Question 1

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.

Question 2

Which of the following would be more typically the responsibility of a controller rather than a treasurer?

Accepted Answer

A) overseeing accounting and tax functions 
B) capital budgeting 
C) managing credit 
D) making investment decisions

Question 3

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

Question 4

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

Accepted Answer

A) I only 
B) I and II only 
C) I and III only 
D) all of the above

Question 5

What is the most common type of firms in the United States and the world?

Accepted Answer

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

Question 6

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?

Accepted Answer

A) $250 
B) $3,000 
C) $5,875 
D) $210,375

Question 7

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

Question 8

Corporations have come to dominate the business world through their ability to raise large amounts of capital by sale of ownership shares to anonymous outside investors.

Accepted Answer

A) True 
 B)False

Question 9

What is the term for the applicable price that the seller gets when he sells a stock on the exchange?

Accepted Answer

The answer of What is the term for the applicable...

Question 10

Why is the stock price of a company an indication of the performance of the 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 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.

Question 11

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

Question 12

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

Question 13

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

Accepted Answer

The answer of Explain some of the measures taken to...

Question 14

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

Accepted Answer

The answer of How is a corporation different from most...

Question 15

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.

Question 16

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.

Question 17

What are the main differences between the NYSE and NASDAQ stock markets?

Accepted Answer

The answer of What are the main differences between the...

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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 at 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

Question 20

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?

Accepted Answer

A) In a conflict between stakeholders in a company, the most important stakeholder is not always the stockholders. 
B) Some activities that decrease shareholders' wealth may have intangible benefits which increase the strength of the company overall. 
C) When a conflict of interest arises between shareholders and other stakeholders, in general, the correct solution is the one that creates the greatest good for the greatest number of stakeholders. 
D) Ethical decisions should be assessed on their moral value, not on their value in dollars and cents.

Exam 1: Corporate Finance and the Financial Manager

Which of the following would be more typically the responsibility of a controller rather than a treasurer?

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

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

What is the most common type of firms in the United States and the world?

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?

Corporations have come to dominate the business world through their ability to raise large amounts of capital by sale of ownership shares to anonymous outside investors.

What is the term for the applicable price that the seller gets when he sells a stock on the exchange?

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

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

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?

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

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

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

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

What are the main differences between the NYSE and NASDAQ stock markets?

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