Question 1

Which of the following actions is consistent with social responsibility but is necessarily inconsistent with stockholder wealth maximization?

Accepted Answer

A) Investing in a smokestack "scrubber" to reduce the firm's air pollution as mandated by law. 
B) Voluntarily installing expensive machinery to treat effluent discharge which currently is being dumped into a river where it is ruining the drinking water of the community where the plant is located. 
C) Investing in a smokestack filter to reduce sulphur-dioxide emissions in order to reduce the current tax being levied on the firm by the state for its pollution. 
D) Making a large corporate donation to the local community in order to fund a recreation complex that will be used by the community and the firm's employees. 
E) Each of the above actions is consistent with social responsibility and none are necessarily inconsistent with stockholder wealth maximization. 
A) Investing in a smokestack "scrubber" to reduce the firm's air pollution as mandated by law. 
B) Voluntarily installing expensive machinery to treat effluent discharge which currently is being dumped into a river where it is ruining the drinking water of the community where the plant is located. 
C) Investing in a smokestack filter to reduce sulphur-dioxide emissions in order to reduce the current tax being levied on the firm by the state for its pollution. 
D) Making a large corporate donation to the local community in order to fund a recreation complex that will be used by the community and the firm's employees. 
E) Each of the above actions is consistent with social responsibility and none are necessarily inconsistent with stockholder wealth maximization. E

Question 2

Normal profits are those that result in rates of return that are just sufficient to attract new capital in financial markets.

Accepted Answer

A) True 
 B)False  True

Question 3

Which of the following is an example of an area of business where use of "questionable" ethics is considered a necessity?

Accepted Answer

A) Attracting and sustaining new customers. 
B) Hiring and keeping skilled employees. 
C) Keeping up with competition. 
D) Dealing with firms who use "questionable" ethics. 
E) None of the above. 
A) Attracting and sustaining new customers. 
B) Hiring and keeping skilled employees. 
C) Keeping up with competition. 
D) Dealing with firms who use "questionable" ethics. 
E) None of the above. E

Question 4

Two key limitations of the proprietorship form of business involve potential difficulty in raising needed capital and the presence of unlimited personal liability for business debts.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is correct?

Accepted Answer

A) Given the multi-owner nature of most large corporations, agency costs associated with perquisite consumption are not really a problem. 
B) Managers may operate in the stockholders' best interests, but they may also operate in their own personal best interests.As long as managers stay within the law, there simply are not any effective controls that stockholders can implement to control managerial decision making. 
C) Shareholder agency costs include the opportunity costs associated with constraining managerial freedom but do not include managerial salaries. 
D) An agency relationship exists when one or more persons hire another person to perform some service but withhold decision-making authority from that person. 
E) All of the above statements are false. 
A) Given the multi-owner nature of most large corporations, agency costs associated with perquisite consumption are not really a problem. 
B) Managers may operate in the stockholders' best interests, but they may also operate in their own personal best interests.As long as managers stay within the law, there simply are not any effective controls that stockholders can implement to control managerial decision making. 
C) Shareholder agency costs include the opportunity costs associated with constraining managerial freedom but do not include managerial salaries. 
D) An agency relationship exists when one or more persons hire another person to perform some service but withhold decision-making authority from that person. 
E) All of the above statements are false.

Question 6

A financial manager's task is to make decisions concerning the acquisition and use of funds for the greatest benefit of the firm.

Accepted Answer

A) True 
 B)False

Question 7

The financial manager must execute his or her duties independent of the other activities of the firm in order to properly maximize the value of the firm.

Accepted Answer

A) True 
 B)False

Question 8

The disadvantages associated with a proprietorship are similar to those under a partnership.One exception to this is due to the formal nature of the partnership agreement and the commitment of the partners' personal assets.As a result, partnerships do not have difficulty raising large amounts of capital.

Accepted Answer

A) True 
 B)False

Question 9

One way to state the decision framework most useful for carrying out the firm's objective is that the financial managers should seek that combination of assets, liabilities, and capital which will generate the largest expected projected income over the relevant time horizon.

Accepted Answer

A) True 
 B)False

Question 10

Industrial groups are organizations comprised of companies in different industries with common ownership interests, which include firms necessary to sell and manufacture products.

Accepted Answer

A) True 
 B)False

Question 11

Incentive compensation plans are used to attract and retain top managerial talent as well as to align the interests of management with shareholders.

Accepted Answer

A) True 
 B)False

Question 12

Managers of firms using accounting manipulations to inflate current earnings are likely to generate long-term benefits to the shareholders of the firm.

Accepted Answer

A) True 
 B)False

Question 13

A proprietorship is an unincorporated business owned by one individual and the owner benefits from the limited liability for business which limits his losses to what he has invested in the company.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is correct?

Accepted Answer

A) other things held constant, it is generally safer to invest money in a proprietorship than in a corporation. 
B) There really is no difference between a general partnership and a corporation, because both have multiple owners and both offer limited liability to the owners. 
C) If you are planning to start a business, which you will run as the sole employee, and if you expect the business to earn $1,000,000 per year before taxes, you always can minimize the total taxes you pay by setting up the business as a corporation. 
D) According to the text, "agency problems" tend to increase when managers own larger relative amounts of the company's stock. 
E) Maximizing the income statement item "net income" might not be the best goal for a corporation if the managers are interested in maximizing the economic welfare of the firm's stockholders (that is, the firm's stock price). 
A) other things held constant, it is generally safer to invest money in a proprietorship than in a corporation. 
B) There really is no difference between a general partnership and a corporation, because both have multiple owners and both offer limited liability to the owners. 
C) If you are planning to start a business, which you will run as the sole employee, and if you expect the business to earn $1,000,000 per year before taxes, you always can minimize the total taxes you pay by setting up the business as a corporation. 
D) According to the text, "agency problems" tend to increase when managers own larger relative amounts of the company's stock. 
E) Maximizing the income statement item "net income" might not be the best goal for a corporation if the managers are interested in maximizing the economic welfare of the firm's stockholders (that is, the firm's stock price).

Question 15

Which of the following statements is correct?

Accepted Answer

A) A major disadvantage of a regular partnership or a corporation as a form of business is the fact that they do not offer their owners limited liability, whereas proprietorships do. 
B) An advantage of the corporate form for many businesses is the fact the corporate tax rate always exceeds the personal tax rate, which is the rate at which proprietorships and partnerships are taxed. 
C) There are more partnerships and sole proprietorships than corporations in the U.S., but corporations produce more goods and services than do other forms of business. 
D) Because corporations enjoy the benefits of limited liability, easy transferability of ownership interest, unlimited life, and favorable tax status relative to the situation for partnerships and proprietorships, most large businesses choose to incorporate. 
E) Because lawyers have the incorporation process so automated (e.g., word processors for drawing up the necessary papers), it is less expensive to form a corporation than to form a proprietorship or partnership. 
A) A major disadvantage of a regular partnership or a corporation as a form of business is the fact that they do not offer their owners limited liability, whereas proprietorships do. 
B) An advantage of the corporate form for many businesses is the fact the corporate tax rate always exceeds the personal tax rate, which is the rate at which proprietorships and partnerships are taxed. 
C) There are more partnerships and sole proprietorships than corporations in the U.S., but corporations produce more goods and services than do other forms of business. 
D) Because corporations enjoy the benefits of limited liability, easy transferability of ownership interest, unlimited life, and favorable tax status relative to the situation for partnerships and proprietorships, most large businesses choose to incorporate. 
E) Because lawyers have the incorporation process so automated (e.g., word processors for drawing up the necessary papers), it is less expensive to form a corporation than to form a proprietorship or partnership.

Question 16

The proper goal of the financial manager should be to maximize the firm's expected profit, because this will add the most wealth to each of the individual shareholders (owners) of the firm.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is correct?

Accepted Answer

A) In a partnership, liability for other partners' misdeeds includes but is limited to the amount a particular partner has invested in the business. 
B) Partnerships must be formed according to specific rules which include the filing of a formal written agreement with state authorities where the partnership does business. 
C) A fast growth company would be more likely to set up a partnership for its business organization than would a slow-growth company. 
D) Partnerships have difficulty attracting capital in part because of the other disadvantages of the partnership form of business, including impermanence of the organization. 
E) A major disadvantage of a partnership as a form of business organization is the high cost and practical difficulty of its formation. 
A) In a partnership, liability for other partners' misdeeds includes but is limited to the amount a particular partner has invested in the business. 
B) Partnerships must be formed according to specific rules which include the filing of a formal written agreement with state authorities where the partnership does business. 
C) A fast growth company would be more likely to set up a partnership for its business organization than would a slow-growth company. 
D) Partnerships have difficulty attracting capital in part because of the other disadvantages of the partnership form of business, including impermanence of the organization. 
E) A major disadvantage of a partnership as a form of business organization is the high cost and practical difficulty of its formation.

Question 18

The primary goal of a publicly-owned firm interested in serving its stockholders should be to

Accepted Answer

A) Minimize the debt used by a firm. 
B) Maximize expected EPS. 
C) Minimize the chances of losses. 
D) Maximize the stock price per share. 
E) Maximize expected net income. 
A) Minimize the debt used by a firm. 
B) Maximize expected EPS. 
C) Minimize the chances of losses. 
D) Maximize the stock price per share. 
E) Maximize expected net income.

Question 19

The primary goal of a financial manager should be to .

Accepted Answer

A) minimize operating costs 
B) minimize interest payments 
C) minimize tax payments 
D) maximize operating income each year 
E) maximize the value of the firm's stock 
A) minimize operating costs 
B) minimize interest payments 
C) minimize tax payments 
D) maximize operating income each year 
E) maximize the value of the firm's stock

Question 20

Compared to corporations, what is the primary disadvantage of partnerships as forms of business organizations?

