Question 1

Give some examples of ways in which manager's goals can differ from those of shareholders.

Accepted Answer

The primary goal of a financial manager should be 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.However,managers frequently are more concerned with their personal benefits from employment,the prestige of their position,and the perks to which they feel entitled.There are numerous examples,some of which are excessive compensation packages,large corporate offices,excessive staffing,and first-class travel and conference locations,to name a few.

Question 2

The articles of incorporation:
I.describe the purpose of the firm.
II.are amended periodically.
III.set forth the number of shares of stock that can be issued.
IV.detail the method that will be used to elect corporate directors.

Accepted Answer

A) I and III only 
B) I and IV only 
C) II and III only 
D) II and IV only 
E) I, III, and IV only 
A) I and III only 
B) I and IV only 
C) II and III only 
D) II and IV only 
E) I, III, and IV only A

Question 3

Describe the key advantages associated with the corporate form of organization.

Accepted Answer

The advantages of the corporate form of organization are the ease of transferring ownership,the owners' limited liability for business debts,the ability to raise large amounts of capital,and the potential for an unlimited life for the organization.

Question 4

Which one of the following is an agency cost?

Accepted Answer

A) accepting an investment opportunity that will add value to the firm 
B) increasing the quarterly dividend 
C) investing in a new project that creates firm value 
D) hiring outside accountants to audit the company's financial statements 
E) closing a division of the firm that is operating at a loss 
A) accepting an investment opportunity that will add value to the firm 
B) increasing the quarterly dividend 
C) investing in a new project that creates firm value 
D) hiring outside accountants to audit the company's financial statements 
E) closing a division of the firm that is operating at a loss

Question 5

Which one of the following is a primary market transaction?

Accepted Answer

A) sale of currently outstanding stock by a dealer to an individual investor 
B) sale of a new share of stock to an individual investor 
C) stock ownership transfer from one shareholder to another shareholder 
D) gift of stock from one shareholder to another shareholder 
E) gift of stock by a shareholder to a family member 
A) sale of currently outstanding stock by a dealer to an individual investor 
B) sale of a new share of stock to an individual investor 
C) stock ownership transfer from one shareholder to another shareholder 
D) gift of stock from one shareholder to another shareholder 
E) gift of stock by a shareholder to a family member

Question 6

Why should financial managers strive to maximize the current value per share of the existing stock?

Accepted Answer

A) doing so guarantees the company will grow in size at the maximum possible rate 
B) doing so increases employee salaries 
C) because they have been hired to represent the interests of the current shareholders 
D) because this will increase the current dividends per share 
E) because 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 employee salaries 
C) because they have been hired to represent the interests of the current shareholders 
D) because this will increase the current dividends per share 
E) because managers often receive shares of stock as part of their compensation

Question 7

Which of the following are cash flows from a corporation into the financial markets?
I.repayment of long-term debt
II.payment of government taxes
III.payment of loan interest
IV.payment of quarterly dividend

Accepted Answer

A) I and II only 
B) I and III only 
C) II and IV only 
D) I, III, and IV only 
E) I, II, and III only 
A) I and II only 
B) I and III only 
C) II and IV only 
D) I, III, and IV only 
E) I, II, and III only

Question 8

Which one of the following statements is correct?

Accepted Answer

A) A general partnership is legally the same as a corporation. 
B) Both sole proprietorship and partnership income is taxed as individual income. 
C) Partnerships are the most complicated type of business to form. 
D) All business organizations have bylaws. 
E) Only firms organized as sole proprietorships have limited lives. 
A) A general partnership is legally the same as a corporation. 
B) Both sole proprietorship and partnership income is taxed as individual income. 
C) Partnerships are the most complicated type of business to form. 
D) All business organizations have bylaws. 
E) Only firms organized as sole proprietorships have limited lives.

Question 9

Which of the following represent cash outflows from a corporation?
I.issuance of securities
II.payment of dividends
III.new loan proceeds
IV.payment of government taxes

Accepted Answer

A) I and III only 
B) II and IV only 
C) I and IV only 
D) I, II, and IV only 
E) II, III, and IV only 
A) I and III only 
B) II and IV only 
C) I and IV only 
D) I, II, and IV only 
E) II, III, and IV only

Question 10

Which one of the following grants an individual the right to vote on behalf of a shareholder?

Accepted Answer

A) proxy 
B) by-laws 
C) indenture agreement 
D) stock option 
E) stock audit 
A) proxy 
B) by-laws 
C) indenture agreement 
D) stock option 
E) stock audit

Question 11

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

Accepted Answer

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

Question 12

Which of the following are results related to the enactment of the Sarbanes-Oxley Act of 2002?
I.increased foreign stock exchange listings of U.S.stocks
II.decreased compliance costs
III.increased privatization of public corporations
IV.increased public disclosure by all corporations

Accepted Answer

A) I and III only 
B) II and IV only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, III, and IV only 
A) I and III only 
B) II and IV only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, III, and IV only

Question 13

Sam,Alfredo,and Juan want to start a small U.S.business.Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations.Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business.Alfredo will be involved as an active consultant and manager and will also contribute funds.Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so.All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the business to a minimum.Which form of business entity should these individuals adopt?

Accepted Answer

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

Question 14

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

Accepted Answer

A) increasing the size of a firm 
B) concentrating on maximizing current profits 
C) closing a division with net losses 
D) increasing the market value of the firm's shares 
E) obtaining a patent for a new product 
A) increasing the size of a firm 
B) concentrating on maximizing current profits 
C) closing a division with net losses 
D) increasing the market value of the firm's shares 
E) obtaining a patent for a new product

Question 15

Which one of the following functions should be the responsibility of the controller rather than the treasurer?

Accepted Answer

A) daily cash deposit 
B) income tax returns 
C) equipment purchase analysis 
D) customer credit approval 
E) payment to a vendor 
A) daily cash deposit 
B) income tax returns 
C) equipment purchase analysis 
D) customer credit approval 
E) payment to a vendor

Question 16

Which one of the following actions by a financial manager is most apt to create 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) refusing to expand the company if doing so will lower the value of the equity 
D) agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales 
E) increasing current profits when doing so lowers the value of the firm's 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) refusing to expand the company if doing so will lower the value of the equity 
D) agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales 
E) increasing current profits when doing so lowers the value of the firm's equity

Question 17

Which one of the following parties has ultimate control of a corporation?

Accepted Answer

A) chairman of the Board 
B) board of directors 
C) chief executive officer 
D) chief operating office 
E) shareholders 
A) chairman of the Board 
B) board of directors 
C) chief executive officer 
D) chief operating office 
E) shareholders

Question 18

Which of the following questions are addressed by financial managers?
I.How should a product be marketed?
II.Should customers be given 30 or 45 days to pay for their credit purchases?
III.Should the firm borrow more money?
IV.Should the firm acquire new equipment?

Accepted Answer

A) I and IV only 
B) II and III only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV 
A) I and IV only 
B) II and III only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 19

Which one of the following is an unintended result of the Sarbanes-Oxley Act?

Accepted Answer

A) more detailed and accurate financial reporting 
B) increased management awareness of internal controls 
C) corporations delisting from major exchanges 
D) increased responsibility for corporate officers 
E) identification of internal control weaknesses 
A) more detailed and accurate financial reporting 
B) increased management awareness of internal controls 
C) corporations delisting from major exchanges 
D) increased responsibility for corporate officers 
E) identification of internal control weaknesses

Question 20

Decisions made by financial managers should primarily focus on increasing which one of the following?

Accepted Answer

A) size of the firm 
B) growth rate of the firm 
C) gross profit per unit produced 
D) market value per share of outstanding stock 
E) total sales 
A) size of the firm 
B) growth rate of the firm 
C) gross profit per unit produced 
D) market value per share of outstanding stock 
E) total sales

Exam 1: Introduction to Corporate Finance

Give some examples of ways in which manager's goals can differ from those of shareholders.

The articles of incorporation: I.describe the purpose of the firm. II.are amended periodically. III.set forth the number of shares of stock that can be issued. IV.detail the method that will be used to elect corporate directors.

Describe the key advantages associated with the corporate form of organization.

Which one of the following is an agency cost?

Which one of the following is a primary market transaction?

Why should financial managers strive to maximize the current value per share of the existing stock?

Which of the following are cash flows from a corporation into the financial markets? I.repayment of long-term debt II.payment of government taxes III.payment of loan interest IV.payment of quarterly dividend

Which one of the following statements is correct?

Which of the following represent cash outflows from a corporation? I.issuance of securities II.payment of dividends III.new loan proceeds IV.payment of government taxes

Which one of the following grants an individual the right to vote on behalf of a shareholder?

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

Which of the following are results related to the enactment of the Sarbanes-Oxley Act of 2002? I.increased foreign stock exchange listings of U.S.stocks II.decreased compliance costs III.increased privatization of public corporations IV.increased public disclosure by all corporations

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

Which one of the following functions should be the responsibility of the controller rather than the treasurer?

Which one of the following actions by a financial manager is most apt to create an agency problem?

Which one of the following parties has ultimate control of a corporation?

Which of the following questions are addressed by financial managers? I.How should a product be marketed? II.Should customers be given 30 or 45 days to pay for their credit purchases? III.Should the firm borrow more money? IV.Should the firm acquire new equipment?

Which one of the following is an unintended result of the Sarbanes-Oxley Act?

Decisions made by financial managers should primarily focus on increasing which one of the following?

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

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