Question 1

Which of the following best describes why the Valuation Principle is a key concept in making financial decisions?

Accepted Answer

A) It shows how to assign monetary value to intangibles such as good health and well-being. 
B) It allows fixed assets and liquid assets to be valued correctly. 
C) It gives a good indication of the net worth of a person,item,or company and can be used to estimate any changes in that net worth. 
D) It shows how to make the costs and benefits of a decision comparable so that we can weigh them properly. 
E) It allows us to produce accurate financial statements. 
A) It shows how to assign monetary value to intangibles such as good health and well-being. 
B) It allows fixed assets and liquid assets to be valued correctly. 
C) It gives a good indication of the net worth of a person,item,or company and can be used to estimate any changes in that net worth. 
D) It shows how to make the costs and benefits of a decision comparable so that we can weigh them properly. 
E) It allows us to produce accurate financial statements.

Question 2

Which of the stock markets listed below is the smallest,as judged by trading volume?

Accepted Answer

A) Japan Exchange Group 
B) London Stock Exchange 
C) NASDAQ 
D) NYSE Euronext (US) 
E) TMX Group 
A) Japan Exchange Group 
B) London Stock Exchange 
C) NASDAQ 
D) NYSE Euronext (US) 
E) TMX Group

Question 3

Explain some of the measures taken to reduce the principal-agent problem.

Accepted Answer

The principal-agent problem can be reduc

Question 4

What is one of the major advantages corporations have over other business entities?

Accepted Answer

A) It is harder for a corporation to raise capital than other forms of businesses. 
B) The owners of the corporation are personally liable for its obligations. 
C) Corporations are the only organizational structures not subject to double taxation. 
D) There is no limitation on who can own its stock. 
E) It is less costly to set up a corporation. 
A) It is harder for a corporation to raise capital than other forms of businesses. 
B) The owners of the corporation are personally liable for its obligations. 
C) Corporations are the only organizational structures not subject to double taxation. 
D) There is no limitation on who can own its stock. 
E) It is less costly to set up a corporation.

Question 5

A flow-through entity that holds all the debt and equity securities of a corporation is called:

Accepted Answer

A) an energy trust. 
B) a real estate investment trust. 
C) a business income trust. 
D) a parent corporation. 
E) an ownership trust. 
A) an energy trust. 
B) a real estate investment trust. 
C) a business income trust. 
D) a parent corporation. 
E) an ownership trust.

Question 6

Put the following steps of the financial cycle in the correct order: I.Money flows to companies who use it to fund growth through new products.

Accepted Answer

A) I,II,III 
B) II,I,III 
C) III,II,I 
D) II,III,I 
E) I,III,II 
A) I,II,III 
B) II,I,III 
C) III,II,I 
D) II,III,I 
E) I,III,II

Question 7

The principal goal of the financial manager is to maximize the wealth of the shareholders.

Accepted Answer

A) True 
 B)False

Question 8

Use the figure for the question(s)below.  
-Based on the information shown above,how much would you receive from selling 2000 shares of the above stock?

Accepted Answer

A) €40,840 
B) €40,740 
C) €41,000 
D) €42,560 
E) €41,650 
A) €40,840 
B) €40,740 
C) €41,000 
D) €42,560 
E) €41,650

Question 9

The collection of all the outstanding shares of a corporation is known as the:

Accepted Answer

A) Debt. 
B) Assets. 
C) Liabilities. 
D) Equity. 
E) Ownership. 
A) Debt. 
B) Assets. 
C) Liabilities. 
D) Equity. 
E) Ownership.

Question 10

What is the most important duty of a financial manager?

Accepted Answer

A) to ensure that the firm has enough cash on hand to meet its commitments at any given time 
B) to decide how to pay for investments 
C) to manage working capital 
D) to make investment decisions 
E) to minimize taxes 
A) to ensure that the firm has enough cash on hand to meet its commitments at any given time 
B) to decide how to pay for investments 
C) to manage working capital 
D) to make investment decisions 
E) to minimize taxes

Question 11

Why is a stock exchange like NASDAQ considered a secondary market?

Accepted Answer

A) It trades the second-largest volume of shares in the world. 
B) Shares sold on it are exchanged between investors without any involvement of the issuing corporation. 
C) The exchange has rules that attempt to ensure that bid and ask prices do not get too far apart. 
D) NASDAQ is called a secondary market because NYSE is considered a primary market. 
E) Smaller companies are listed on the NASDAQ. 
A) It trades the second-largest volume of shares in the world. 
B) Shares sold on it are exchanged between investors without any involvement of the issuing corporation. 
C) The exchange has rules that attempt to ensure that bid and ask prices do not get too far apart. 
D) NASDAQ is called a secondary market because NYSE is considered a primary market. 
E) Smaller companies are listed on the NASDAQ.

Question 12

Which type of financial institution receives money in the form of investments by wealthy individuals and endowments and purchases whole companies by using a small amount of equity and borrowing the rest?

Accepted Answer

A) Mutual funds 
B) Pension funds 
C) Hedge funds 
D) Venture capital funds 
E) Private equity funds 
A) Mutual funds 
B) Pension funds 
C) Hedge funds 
D) Venture capital funds 
E) Private equity funds

Question 13

Use the figure for the question(s)below.  
-What is the bid-ask spread on the stock shown above?

Accepted Answer

A) 1 cent 
B) 3 cents 
C) 6 cents 
D) 12 cents 
E) 4 cents 
A) 1 cent 
B) 3 cents 
C) 6 cents 
D) 12 cents 
E) 4 cents

Question 14

What is the most common type of firm in Canada and the world?

Accepted Answer

A) sole proprietorships 
B) partnerships 
C) limited partnerships 
D) corporations 
E) limited liability partnerships 
A) sole proprietorships 
B) partnerships 
C) limited partnerships 
D) corporations 
E) limited liability partnerships

Question 15

If a broker will buy a share of stock from you at $3.85 and sell it to you at $3.87,the ask price would be $3.85.

Accepted Answer

A) True 
 B)False

Question 16

You own 50 units of a real estate investment trust (REIT)and 50 shares of a public corporation.The REIT earns $6.00 per unit.The corporation earns $4.00 per share before taxes.The corporate tax rate is 25%,your personal tax rate is 35%,and the tax rate on dividend income is 15%.What is the total after-tax income you receive,if everything is held outside a TFSA?

Accepted Answer

A) $273.75 
B) $318.75 
C) $322.50 
D) $382.50 
E) $450.00 
A) $273.75 
B) $318.75 
C) $322.50 
D) $382.50 
E) $450.00

Question 17

You hold 1,000 units of Calgary Commercial Property,a real estate investment trust (REIT).500 of those units are held inside a tax-free savings account,the other 500 are outside the tax-free savings account.The REIT announces a profit of $10 per share,of which it retains $4 for reinvestment and distributes the rest as dividend payments.Given your personal tax rate of 30%,and the tax rate on dividends is 15%,how much tax must you pay on your holdings?

Accepted Answer

A) $900 
B) $450 
C) $1,800 
D) $1,500 
E) $1,600 
A) $900 
B) $450 
C) $1,800 
D) $1,500 
E) $1,600

Question 18

A typical company has many types of shareholders,from individuals holding a few shares,to large institutions that hold very large numbers of shares.How does a financial manager ensure that the priorities and concerns of such disparate stockholders are met?

Accepted Answer

A) The financial manager should seek to make investments that do not harm the interests of the stockholders. 
B) The decisions taken by the financial manager should be solely influenced by the benefit to the company since,by maximizing its fitness,he or she will also maximize the benefits of that company to the shareholders. 
C) The financial manager should consider the interests and concerns of large shareholders a priority,so the needs of those who hold a controlling interest in the company are met. 
D) In general,all shareholders will agree that they are better off if the financial manager works to maximize the value of their investment. 
E) The financial manager will consider the priorities of all the shareholders at the annual shareholders' meeting. 
A) The financial manager should seek to make investments that do not harm the interests of the stockholders. 
B) The decisions taken by the financial manager should be solely influenced by the benefit to the company since,by maximizing its fitness,he or she will also maximize the benefits of that company to the shareholders. 
C) The financial manager should consider the interests and concerns of large shareholders a priority,so the needs of those who hold a controlling interest in the company are met. 
D) In general,all shareholders will agree that they are better off if the financial manager works to maximize the value of their investment. 
E) The financial manager will consider the priorities of all the shareholders at the annual shareholders' meeting.

Question 19

Red Deer Plumbing Supply Co.earns $4.50 per share before taxes.The corporate tax rate is 30%,the personal tax rate on dividends is 15%,and the personal tax rate on non-dividend income is 40%.What is the total amount of taxes paid per share if the company pays a $2.00 dividend?

Accepted Answer

A) $0.30 
B) $2.15 
C) $1.35 
D) $1.65 
E) $0.80 
A) $0.30 
B) $2.15 
C) $1.35 
D) $1.65 
E) $0.80

Question 20

Both personal financial decisions and business financial decisions can best be made by applying the:

Accepted Answer

A) Internal Ranking Criteria. 
B) Best Alternatives Matrix. 
C) Valuation Principle. 
D) Financial Comparison Analysis. 
E) Law of One Price. 
A) Internal Ranking Criteria. 
B) Best Alternatives Matrix. 
C) Valuation Principle. 
D) Financial Comparison Analysis. 
E) Law of One Price.

Exam 1: Corporate Finance and the Financial Manager

Which of the following best describes why the Valuation Principle is a key concept in making financial decisions?

Which of the stock markets listed below is the smallest,as judged by trading volume?

Explain some of the measures taken to reduce the principal-agent problem.

What is one of the major advantages corporations have over other business entities?

A flow-through entity that holds all the debt and equity securities of a corporation is called:

Put the following steps of the financial cycle in the correct order: I.Money flows to companies who use it to fund growth through new products.

The principal goal of the financial manager is to maximize the wealth of the shareholders.

Use the figure for the question(s)below. -Based on the information shown above,how much would you receive from selling 2000 shares of the above stock?

The collection of all the outstanding shares of a corporation is known as the:

What is the most important duty of a financial manager?

Why is a stock exchange like NASDAQ considered a secondary market?

Which type of financial institution receives money in the form of investments by wealthy individuals and endowments and purchases whole companies by using a small amount of equity and borrowing the rest?

Use the figure for the question(s)below. -What is the bid-ask spread on the stock shown above?

What is the most common type of firm in Canada and the world?

If a broker will buy a share of stock from you at $3.85 and sell it to you at $3.87,the ask price would be $3.85.

A typical company has many types of shareholders,from individuals holding a few shares,to large institutions that hold very large numbers of shares.How does a financial manager ensure that the priorities and concerns of such disparate stockholders are met?

Red Deer Plumbing Supply Co.earns $4.50 per share before taxes.The corporate tax rate is 30%,the personal tax rate on dividends is 15%,and the personal tax rate on non-dividend income is 40%.What is the total amount of taxes paid per share if the company pays a $2.00 dividend?

Both personal financial decisions and business financial decisions can best be made by applying the:

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

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