Accepted Answer

A) The tax rates applied to partnership are higher than the tax rates applied to corporations. 
B) Any dividends paid to the owners of a partnership business are taxed twice, once at the partnership level and once at the personal, or individual level. 
C) Partnerships generally are much easier to form (start up) than corporations. 
D) Partnerships have unlimited lives whereas corporations do not. 
E) The owners of a partnership, that is, the partners, have unlimited liability when it comes to business obligations whereas the owners of a corporation have limited liability. 
A) The tax rates applied to partnership are higher than the tax rates applied to corporations. 
B) Any dividends paid to the owners of a partnership business are taxed twice, once at the partnership level and once at the personal, or individual level. 
C) Partnerships generally are much easier to form (start up) than corporations. 
D) Partnerships have unlimited lives whereas corporations do not. 
E) The owners of a partnership, that is, the partners, have unlimited liability when it comes to business obligations whereas the owners of a corporation have limited liability.

Which of the following actions is consistent with social responsibility but is necessarily inconsistent with stockholder wealth maximization?

Normal profits are those that result in rates of return that are just sufficient to attract new capital in financial markets.

Which of the following is an example of an area of business where use of "questionable" ethics is considered a necessity?

Two key limitations of the proprietorship form of business involve potential difficulty in raising needed capital and the presence of unlimited personal liability for business debts.

Which of the following statements is correct?

A financial manager's task is to make decisions concerning the acquisition and use of funds for the greatest benefit of the firm.

The financial manager must execute his or her duties independent of the other activities of the firm in order to properly maximize the value of the firm.

One way to state the decision framework most useful for carrying out the firm's objective is that the financial managers should seek that combination of assets, liabilities, and capital which will generate the largest expected projected income over the relevant time horizon.

Industrial groups are organizations comprised of companies in different industries with common ownership interests, which include firms necessary to sell and manufacture products.

Incentive compensation plans are used to attract and retain top managerial talent as well as to align the interests of management with shareholders.

Managers of firms using accounting manipulations to inflate current earnings are likely to generate long-term benefits to the shareholders of the firm.

A proprietorship is an unincorporated business owned by one individual and the owner benefits from the limited liability for business which limits his losses to what he has invested in the company.

Which of the following statements is correct?

Which of the following statements is correct?

The proper goal of the financial manager should be to maximize the firm's expected profit, because this will add the most wealth to each of the individual shareholders (owners) of the firm.

Which of the following statements is correct?

The primary goal of a publicly-owned firm interested in serving its stockholders should be to

The primary goal of a financial manager should be to .

Compared to corporations, what is the primary disadvantage of partnerships as forms of business organizations?

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debt Characteristics and Valuation

Socks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk Appendix

The Cost of Capital

Capital Structure

Distribution of Retained Earrings: Dividends and Stock Repurchases

Working Capital Policy

Managing Short- Term Assets

Managing Short-Term Liabilities Financing

Financial Planning and Control

Filters

Exam 1: An Overview of Managerial Finance

Which of the following actions is consistent with social responsibility but is necessarily inconsistent with stockholder wealth maximization?

Normal profits are those that result in rates of return that are just sufficient to attract new capital in financial markets.

Which of the following is an example of an area of business where use of "questionable" ethics is considered a necessity?

Two key limitations of the proprietorship form of business involve potential difficulty in raising needed capital and the presence of unlimited personal liability for business debts.

Which of the following statements is correct?

A financial manager's task is to make decisions concerning the acquisition and use of funds for the greatest benefit of the firm.

The financial manager must execute his or her duties independent of the other activities of the firm in order to properly maximize the value of the firm.

One way to state the decision framework most useful for carrying out the firm's objective is that the financial managers should seek that combination of assets, liabilities, and capital which will generate the largest expected projected income over the relevant time horizon.

Industrial groups are organizations comprised of companies in different industries with common ownership interests, which include firms necessary to sell and manufacture products.

Incentive compensation plans are used to attract and retain top managerial talent as well as to align the interests of management with shareholders.

Managers of firms using accounting manipulations to inflate current earnings are likely to generate long-term benefits to the shareholders of the firm.

A proprietorship is an unincorporated business owned by one individual and the owner benefits from the limited liability for business which limits his losses to what he has invested in the company.

Which of the following statements is correct?

Which of the following statements is correct?

The proper goal of the financial manager should be to maximize the firm's expected profit, because this will add the most wealth to each of the individual shareholders (owners) of the firm.

Which of the following statements is correct?

The primary goal of a publicly-owned firm interested in serving its stockholders should be to

The primary goal of a financial manager should be to .

Compared to corporations, what is the primary disadvantage of partnerships as forms of business organizations?

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debt Characteristics and Valuation

Socks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk Appendix

The Cost of Capital

Capital Structure

Distribution of Retained Earrings: Dividends and Stock Repurchases

Working Capital Policy

Managing Short- Term Assets

Managing Short-Term Liabilities Financing

Financial Planning and Control

Filters