Question 1

Why is the stock price of a company an indication of the performance of that company's senior managers?

Accepted Answer

A) Well-run companies are invariably highly profitable,which leads to a higher share price. 
B) In general,people want to invest in a well-managed corporation,which will drive up the price of shares. 
C) Investors who can see that a company is well-run will hold on to their shares,even if the company faces temporary setbacks,since they know that the stock price will likely rise again. 
D) Larger companies tend to be better run and so have higher stock prices. 
E) Managers who perform well get paid well,and can afford to buy more shares of their own company,driving up the share price. 
A) Well-run companies are invariably highly profitable,which leads to a higher share price. 
B) In general,people want to invest in a well-managed corporation,which will drive up the price of shares. 
C) Investors who can see that a company is well-run will hold on to their shares,even if the company faces temporary setbacks,since they know that the stock price will likely rise again. 
D) Larger companies tend to be better run and so have higher stock prices. 
E) Managers who perform well get paid well,and can afford to buy more shares of their own company,driving up the share price.

Question 2

What is the principal guiding factor for the financial manager?

Accepted Answer

Maximizing sharehold

Question 3

Which type of financial institution receives money in the form of deposits and loans it out to people and businesses?

Accepted Answer

A) Banks and credit unions 
B) Insurance companies 
C) Mutual funds 
D) Pension funds 
E) Hedge funds 
A) Banks and credit unions 
B) Insurance companies 
C) Mutual funds 
D) Pension funds 
E) Hedge funds

Question 4

Which of the following types of firms do NOT have limited liability?

Accepted Answer

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

Question 5

Joe is a general partner in a limited partnership firm,while Jane is a limited partner in that same firm.Which of the following statements regarding their respective relationships to the firm is correct?

Accepted Answer

A) Joe has no management authority within the partnership. 
B) Jane is legally involved in the managerial decision making of the firm. 
C) Jane's liability for the firm's debts consists solely of her investment in the firm. 
D) Withdrawal of Jane from the partnership will dissolve that partnership. 
E) Jane's liability consists of all the firm's outstanding debts. 
A) Joe has no management authority within the partnership. 
B) Jane is legally involved in the managerial decision making of the firm. 
C) Jane's liability for the firm's debts consists solely of her investment in the firm. 
D) Withdrawal of Jane from the partnership will dissolve that partnership. 
E) Jane's liability consists of all the firm's outstanding debts.

Question 6

Stock markets provide liquidity for a firm's shares.

Accepted Answer

A) True 
 B)False

Question 7

Whose interests should a financial manager consider paramount when making a decision?

Accepted Answer

A) the stockholders who have risked their money to become owners of the company 
B) the employees and associated stakeholders who are employed by the company 
C) the public who consume the company's goods and services 
D) the senior management and associated colleagues at the executive level within the company 
E) the financial manager's own interests 
A) the stockholders who have risked their money to become owners of the company 
B) the employees and associated stakeholders who are employed by the company 
C) the public who consume the company's goods and services 
D) the senior management and associated colleagues at the executive level within the company 
E) the financial manager's own interests

Question 8

In which of the following ways is a limited liability partnership like a corporation?

Accepted Answer

A) Both types of firm were created and developed first in Canada. 
B) Both can choose to be considered a partnership for tax purposes. 
C) All of its owners' liability is restricted to their investment in the firm. 
D) It is directly managed by the owners of the firm. 
E) Owners have unlimited personal liability for the negligence of those whom they supervise. 
A) Both types of firm were created and developed first in Canada. 
B) Both can choose to be considered a partnership for tax purposes. 
C) All of its owners' liability is restricted to their investment in the firm. 
D) It is directly managed by the owners of the firm. 
E) Owners have unlimited personal liability for the negligence of those whom they supervise.

Question 9

Use the figure for the question(s)below.  
-Based on the information shown above,what would it cost to buy 1000 shares of the above stock?

Accepted Answer

A) $91,110 
B) $91,300 
C) $91,320 
D) $91,650 
E) $91,350 
A) $91,110 
B) $91,300 
C) $91,320 
D) $91,650 
E) $91,350

Question 10

Windsor Windows 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 but all of the shares are held in a tax-free savings account?

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 11

The financial manager of a well-regarded book publishing firm wishes to buy a small Internet publishing company to provide an avenue for sale of its materials online.In order to raise the funds to make this purchase,the financial manager decides to sell more stock in the company.How is the financial manager raising funds in this case?

Accepted Answer

A) by increasing the debt burden carried by the company 
B) by raising the company's equity by encouraging new owners to take a stake in the company 
C) by decreasing the ratio of equity to debt held by the company 
D) by increasing the value of shares held by the existing owners of the company 
E) by adding a new revenue stream from the Internet publishing company 
A) by increasing the debt burden carried by the company 
B) by raising the company's equity by encouraging new owners to take a stake in the company 
C) by decreasing the ratio of equity to debt held by the company 
D) by increasing the value of shares held by the existing owners of the company 
E) by adding a new revenue stream from the Internet publishing company

Question 12

Moncton Meats is a corporation that earned $3 per share before it paid any taxes.The firm retained $1 of after-tax earnings for reinvestment,and distributed what remained in dividend payments.You hold 20,000 shares of Moncton Meats in a tax-free savings account.If the corporate tax rate was 30% and dividend earnings were taxed at 20%,what was the value of your dividend earnings received after all taxes are paid?

