Question 1

Corporate managers are expected to make corporate decisions that are in the best interest of:

Accepted Answer

A)  top corporate management. 
B)  the corporation's board of directors. 
C)  the corporation's shareholders. 
D)  all corporate employees. 
A)  top corporate management. 
B)  the corporation's board of directors. 
C)  the corporation's shareholders. 
D)  all corporate employees. C

Question 2

When a corporation fails,the maximum that can be lost by an investor protected by limited liability is:

Accepted Answer

A)  the amount of the initial investment. 
B)  the amount of the profit on the investment. 
C)  the amount necessary to pay the corporation's debts. 
D)  the amount of the investor's personal wealth. 
A)  the amount of the initial investment. 
B)  the amount of the profit on the investment. 
C)  the amount necessary to pay the corporation's debts. 
D)  the amount of the investor's personal wealth. A

Question 3

Discuss why corporations typically exhibit separation of ownership and management,as distinguished from sole proprietorships or partnerships.

Accepted Answer

One reason corporations typically exhibit a separation of ownership and management is that ownership often includes a diverse number of relatively small investors and it would be nearly impossible to coordinate their decision making.Also,many small investors prefer not to take on management responsibilities,and to relinquish those duties to managers who have been hired specifically for that function,resulting in higher quality management.Finally,the separation minimizes managerial disruptions that would occur with changing or deceased investors.On the other hand,most sole proprietorships and partnerships are smaller firms that do not need,may not be able to afford,and may not desire separate management.

Question 4

Fritz and Frieda went to business school together 10 years ago.They have just been hired by a midsized corporation that wants to bring in new financial managers.Fritz studied finance,with an emphasis on financial markets and institutions.Frieda majored in accounting and became a CPA 5 years ago.Who is more suited to be treasurer and who controller? Briefly explain.

Accepted Answer

Fritz would more likely be the treasurer

Question 5

Which of the following represents a financing decision?

Accepted Answer

A)  A decision to borrow $10 million through a bank loan 
B)  A decision to invest in the common stock of another corporation 
C)  A decision to buy a new mainframe computer 
D)  A decision to pay $1 million of accounts payable 
A)  A decision to borrow $10 million through a bank loan 
B)  A decision to invest in the common stock of another corporation 
C)  A decision to buy a new mainframe computer 
D)  A decision to pay $1 million of accounts payable

Question 6

Financial markets are used for trading:

Accepted Answer

A)  both real assets and financial assets. 
B)  the goods and services produced by a firm. 
C)  securities, such as shares of IBM. 
D)  the raw materials used in manufacturing. 
A)  both real assets and financial assets. 
B)  the goods and services produced by a firm. 
C)  securities, such as shares of IBM. 
D)  the raw materials used in manufacturing.

Question 7

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 8

Shareholders welcome higher short-term profits even when they damage long-term profits.

Accepted Answer

A) True 
 B)False

Question 9

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.

Question 10

Which of the following is not a financing decision?

Accepted Answer

A)  Should the firm borrow money from a bank or sell bonds? 
B)  Should the firm shut down an unprofitable factory? 
C)  Should the firm buy or lease a new machine that it is committed to acquiring? 
D)  Should the firm issue preferred stock or common stock? 
A)  Should the firm borrow money from a bank or sell bonds? 
B)  Should the firm shut down an unprofitable factory? 
C)  Should the firm buy or lease a new machine that it is committed to acquiring? 
D)  Should the firm issue preferred stock or common stock?

Question 11

Which of the following would be considered a capital budgeting decision?

Accepted Answer

A)  Planning to issue common stock rather than issuing preferred stock 
B)  Deciding to expand into a new line of products, at a cost of $5 million 
C)  Repurchasing shares of common stock 
D)  Issuing debt in the form of long-term bonds 
A)  Planning to issue common stock rather than issuing preferred stock 
B)  Deciding to expand into a new line of products, at a cost of $5 million 
C)  Repurchasing shares of common stock 
D)  Issuing debt in the form of long-term bonds

Question 12

Agency problems can best be characterized as:

Accepted Answer

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

Question 13

Investors usually give some companies with good track records the benefit of the doubt when the companies' performance fails to meet the market expectation.

Accepted Answer

A) True 
 B)False

Question 14

Provide examples of managerial goals other than the maximization of market value.

Accepted Answer

Managers may attempt to maximize profits

Question 15

BP's committing of$500 million to partnership with University of California-Berkeley to develop new sources of energy is a capital budgeting decision.

Accepted Answer

A) True 
 B)False

Question 16

One common reason for partnerships to convert to a corporate form of organization is that the partnership:

Accepted Answer

A)  faces rapidly growing financing requirements. 
B)  wishes to avoid double taxation of profits. 
C)  has issued all of its allotted shares. 
D)  agreement expires after ten 10 years. 
A)  faces rapidly growing financing requirements. 
B)  wishes to avoid double taxation of profits. 
C)  has issued all of its allotted shares. 
D)  agreement expires after ten 10 years.

Question 17

Which of the firm's financial managers is most likely to be involved with obtaining financing for the firm?

Accepted Answer

A)  Treasurer 
B)  Controller 
C)  Chief Operating Officer 
D)  Board of directors 
A)  Treasurer 
B)  Controller 
C)  Chief Operating Officer 
D)  Board of directors

Question 18

In the case of a professional corporation,________ has/have limited liability.

Accepted Answer

A)  only the professionals 
B)  only the business 
C)  both the professionals and the business 
D)  neither the professionals nor the business 
A)  only the professionals 
B)  only the business 
C)  both the professionals and the business 
D)  neither the professionals nor the business

Question 19

Financial analysts are involved in monitoring and controlling the risk associated with investment projects and financing decisions.

Accepted Answer

A) True 
 B)False

Question 20

Making good investment and financing decisions is the chieftask of the financial manager.

Accepted Answer

A) True 
 B)False

Exam 1: Goals and Governance of the Corporation

Corporate managers are expected to make corporate decisions that are in the best interest of:

When a corporation fails,the maximum that can be lost by an investor protected by limited liability is:

Discuss why corporations typically exhibit separation of ownership and management,as distinguished from sole proprietorships or partnerships.

Which of the following represents a financing decision?

Financial markets are used for trading:

Ethical decision making in business:

Shareholders welcome higher short-term profits even when they damage long-term profits.

A chief financial officer would typically:

Which of the following is not a financing decision?

Which of the following would be considered a capital budgeting decision?

Agency problems can best be characterized as:

Investors usually give some companies with good track records the benefit of the doubt when the companies' performance fails to meet the market expectation.

Provide examples of managerial goals other than the maximization of market value.

BP's committing of$500 million to partnership with University of California-Berkeley to develop new sources of energy is a capital budgeting decision.

One common reason for partnerships to convert to a corporate form of organization is that the partnership:

Which of the firm's financial managers is most likely to be involved with obtaining financing for the firm?

In the case of a professional corporation,________ has/have limited liability.

Financial analysts are involved in monitoring and controlling the risk associated with investment projects and financing decisions.

Making good investment and financing decisions is the chieftask of the financial manager.

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters