products or services are available to the public. 
A)  shareholders have no tax liability. 
B)  shares are held by the federal or state government. 
C)  shares are widely traded. 
D)  products or services are available to the public.

Question 4

If employee compensation plans are not designed properly,they can create incentives for errant behaviour by management.

Accepted Answer

A) True 
 B)False

Question 5

"Double taxation" refers to:

Accepted Answer

A)  all partners paying equal taxes on profits. 
B)  corporations paying taxes on both dividends and retained earnings. 
C)  paying taxes on profits at the corporate level and on dividends at the personal level. 
D)  the fact that marginal tax rates are doubled for corporations. 
A)  all partners paying equal taxes on profits. 
B)  corporations paying taxes on both dividends and retained earnings. 
C)  paying taxes on profits at the corporate level and on dividends at the personal level. 
D)  the fact that marginal tax rates are doubled for corporations.

Question 6

A financial manager facing a capital budgeting decision must decide whether to:

Accepted Answer

A)  issue stock or debt securities. 
B)  use the money market or capital market. 
C)  use primary markets or secondary markets. 
D)  buy new machinery or repair the old. 
A)  issue stock or debt securities. 
B)  use the money market or capital market. 
C)  use primary markets or secondary markets. 
D)  buy new machinery or repair the old.

Question 7

Which of the following statements best distinguishes the difference between real and financial assets?

Accepted Answer

A)  real assets have less value than financial assets. 
B)  real assets are tangible; financial assets are not. 
C)  financial assets represent claims to income that are generated by real assets. 
D)  financial assets appreciate in value; real assets depreciate in value. 
A)  real assets have less value than financial assets. 
B)  real assets are tangible; financial assets are not. 
C)  financial assets represent claims to income that are generated by real assets. 
D)  financial assets appreciate in value; real assets depreciate in value.

Question 8

Which of the following is least likely to represent an agency problem?

Accepted Answer

A)  lavish spending on expense accounts. 
B)  plush remodeling of the executive suite. 
C)  excessive investment in "safe" projects. 
D)  executive incentive compensation plans. 
A)  lavish spending on expense accounts. 
B)  plush remodeling of the executive suite. 
C)  excessive investment in "safe" projects. 
D)  executive incentive compensation plans.

Question 9

Which of the following groups is least likely to be considered a stakeholder of the firm?

Accepted Answer

A)  government 
B)  bondholders 
C)  competitors 
D)  employees 
A)  government 
B)  bondholders 
C)  competitors 
D)  employees

Question 10

To obtain the necessary money a company sells financial assets or securities.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements generally cannot be correct for an investor who faces unlimited liability on an investment?

Accepted Answer

A)  the investor owns stock in the firm. 
B)  the investor has no partners. 
C)  the investor is subject to double taxation. 
D)  the investor is responsible for managing the firm. 
A)  the investor owns stock in the firm. 
B)  the investor has no partners. 
C)  the investor is subject to double taxation. 
D)  the investor is responsible for managing the firm.

Question 12

When a corporation decides to issue long-term debt in order to pay for the acquisition of real assets,it has made a:

Accepted Answer

A)  capital budgeting decision. 
B)  financing decision. 
C)  money market decision. 
D)  secondary market decision. 
A)  capital budgeting decision. 
B)  financing decision. 
C)  money market decision. 
D)  secondary market decision.

Question 13

The financial manager has to determine a value to uncertain cash flows.The variables involved in this determination are:

Accepted Answer

A)  amount 
B)  timing 
C)  risk 
D)  All of the choices are correct. 
A)  amount 
B)  timing 
C)  risk 
D)  All of the choices are correct.

Question 14

Why is limited liability such an important aspect to investors?

Accepted Answer

Many investors would not be willing to c

Question 15

Long-term financing arrangements occur in the:

Accepted Answer

A)  money markets. 
B)  capital markets. 
C)  secondary markets. 
D)  primary markets. 
A)  money markets. 
B)  capital markets. 
C)  secondary markets. 
D)  primary markets.

Question 16

Provide at least three examples each of real and financial assets that might appear on the balance sheet of General Motors.

Accepted Answer

Examples of real assets for General Moto

Question 17

Maximizing profits is the same as maximizing the value of the firm.

Accepted Answer

A) True 
 B)False

Question 18

The best criterion for success in a capital budgeting decision would be to:

Accepted Answer

A)  minimize the cost of the investment. 
B)  maximize the number of capital budgeting projects. 
C)  maximize the difference between cash inflows and cost. 
D)  finance all capital budgeting projects with debt. 
A)  minimize the cost of the investment. 
B)  maximize the number of capital budgeting projects. 
C)  maximize the difference between cash inflows and cost. 
D)  finance all capital budgeting projects with debt.

Question 19

A corporate board of directors should provide support for the top management team:

Accepted Answer

A)  under all circumstances. 
B)  in all decisions related to cash dividends. 
C)  only when the board has confidence in management's actions. 
D)  if shareholders are pleased with the firm's performance. 
A)  under all circumstances. 
B)  in all decisions related to cash dividends. 
C)  only when the board has confidence in management's actions. 
D)  if shareholders are pleased with the firm's performance.

Question 20

Discuss the interrelationship between a firm's financing and capital structure decisions.

Accepted Answer

Although the capital budgeting decision

Exam 1: Goals and Governance of the Firm

Capital budgeting decisions are used to determine how to raise the cash necessary for investments.

Agency problems can best be characterized as a:

Corporations are referred to as public companies when their:

If employee compensation plans are not designed properly,they can create incentives for errant behaviour by management.

"Double taxation" refers to:

A financial manager facing a capital budgeting decision must decide whether to:

Which of the following statements best distinguishes the difference between real and financial assets?

Which of the following is least likely to represent an agency problem?

Which of the following groups is least likely to be considered a stakeholder of the firm?

To obtain the necessary money a company sells financial assets or securities.

Which of the following statements generally cannot be correct for an investor who faces unlimited liability on an investment?

When a corporation decides to issue long-term debt in order to pay for the acquisition of real assets,it has made a:

The financial manager has to determine a value to uncertain cash flows.The variables involved in this determination are:

Why is limited liability such an important aspect to investors?

Long-term financing arrangements occur in the:

Provide at least three examples each of real and financial assets that might appear on the balance sheet of General Motors.

Maximizing profits is the same as maximizing the value of the firm.

The best criterion for success in a capital budgeting decision would be to:

A corporate board of directors should provide support for the top management team:

Discuss the interrelationship between a firm's financing and capital structure decisions.

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt and Payout Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters