Exam 1: Corporate Finance and the Financial Manager

A company's board of directors chooses to provide a comprehensive health care plan for the families of all employees, despite the large cost. They argue that this will not only increase the number of employees who stay with the firm, and thus reduce some costs involved in employee turnover, but also increase the employees' diligence and industry. What general principle is being argued by the board of directors?

What is the term for the applicable price that I will pay, if I have to buy a stock?

Financial decisions require that you weigh alternatives in strictly monetary terms.

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

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

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

Which of the following is NOT an advantage of a sole proprietorship?

In most corporations, the owners exercise direct control of a corporation.

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

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

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?

An S corporation earns $6.00 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 $2.00 dividend?

Valiant Corp. is a C corporation that earned $3.4 per share before it paid any taxes. Valiant Corp. retained $1 of after-tax earnings for reinvestment and distributed what remained in dividend payments. If the corporate tax rate was 35% and dividend earnings were taxed at 12.5%, what was the value of the dividend earnings received after-tax by a holder of 100,000 shares of Valiant Corp.?

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.

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

What is the bid-ask spread?

Which of the following is a major duty of a financial manager? I. To make investment decisions II. To make financing decisions III. To manage cash flow from operating activities

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

Use the figure for the question(s) below. -How much money would a stock exchange make from buying and selling 500 shares of the stock under the conditions shown above?

Stock markets provide liquidity for a firm's shares.