Question 1

Over four-fifths of all U.S. business revenue is generated by which type of firm?

Accepted Answer

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

Question 2

Which of the following is NOT a reason why a firm's financial managers must take great care when making investment decisions?

Accepted Answer

A)  These investment decisions determine whether the firm will add value for its owners. 
B)  These investments determine the long-term directions in which the company may move. 
C)  These investment decisions determine the corporation's mix of debt and equity. 
D)  These investment decisions typically involve substantial costs which must be carefully weighed against their potential benefits. 
A)  These investment decisions determine whether the firm will add value for its owners. 
B)  These investments determine the long-term directions in which the company may move. 
C)  These investment decisions determine the corporation's mix of debt and equity. 
D)  These investment decisions typically involve substantial costs which must be carefully weighed against their potential benefits.

Question 3

The Valuation Principle shows how to make the costs and benefits of a decision comparable so that we can evaluate them properly.

Accepted Answer

A) True 
 B)False

Question 4

What is the major advantage corporations have over other business entities?

Accepted Answer

A)  It is easier for a corporation to raise capital than other forms of businesses. 
B)  A corporation is treated as a separate legal entity for tax and legal purposes. 
C)  A corporation's shares can be freely traded among its shareholders. 
D)  All of the above are advantages that a corporation has over other business forms. 
A)  It is easier for a corporation to raise capital than other forms of businesses. 
B)  A corporation is treated as a separate legal entity for tax and legal purposes. 
C)  A corporation's shares can be freely traded among its shareholders. 
D)  All of the above are advantages that a corporation has over other business forms.

Question 5

Which of the following is NOT a role of financial institutions?

Accepted Answer

A)  moving funds from savers to borrowers 
B)  spreading out risk-bearing 
C)  printing money for borrowers 
D)  moving funds though time 
A)  moving funds from savers to borrowers 
B)  spreading out risk-bearing 
C)  printing money for borrowers 
D)  moving funds though time

Question 6

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 
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

Question 7

What is the major way in which the roles and obligations of the owners of a limited liability company differ from the roles and obligations of limited partners in a limited partnership?

Accepted Answer

A)  The owners of a limited liability company have personal obligation for debts incurred by the company. 
B)  There is no separation between the company and its owners in a limited liability company. 
C)  The owners of a limited liability company can withdraw from the company without the company being dissolved. 
D)  The owners of a limited liability company can take an active role in running the company. 
A)  The owners of a limited liability company have personal obligation for debts incurred by the company. 
B)  There is no separation between the company and its owners in a limited liability company. 
C)  The owners of a limited liability company can withdraw from the company without the company being dissolved. 
D)  The owners of a limited liability company can take an active role in running the company.

Question 8

Stella places a market order with her broker to buy 1,000 shares of OneWorld Corp. The broker buys 1,000 shares at $16.00 each, and sells them to Stella at $16.15 each. He also charges a commission of $12.00. What is the total dollar amount spent towards the bid-ask spread in this case?

Accepted Answer

A)  $162 
B)  $120 
C)  $210.00 
D)  $150 
A)  $162 
B)  $120 
C)  $210.00 
D)  $150

Question 9

A company that produces racing motorbikes has several models that sell well within the motorcycle racing community and which are very profitable for the company. Despite having a profitable product, why must this company take care to ensure that it has sufficient cash on hand to meet its obligations?

Accepted Answer

A)  Profits from the sales of popular models will be lost when returned to the shareholders in the form of dividends. 
B)  New models will require a lot of money to develop and bring to market before they generate any revenue. 
C)  The company will have built up debts which must be repaid in order to bring the current models to market. 
D)  Equity must be raised to finance the development of new models to replace the existing models. 
A)  Profits from the sales of popular models will be lost when returned to the shareholders in the form of dividends. 
B)  New models will require a lot of money to develop and bring to market before they generate any revenue. 
C)  The company will have built up debts which must be repaid in order to bring the current models to market. 
D)  Equity must be raised to finance the development of new models to replace the existing models.

Question 10

Explain some of the measures taken to reduce the agency conflict problem.

Accepted Answer

The agency conflict problem can be reduc

Question 11

Use the figure for the question(s) below.  
-Based on the information shown above, how much would you receive from selling 2,000 shares of the above stock?

