Question 1

The legal "life" of a corporation is:

Accepted Answer

A) Coincident with that of its CEO. 
B) Equal to the life of the board of directors. 
C) Permanent, as long as shareholders don't change. 
D) Permanent, regardless of current ownership. 
A) Coincident with that of its CEO. 
B) Equal to the life of the board of directors. 
C) Permanent, as long as shareholders don't change. 
D) Permanent, regardless of current ownership. D

Question 2

One continuing problem with managerial incentive-compensation plans is that:

Accepted Answer

A) The plans increase agency problems. 
B) Managers prefer guaranteed salaries. 
C) Effectiveness of the plans is difficult to evaluate. 
D) The plans do not reward shareholders. 
A) The plans increase agency problems. 
B) Managers prefer guaranteed salaries. 
C) Effectiveness of the plans is difficult to evaluate. 
D) The plans do not reward shareholders. C

Question 3

A chief financial officer would typically:

Accepted Answer

A) Report to the treasurer, but supervise the controller. 
B) Report to the controller, but supervise the treasurer. 
C) Report to both the treasurer and controller. 
D) Supervise both the treasurer and controller. 
A) Report to the treasurer, but supervise the controller. 
B) Report to the controller, but supervise the treasurer. 
C) Report to both the treasurer and controller. 
D) Supervise both the treasurer and controller. D

Question 4

By organizing itself as a corporation, a business may be able to attract:

Accepted Answer

A) Investors. 
B) Partners. 
C) Proprietors. 
D) Agents. 
A) Investors. 
B) Partners. 
C) Proprietors. 
D) Agents.

Question 5

When managers' compensation plans are tied in a meaningful manner to the profits of the firm, agency problems:

Accepted Answer

A) Can be reduced. 
B) Will be created. 
C) Are shifted to other stakeholders. 
D) Are eliminated entirely from the firm. 
A) Can be reduced. 
B) Will be created. 
C) Are shifted to other stakeholders. 
D) Are eliminated entirely from the firm.

Question 6

Which of the following would be considered an advantage of the sole proprietorship form of organization?

Accepted Answer

A) Wide access to capital markets 
B) Unlimited liability 
C) A pool of expertise 
D) Profits taxed at only one level 
A) Wide access to capital markets 
B) Unlimited liability 
C) A pool of expertise 
D) Profits taxed at only one level

Question 7

How may a reduction in cash dividends be in the best interests of current shareholders?

Accepted Answer

A) Dividends are taxed at twice the rate of other gains. 
B) The firm will have available cash to increase current investment and future profits. 
C) Reduced dividends increase managerial compensation, thus increasing their motivation. 
D) A reduction of cash dividends cannot be in the best interests of current shareholders. 
A) Dividends are taxed at twice the rate of other gains. 
B) The firm will have available cash to increase current investment and future profits. 
C) Reduced dividends increase managerial compensation, thus increasing their motivation. 
D) A reduction of cash dividends cannot be in the best interests of current shareholders.

Question 8

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 9

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

Accepted Answer

A) True 
 B)False

Question 10

General partners have limited personal liability for business debts in a limited partnership.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following appears to be the most appropriate goal for corporate management?

Accepted Answer

A) Maximizing market value of the company's shares. 
B) Maximizing the company's market share. 
C) Maximizing the current profits of the company. 
D) Minimizing the company's liabilities. 
A) Maximizing market value of the company's shares. 
B) Maximizing the company's market share. 
C) Maximizing the current profits of the company. 
D) Minimizing the company's liabilities.

Question 12

The shareholders in a sole proprietorship are represented by:

Accepted Answer

A) The owner of the firm. 
B) The general partner of the firm. 
C) The board of directors of the firm. 
D) No one; sole proprietorships have no shareholders. 
A) The owner of the firm. 
B) The general partner of the firm. 
C) The board of directors of the firm. 
D) No one; sole proprietorships have no shareholders.

Question 13

Ethical decision making in business:

Accepted Answer

A) Reduces the firm's profits. 
B) Requires adherence to implied rules as well as written rules. 
C) Is not in the best interests of shareholders. 
D) is less important than good capital budgeting decisions. 
A) Reduces the firm's profits. 
B) Requires adherence to implied rules as well as written rules. 
C) Is not in the best interests of shareholders. 
D) is less important than good capital budgeting decisions.

Question 14

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 15

A manager's compensation plan that offers financial incentives for increases in quarterly profitability may create agency problems in that:

Accepted Answer

A) The managers are not motivated by personal gain. 
B) The board of directors may claim the credit. 
C) Short-term, not long-term, profits become the focus. 
D) Investors desire stable profits. 
A) The managers are not motivated by personal gain. 
B) The board of directors may claim the credit. 
C) Short-term, not long-term, profits become the focus. 
D) Investors desire stable profits.

Question 16

In a partnership form of organization, income tax liability, if any, is incurred by:

Accepted Answer

A) The partnership itself. 
B) The partners individually. 
C) Both the partnership and the partners. 
D) Neither the partnership nor the partners. 
A) The partnership itself. 
B) The partners individually. 
C) Both the partnership and the partners. 
D) Neither the partnership nor the partners.

Question 17

In which of the following organizations would the existence of agency problems be least likely?

Accepted Answer

A) A sole proprietorship 
B) A partnership 
C) A corporation 
D) A closely held corporation 
A) A sole proprietorship 
B) A partnership 
C) A corporation 
D) A closely held corporation

Question 18

A board of directors is elected as a representative of the corporation's:

Accepted Answer

A) Top management. 
B) Stakeholders. 
C) Shareholders. 
D) Customers. 
A) Top management. 
B) Stakeholders. 
C) Shareholders. 
D) Customers.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

The duties of a corporate controller typically include the preparation of financial statements.

Accepted Answer

A) True 
 B)False

Exam 1: Goals and Governance of the Firm

The legal "life" of a corporation is:

One continuing problem with managerial incentive-compensation plans is that:

A chief financial officer would typically:

By organizing itself as a corporation, a business may be able to attract:

When managers' compensation plans are tied in a meaningful manner to the profits of the firm, agency problems:

Which of the following would be considered an advantage of the sole proprietorship form of organization?

How may a reduction in cash dividends be in the best interests of current shareholders?

Long-term financing arrangements occur in the:

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

General partners have limited personal liability for business debts in a limited partnership.

Which of the following appears to be the most appropriate goal for corporate management?

The shareholders in a sole proprietorship are represented by:

Ethical decision making in business:

Agency problems can best be characterized as a:

A manager's compensation plan that offers financial incentives for increases in quarterly profitability may create agency problems in that:

In a partnership form of organization, income tax liability, if any, is incurred by:

In which of the following organizations would the existence of agency problems be least likely?

A board of directors is elected as a representative of the corporation's:

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

The duties of a corporate controller typically include the preparation of financial statements.

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 Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

What We Do and Do Not Know About Finance

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