Question 1

What should be the goal of the financial manager of a corporation?
 Why?

Accepted Answer

The correct goal is to maximize the current value of the outstanding stock. This goal focuses on enhancing the returns to stockholders who are the owners of the firm. Other goals,such as maximizing earnings,focus too narrowly on accounting income and ignore the importance of market values in managerial finance.

Question 2

Which one of the following statements concerning a sole proprietorship is correct?

Accepted Answer

A)  The life of the firm is limited to the life span of the owner. 
B)  The owner can generally raise large sums of capital quite easily. 
C)  The ownership of the firm is easy to transfer to another individual. 
D)  The company must pay separate taxes from those paid by the owner. 
E)  The legal costs to form a sole proprietorship are quite substantial. 
A)  The life of the firm is limited to the life span of the owner. 
B)  The owner can generally raise large sums of capital quite easily. 
C)  The ownership of the firm is easy to transfer to another individual. 
D)  The company must pay separate taxes from those paid by the owner. 
E)  The legal costs to form a sole proprietorship are quite substantial. A

Question 3

The basic regulatory framework in the United States was provided by:

Accepted Answer

A)  the Securities Act of 1933. 
B)  the Securities Exchange Act of 1934. 
C)  the monetary system. 
D)  the Securities Act of 1933 and the Securities Exchange Act of 1934. 
E)  All of 
A)  the Securities Act of 1933. 
B)  the Securities Exchange Act of 1934. 
C)  the monetary system. 
D)  the Securities Act of 1933 and the Securities Exchange Act of 1934. 
E)  All of D

Question 4

Suppose you own 100 shares of IBM stock which you intend to sell today. Since you will sell it in the secondary market,IBM will receive no direct cash flows as a consequence of your sale. Why,then,should IBM's management care about the price you get for your shares?

Accepted Answer

The current market price of IBM stock re

Question 5

The treasurer and the controller of a corporation generally report to the:

Accepted Answer

A)  board of directors. 
B)  chairman of the board. 
C)  chief executive officer. 
D)  president. 
E)  chief financial officer. 
A)  board of directors. 
B)  chairman of the board. 
C)  chief executive officer. 
D)  president. 
E)  chief financial officer.

Question 6

Managers that are successful in pursuing stockholder goals can

Accepted Answer

A)  See very little reward 
B)  See no financial gain through raises and bonuses 
C)  Never become stockholders 
D)  Reap enormous rewards 
E)  Start a proxy fight with stockholders 
A)  See very little reward 
B)  See no financial gain through raises and bonuses 
C)  Never become stockholders 
D)  Reap enormous rewards 
E)  Start a proxy fight with stockholders

Question 7

Which one of the following actions by a financial manager creates an agency problem?

Accepted Answer

A)  Refusing to borrow money when doing so will create losses for the firm 
B)  Refusing to lower selling prices if doing so will reduce the net profits 
C)  Agreeing to expand the company at the expense of stockholders' value 
D)  Agreeing to pay bonuses based on the book value of the company stock 
E)  Increasing current costs in order to increase the market value of the stockholders' equity 
A)  Refusing to borrow money when doing so will create losses for the firm 
B)  Refusing to lower selling prices if doing so will reduce the net profits 
C)  Agreeing to expand the company at the expense of stockholders' value 
D)  Agreeing to pay bonuses based on the book value of the company stock 
E)  Increasing current costs in order to increase the market value of the stockholders' equity

Question 8

Which one of the following statements concerning a sole proprietorship is correct?

Accepted Answer

A)  A sole proprietorship is the least common form of business ownership. 
B)  The profits of a sole proprietorship are taxed twice. 
C)  The owners of a sole proprietorship share profits as established by the partnership agreement. 
D)  The owner of a sole proprietorship may be forced to sell his/her personal assets to pay company debts. 
E)  A sole proprietorship is often structured as a limited liability company. 
A)  A sole proprietorship is the least common form of business ownership. 
B)  The profits of a sole proprietorship are taxed twice. 
C)  The owners of a sole proprietorship share profits as established by the partnership agreement. 
D)  The owner of a sole proprietorship may be forced to sell his/her personal assets to pay company debts. 
E)  A sole proprietorship is often structured as a limited liability company.

Question 9

What advantages does the corporate form of organization have over sole proprietorships or partnerships?

Accepted Answer

The advantages of the corporate form of

Question 10

The articles of incorporation:

Accepted Answer

A)  can be used to remove company management. 
B)  are amended annually by the company stockholders. 
C)  set forth the number of shares of stock that can be issued. 
D)  set forth the rules by which the corporation regulates its existence. 
E)  can set forth the conditions under which the firm can avoid double taxation. 
A)  can be used to remove company management. 
B)  are amended annually by the company stockholders. 
C)  set forth the number of shares of stock that can be issued. 
D)  set forth the rules by which the corporation regulates its existence. 
E)  can set forth the conditions under which the firm can avoid double taxation.

Question 11

Which type of business organization has all the respective rights and privileges of a legal person?

Accepted Answer

A)  sole proprietorship 
B)  general partnership 
C)  limited partnership 
D)  corporation 
E)  limited liability company 
A)  sole proprietorship 
B)  general partnership 
C)  limited partnership 
D)  corporation 
E)  limited liability company

Question 12

The Sarbanes Oxley Act of 2002 is intended to:

Accepted Answer

A)  protect financial managers from investors. 
B)  not have any effect on foreign companies. 
C)  reduce corporate revenues. 
D)  protect investors from corporate abuses. 
E)  decrease audit costs for U.S. firms. 
A)  protect financial managers from investors. 
B)  not have any effect on foreign companies. 
C)  reduce corporate revenues. 
D)  protect investors from corporate abuses. 
E)  decrease audit costs for U.S. firms.

Question 13

The Chief Executive Officer typically reports to the

Accepted Answer

A)  Board of Director's 
B)  Granting authority 
C)  President 
D)  CFO 
E)  None of these. 
A)  Board of Director's 
B)  Granting authority 
C)  President 
D)  CFO 
E)  None of these.

Question 14

The Securities Exchange Act of 1934 focuses on:

Accepted Answer

A)  all stock transactions. 
B)  sales of existing securities. 
C)  issuance of new securities. 
D)  insider trading. 
E)  Federal Deposit Insurance Corporation (FDI
C)  insurancE. 
A)  all stock transactions. 
B)  sales of existing securities. 
C)  issuance of new securities. 
D)  insider trading. 
E)  Federal Deposit Insurance Corporation (FDI
C)  insurancE.

Question 15

Since the implementation of Sarbanes-Oxley,the cost of going public in the United States has:

Accepted Answer

A)  increased. 
B)  decreased. 
C)  remained about the same. 
D)  been erratic, but over time has decreased. 
E)  It is impossible to tell since Sarbanes-Oxley compliance does not involve direct cost to the firm. 
A)  increased. 
B)  decreased. 
C)  remained about the same. 
D)  been erratic, but over time has decreased. 
E)  It is impossible to tell since Sarbanes-Oxley compliance does not involve direct cost to the firm.

Question 16

The owners of a limited liability company prefer:

Accepted Answer

A)  being taxed like a corporation. 
B)  having liability exposure similar to that of a sole proprietor. 
C)  being taxed personally on all business income. 
D)  having liability exposure similar to that of a general partner. 
E)  being taxed like a corporation with liability like a partnership. 
A)  being taxed like a corporation. 
B)  having liability exposure similar to that of a sole proprietor. 
C)  being taxed personally on all business income. 
D)  having liability exposure similar to that of a general partner. 
E)  being taxed like a corporation with liability like a partnership.

Question 17

In a limited partnership:

Accepted Answer

A)  each limited partner's liability is limited to his net worth. 
B)  each limited partner's liability is limited to the amount he put into the partnership. 
C)  each limited partner's liability is limited to his annual salary. 
D)  there is no limitation on liability; only a limitation on what the partner can earn. 
E)  None of these. 
A)  each limited partner's liability is limited to his net worth. 
B)  each limited partner's liability is limited to the amount he put into the partnership. 
C)  each limited partner's liability is limited to his annual salary. 
D)  there is no limitation on liability; only a limitation on what the partner can earn. 
E)  None of these.

Question 18

The decisions made by financial managers should all be ones which increase the:

Accepted Answer

A)  size of the firm. 
B)  growth rate of the firm. 
C)  marketability of the managers. 
D)  market value of the existing owners' equity. 
E)  financial distress of the firm. 
A)  size of the firm. 
B)  growth rate of the firm. 
C)  marketability of the managers. 
D)  market value of the existing owners' equity. 
E)  financial distress of the firm.

Question 19

Financial managers should strive to maximize the current value per share of the existing stock because:

Accepted Answer

A)  doing so guarantees the company will grow in size at the maximum possible rate. 
B)  doing so increases the salaries of all the employees. 
C)  the current stockholders are the owners of the corporation. 
D)  doing so means the firm is growing in size faster than its competitors. 
E)  the managers often receive shares of stock as part of their compensation. 
A)  doing so guarantees the company will grow in size at the maximum possible rate. 
B)  doing so increases the salaries of all the employees. 
C)  the current stockholders are the owners of the corporation. 
D)  doing so means the firm is growing in size faster than its competitors. 
E)  the managers often receive shares of stock as part of their compensation.

Question 20

Insider trading is:

Accepted Answer

A)  legal. 
B)  illegal. 
C)  impossible to have in our efficient market. 
D)  discouraged, but legal. 
E)  list only the securities of the largest firms. 
A)  legal. 
B)  illegal. 
C)  impossible to have in our efficient market. 
D)  discouraged, but legal. 
E)  list only the securities of the largest firms.

Exam 1: Introduction to Corporate Finance

What should be the goal of the financial manager of a corporation? Why?

Which one of the following statements concerning a sole proprietorship is correct?

The basic regulatory framework in the United States was provided by:

Suppose you own 100 shares of IBM stock which you intend to sell today. Since you will sell it in the secondary market,IBM will receive no direct cash flows as a consequence of your sale. Why,then,should IBM's management care about the price you get for your shares?

The treasurer and the controller of a corporation generally report to the:

Managers that are successful in pursuing stockholder goals can

Which one of the following actions by a financial manager creates an agency problem?

Which one of the following statements concerning a sole proprietorship is correct?

What advantages does the corporate form of organization have over sole proprietorships or partnerships?

The articles of incorporation:

Which type of business organization has all the respective rights and privileges of a legal person?

The Sarbanes Oxley Act of 2002 is intended to:

The Chief Executive Officer typically reports to the

The Securities Exchange Act of 1934 focuses on:

Since the implementation of Sarbanes-Oxley,the cost of going public in the United States has:

The owners of a limited liability company prefer:

In a limited partnership:

The decisions made by financial managers should all be ones which increase the:

Financial managers should strive to maximize the current value per share of the existing stock because:

Insider trading is:

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

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