Accepted Answer

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

Question 12

Raising new capital by issuing bonds is an example of a commercial banking activity.

Accepted Answer

A) True 
 B)False

Question 13

A C corporation earns $8.30 per share before taxes. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the total amount of taxes paid if the company pays a $6.00 dividend?

Accepted Answer

A)  $3.31 
B)  $4.96 
C)  $4.14 
D)  $5.79 
A)  $3.31 
B)  $4.96 
C)  $4.14 
D)  $5.79

Question 14

How is a corporation different from most of the other forms of business organizations?

Accepted Answer

A corporation has a separate legal ident

Question 15

An S corporation earns $9.10 per share before taxes. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the total amount of taxes paid if the company pays a $5.00 dividend?

Accepted Answer

A)  $3.28 
B)  $3.93 
C)  $2.62 
D)  $4.59 
A)  $3.28 
B)  $3.93 
C)  $2.62 
D)  $4.59

Question 16

Why in general do financial managers make financial decisions in a corporation, rather than the owners making these decisions themselves?

Accepted Answer

A)  It is best for the control of the finances of a corporation to be in the hands of a disinterested third party. 
B)  The interests of the various owners may conflict with each other. 
C)  The owners may not be U.S. citizens or residents. 
D)  There are often many owners, and they can often change as they buy and sell stock. 
A)  It is best for the control of the finances of a corporation to be in the hands of a disinterested third party. 
B)  The interests of the various owners may conflict with each other. 
C)  The owners may not be U.S. citizens or residents. 
D)  There are often many owners, and they can often change as they buy and sell stock.

Question 17

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. 
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.

Question 18

It is generally not the duty of financial managers to ensure that a firm has the cash it needs for day-to-day transactions.

Accepted Answer

A) True 
 B)False

Question 19

Partnerships are the most common type of business firm in the world.

Accepted Answer

A) True 
 B)False

Question 20

Helen owns 10.2% of the stock of the Median Corporation. If Median makes a dividend payment of $25,000,000 paid proportionally to its shareholders, how much of this amount would Helen receive, disregarding tax?

Accepted Answer

A)  $3,060,000 
B)  $2,550,000 
C)  $3,570,000 
D)  $2,040,000 
A)  $3,060,000 
B)  $2,550,000 
C)  $3,570,000 
D)  $2,040,000

Exam 1: Corporate Finance and the Financial Manager

Over four-fifths of all U.S. business revenue is generated by which type of firm?

Which of the following is NOT a reason why a firm's financial managers must take great care when making investment decisions?

The Valuation Principle shows how to make the costs and benefits of a decision comparable so that we can evaluate them properly.

What is the major advantage corporations have over other business entities?

Which of the following is NOT a role of financial institutions?

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

What is the major way in which the roles and obligations of the owners of a limited liability company differ from the roles and obligations of limited partners in a limited partnership?

Stella places a market order with her broker to buy 1,000 shares of OneWorld Corp. The broker buys 1,000 shares at $16.00 each, and sells them to Stella at $16.15 each. He also charges a commission of $12.00. What is the total dollar amount spent towards the bid-ask spread in this case?

Explain some of the measures taken to reduce the agency conflict problem.

Use the figure for the question(s) below. -Based on the information shown above, how much would you receive from selling 2,000 shares of the above stock?

Raising new capital by issuing bonds is an example of a commercial banking activity.

A C corporation earns $8.30 per share before taxes. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the total amount of taxes paid if the company pays a $6.00 dividend?

How is a corporation different from most of the other forms of business organizations?

An S corporation earns $9.10 per share before taxes. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the total amount of taxes paid if the company pays a $5.00 dividend?

Why in general do financial managers make financial decisions in a corporation, rather than the owners making these decisions themselves?

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

It is generally not the duty of financial managers to ensure that a firm has the cash it needs for day-to-day transactions.

Partnerships are the most common type of business firm in the world.

Helen owns 10.2% of the stock of the Median Corporation. If Median makes a dividend payment of $25,000,000 paid proportionally to its shareholders, how much of this amount would Helen receive, disregarding tax?

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

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