Question 1

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.

Question 2

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

Accepted Answer

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

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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

Question 5

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

Question 6

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 7

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

Accepted Answer

A)  single taxation 
B)  ease of setup 
C)  unlimited liability 
D)  no separation of ownership and control

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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.

Question 11

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 12

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?

Accepted Answer

A)  $1.87 
B)  $2.81 
C)  $3.28 
D)  $2.34

Question 13

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.?

Accepted Answer

A)  $105,875 
B)  $127,050 
C)  $148,225 
D)  $84,700

Question 14

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

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

What is the bid-ask spread?

Accepted Answer

A)  the difference in price available for an immediate sale of a stock and the immediate purchase of the stock 
B)  all of the costs and fees that a stock exchange charges in order to process a transaction 
C)  the rise or fall in the value of a stock between the time it is acquired by an investor and sold by that investor 
D)  the difference in the selling price of a stock between different exchanges

Question 17

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 18

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 19

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 20

Stock markets provide liquidity for a firm's shares.

Accepted Answer

A) True 
 B)False

Exam 1: Corporate Finance and the Financial Manager

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?

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.