Accepted Answer

A) $40,000 
B) $16,000 
C) $20,000 
D) $17,600 
E) $22,000 
A) $40,000 
B) $16,000 
C) $20,000 
D) $17,600 
E) $22,000

Question 13

In a Dark Pool trading venue:

Accepted Answer

A) The size and price of the order is not disclosed to the participant and the price is between the best bid and asked price. 
B) The size of the order is disclosed to the participant and the price is between the best bid and asked price. 
C) Traders can assume that the order will be filled. 
D) Traders should not expect prices better than what could be quoted in a conventional market. 
E) Dark Pools do not constitute a large portion of total transactions compared to activity in conventional markets. 
A) The size and price of the order is not disclosed to the participant and the price is between the best bid and asked price. 
B) The size of the order is disclosed to the participant and the price is between the best bid and asked price. 
C) Traders can assume that the order will be filled. 
D) Traders should not expect prices better than what could be quoted in a conventional market. 
E) Dark Pools do not constitute a large portion of total transactions compared to activity in conventional markets.

Question 14

The shares of private corporations are traded on a stock market.

Accepted Answer

A) True 
 B)False

Question 15

Kuljeet owns 20% of the stock of the Flin Flon Corporation.The tax rate on dividend income is 15%.If Flin Flon makes a dividend payment of $2,000,000 paid proportionally to its shareholders,how much of this amount would Kuljeet receive after taxes?

Accepted Answer

A) $450,000 
B) $300,000 
C) $60,000 
D) $340,000 
E) $400,000 
A) $450,000 
B) $300,000 
C) $60,000 
D) $340,000 
E) $400,000

Question 16

What is the process of double taxation for the stockholders in a corporation?

Accepted Answer

A) Their shares are taxed when they are both bought and sold. 
B) The corporation is taxed on the profits it makes,and the owners are taxed when this profit is distributed to them. 
C) The owners of a corporation are taxed when they receive dividend payments and when they make a profit from the sale of shares. 
D) The corporation must pay taxes on any profits it makes,and the capital raised by the sale of shares is also subject to taxation. 
E) The corporation is taxed on any profits it makes,and owners are taxed when they sell their shares. 
A) Their shares are taxed when they are both bought and sold. 
B) The corporation is taxed on the profits it makes,and the owners are taxed when this profit is distributed to them. 
C) The owners of a corporation are taxed when they receive dividend payments and when they make a profit from the sale of shares. 
D) The corporation must pay taxes on any profits it makes,and the capital raised by the sale of shares is also subject to taxation. 
E) The corporation is taxed on any profits it makes,and owners are taxed when they sell their shares.

Question 17

Which type of financial institution receives money in the form of investments by wealthy individuals and endowments and invests in any kind of investment with an attempt to maximize returns for relatively low risk?

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 18

What is the general relation of the two types of prices quoted for a stock on a exchange?

Accepted Answer

The two prices are bid price a

Question 19

A ________ is when a rich individual or organization purchases a large fraction of the stock of a poorly performing firm and in doing so gets enough votes to replace the board of directors and the CEO.

Accepted Answer

A) shareholder proposal 
B) leveraged buyout 
C) shareholder action 
D) hostile takeover 
E) merger 
A) shareholder proposal 
B) leveraged buyout 
C) shareholder action 
D) hostile takeover 
E) merger

Question 20

On August 19,2004,Google IPO offered 19,605,052 shares at a price of U.S.$85 per share,which were sold in an online auction in a bid to make the shares more widely available.Which of the following statements best describes why these are considered a primary market transaction?

Accepted Answer

A) The transaction was between the corporation and investors. 
B) Shares of Google from this time onward could be traded between investors on a stock exchange. 
C) The shares were the first to be publicly issued by Google. 
D) Google was at the time a recently founded company seeking capital with which to expand. 
E) The share price was above the threshold required to be known as a primary market transaction. 
A) The transaction was between the corporation and investors. 
B) Shares of Google from this time onward could be traded between investors on a stock exchange. 
C) The shares were the first to be publicly issued by Google. 
D) Google was at the time a recently founded company seeking capital with which to expand. 
E) The share price was above the threshold required to be known as a primary market transaction.

Exam 1: Corporate Finance and the Financial Manager

Why is the stock price of a company an indication of the performance of that company's senior managers?

What is the principal guiding factor for the financial manager?

Which type of financial institution receives money in the form of deposits and loans it out to people and businesses?

Which of the following types of firms do NOT have limited liability?

Joe is a general partner in a limited partnership firm,while Jane is a limited partner in that same firm.Which of the following statements regarding their respective relationships to the firm is correct?

Stock markets provide liquidity for a firm's shares.

Whose interests should a financial manager consider paramount when making a decision?

In which of the following ways is a limited liability partnership like a corporation?

Use the figure for the question(s)below. -Based on the information shown above,what would it cost to buy 1000 shares of the above stock?

In a Dark Pool trading venue:

The shares of private corporations are traded on a stock market.

Kuljeet owns 20% of the stock of the Flin Flon Corporation.The tax rate on dividend income is 15%.If Flin Flon makes a dividend payment of $2,000,000 paid proportionally to its shareholders,how much of this amount would Kuljeet receive after taxes?

What is the process of double taxation for the stockholders in a corporation?

Which type of financial institution receives money in the form of investments by wealthy individuals and endowments and invests in any kind of investment with an attempt to maximize returns for relatively low risk?

What is the general relation of the two types of prices quoted for a stock on a exchange?

A ________ is when a rich individual or organization purchases a large fraction of the stock of a poorly performing firm and in doing so gets enough votes to replace the board of directors and the CEO.

On August 19,2004,Google IPO offered 19,605,052 shares at a price of U.S.$85 per share,which were sold in an online auction in a bid to make the shares more widely available.Which of the following statements best describes why these are considered a primary market transaction?

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

Filters