Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Which of the following features of a corporation is LEAST accurate?

Accepted Answer

A)  The owners' identities are separate from a corporation. 
B)  The owners of a corporation are not liable for any obligations the corporation enters into. 
C)  Changes in ownership do not result in the dissolution of the corporation. 
D)  Earnings from a corporation are taxed only once. 
A)  The owners' identities are separate from a corporation. 
B)  The owners of a corporation are not liable for any obligations the corporation enters into. 
C)  Changes in ownership do not result in the dissolution of the corporation. 
D)  Earnings from a corporation are taxed only once.

Question 3

If 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 4

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 5

Which of the following people may not manage the operations of a firm in which they are part or full owners?

Accepted Answer

A)  stockholders in S corporations 
B)  stockholders in C corporations 
C)  limited partners in a limited partnership 
D)  general partners in a limited partnership 
A)  stockholders in S corporations 
B)  stockholders in C corporations 
C)  limited partners in a limited partnership 
D)  general partners in a limited partnership

Question 6

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 privately issued by Google. 
D)  Google was at the time a recently founded company seeking capital with which to expand. 
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 privately issued by Google. 
D)  Google was at the time a recently founded company seeking capital with which to expand.

Question 7

Which of the following should be true for an asset to be considered liquid?

Accepted Answer

A)  It pays regular dividends. 
B)  It can be bought and sold at an organized stock market or bourse. 
C)  It is offered for sale on both primary and secondary markets. 
D)  It can be easily bought and sold and the selling price is very close to the buying price at a given point in time. 
A)  It pays regular dividends. 
B)  It can be bought and sold at an organized stock market or bourse. 
C)  It is offered for sale on both primary and secondary markets. 
D)  It can be easily bought and sold and the selling price is very close to the buying price at a given point in time.

Question 8

Why is it possible for a corporation to enter into contracts, acquire assets, incur obligations, and enjoy protection against the seizure of its property?

Accepted Answer

A)  The number of owners, and hence the spread of risk among these owners, is not limited. 
B)  Its owners are liable for any obligations it enters into. 
C)  The state in which a corporation is incorporated provides safeguards against any wrongdoing by the corporation. 
D)  It is a legally defined, artificial entity that is separate from its owners. 
A)  The number of owners, and hence the spread of risk among these owners, is not limited. 
B)  Its owners are liable for any obligations it enters into. 
C)  The state in which a corporation is incorporated provides safeguards against any wrongdoing by the corporation. 
D)  It is a legally defined, artificial entity that is separate from its owners.

Question 9

A corporate raider gains a controlling fraction of the shares of a poorly managed company and replaces the board of directors. How does the corporate raider hope to make a profit in this case?

Accepted Answer

A)  by the sale of the assets held by the company that hold most of its value 
B)  by the rise in the value of the stock held by the raider when the new board of directors is judged to be superior to the ousted board of directors 
C)  by motivating the board of directors and other stakeholders in the company to make difficult short-term decisions that will increase the long-term viability of the company 
D)  by removing the employees expectations of the continued poor performance of the company 
A)  by the sale of the assets held by the company that hold most of its value 
B)  by the rise in the value of the stock held by the raider when the new board of directors is judged to be superior to the ousted board of directors 
C)  by motivating the board of directors and other stakeholders in the company to make difficult short-term decisions that will increase the long-term viability of the company 
D)  by removing the employees expectations of the continued poor performance of the company

Question 10

A limited liability company is essentially ________.

Accepted Answer

A)  a limited partnership without limited partners 
B)  a limited partnership without a general partner 
C)  just another name for a limited partnership 
D)  just another name for a corporation 
A)  a limited partnership without limited partners 
B)  a limited partnership without a general partner 
C)  just another name for a limited partnership 
D)  just another name for a corporation

Question 11

Which of the following would be best considered to be an agency conflict problem in the behavior of the following financial managers?

Accepted Answer

A)  Bill chooses to pursue a risky investment for the company's funds because his compensation will substantially rise if it succeeds. 
B)  Sue instructs her staff to skip safety inspections in one of the company's factories, knowing that it will likely fail the inspection and incur significant costs to fix. 
C)  James ignores an opportunity for his company to invest in a new drug to fight Alzheimer's disease, judging the drug's chances of succeeding as low. 
D)  Michael chooses to enhance his firm's reputation at some cost to its shareholders by sponsoring a team of athletes for the Olympics. 
A)  Bill chooses to pursue a risky investment for the company's funds because his compensation will substantially rise if it succeeds. 
B)  Sue instructs her staff to skip safety inspections in one of the company's factories, knowing that it will likely fail the inspection and incur significant costs to fix. 
C)  James ignores an opportunity for his company to invest in a new drug to fight Alzheimer's disease, judging the drug's chances of succeeding as low. 
D)  Michael chooses to enhance his firm's reputation at some cost to its shareholders by sponsoring a team of athletes for the Olympics.

Question 12

What are the main differences between a partnership and a sole proprietorship?

Accepted Answer

A sole proprietorship is a business owne

Question 13

Why is it difficult to determine the market price of a private corporation's shares at any point in time?

Accepted Answer

A)  It is difficult to obtain enough information to accurately value such a company. 
B)  The price of its shares is fixed by the owners. 
C)  It has a limited number of owners. 
D)  There is no organized market for its shares. 
A)  It is difficult to obtain enough information to accurately value such a company. 
B)  The price of its shares is fixed by the owners. 
C)  It has a limited number of owners. 
D)  There is no organized market for its shares.

Question 14

Joe is a general partner in a limited partnership firm, while Jane is a limited partner in the 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 the partnership. 
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 the partnership.

Question 15

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 and ask pri

Question 16

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

Accepted Answer

A)  It was created and developed first in the United States. 
B)  It can choose to be considered a partnership for tax purposes. 
C)  Its owners' liability is restricted to their investment. 
D)  It is directly managed by the owners. 
A)  It was created and developed first in the United States. 
B)  It can choose to be considered a partnership for tax purposes. 
C)  Its owners' liability is restricted to their investment. 
D)  It is directly managed by the owners.

Question 17

The fact that corporations' shares are easily traded within the market has a net effect of acting as a disincentive for managers to favor the interests of shareholders over their own interests.

Accepted Answer

A) True 
 B)False

Question 18

A factory owner wants his workers to produce as many widgets as they can so he pays his workers based on how many widgets they produce. However, in order to make sure that the workers do not rush and produce a large number of poorly made widgets, he checks the widgets at random during various stages of their manufacture. If a defect is found in a widget, the pay of the entire section of the factory responsible for that defect is docked. How is this factory owner seeking to solve the agency conflict problem in this case?

Accepted Answer

A)  by supplying incentives so the agents act in the way principal desires 
B)  by ensuring that all workers co-operate to maximize the gains of their section 
C)  by making the agents into principals themselves 
D)  by maximizing the information that the principal obtains about the behavior of the agents 
A)  by supplying incentives so the agents act in the way principal desires 
B)  by ensuring that all workers co-operate to maximize the gains of their section 
C)  by making the agents into principals themselves 
D)  by maximizing the information that the principal obtains about the behavior of the agents

Question 19

A C corporation earns $4.30 per share before taxes. The corporate tax rate is 35%, the personal tax rate on dividends is 20%, and the personal tax rate on non-dividend income is 39%. What is the total amount of taxes paid if the company pays a $3.00 dividend?

Accepted Answer

A)  $1.68 
B)  $2.53 
C)  $2.11 
D)  $2.95 
A)  $1.68 
B)  $2.53 
C)  $2.11 
D)  $2.95

Question 20

Which of the following is typically the major factor in limiting the growth of sole proprietorships?

Accepted Answer

A)  The organizational structure of such firms tends to become extremely complicated over time. 
B)  It is extremely difficult to transfer control of such firms to a new owner if the present owner dies or wishes to sell the firm. 
C)  The amount of money that can be raised by such firms is limited by the fact that the single owner must make good on all debts. 
D)  Investors have a great deal of control over the day-to-day running of such firms, leading to confusion when conflicts in direction arise. 
A)  The organizational structure of such firms tends to become extremely complicated over time. 
B)  It is extremely difficult to transfer control of such firms to a new owner if the present owner dies or wishes to sell the firm. 
C)  The amount of money that can be raised by such firms is limited by the fact that the single owner must make good on all debts. 
D)  Investors have a great deal of control over the day-to-day running of such firms, leading to confusion when conflicts in direction arise.

Exam 1: Corporate Finance and the Financial Manager

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

Which of the following features of a corporation is LEAST accurate?

If 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.

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?

Which of the following people may not manage the operations of a firm in which they are part or full owners?

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?

Which of the following should be true for an asset to be considered liquid?

Why is it possible for a corporation to enter into contracts, acquire assets, incur obligations, and enjoy protection against the seizure of its property?

A corporate raider gains a controlling fraction of the shares of a poorly managed company and replaces the board of directors. How does the corporate raider hope to make a profit in this case?

A limited liability company is essentially ________.

Which of the following would be best considered to be an agency conflict problem in the behavior of the following financial managers?

What are the main differences between a partnership and a sole proprietorship?

Why is it difficult to determine the market price of a private corporation's shares at any point in time?

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

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

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

The fact that corporations' shares are easily traded within the market has a net effect of acting as a disincentive for managers to favor the interests of shareholders over their own interests.

A C corporation earns $4.30 per share before taxes. The corporate tax rate is 35%, the personal tax rate on dividends is 20%, and the personal tax rate on non-dividend income is 39%. What is the total amount of taxes paid if the company pays a $3.00 dividend?

Which of the following is typically the major factor in limiting the growth of sole proprietorships?

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

Filters