Question 1

All of the following economic environment factors affect stock prices EXCEPT _____.

Accepted Answer

A)  investment strategies 
B)  competition 
C)  tax rates 
D)  currency exchange rates 
A)  investment strategies 
B)  competition 
C)  tax rates 
D)  currency exchange rates A

Question 2

Examples of agency costs incurred by shareholders to minimize agency problems are expenditures associated with _____.

Accepted Answer

A)  independent auditing 
B)  SEC approval 
C)  monitoring management's actions 
D)  inventory control 
A)  independent auditing 
B)  SEC approval 
C)  monitoring management's actions 
D)  inventory control C

Question 3

The type of corporate security that pays periodic interest as well as the eventual return of principal is _____.

Accepted Answer

A)  preferred stock 
B)  debt securities 
C)  equity securities 
D)  fixed asset loans 
A)  preferred stock 
B)  debt securities 
C)  equity securities 
D)  fixed asset loans B

Question 4

The objective of maximizing shareholder wealth, as measured by the market value of the firm's stock, _____.

Accepted Answer

A)  does not consider the timing of the benefits received 
B)  provides a way to consider the risk of the benefits expected 
C)  benefits only certain stockholders 
D)  does not provide a standard against which to judge actual decisions 
A)  does not consider the timing of the benefits received 
B)  provides a way to consider the risk of the benefits expected 
C)  benefits only certain stockholders 
D)  does not provide a standard against which to judge actual decisions

Question 5

Preferred stock is considered priority stock. Explain this priority.

Accepted Answer

Common stock is a residual form of owner

Question 6

All of the following are responsibilities of a controller EXCEPT _____.

Accepted Answer

A)  financial accounting 
B)  taxes 
C)  data processing 
D)  pension fund management 
A)  financial accounting 
B)  taxes 
C)  data processing 
D)  pension fund management

Question 7

Firms normally recognize responsibilities to various constituencies, such as each of the following EXCEPT _____.

Accepted Answer

A)  To sustain an optimum return on investment for stockholders 
B)  To be perceived by customers as a provider of quality service 
C)  To demonstrate that investors are the firm's most valuable resource 
D)  To provide corporate leadership in the communities it serves 
A)  To sustain an optimum return on investment for stockholders 
B)  To be perceived by customers as a provider of quality service 
C)  To demonstrate that investors are the firm's most valuable resource 
D)  To provide corporate leadership in the communities it serves

Question 8

The shareholder wealth maximization goal states that management should seek to maximize the ____ of the expected future returns to the owners of the firm.

Accepted Answer

A)  future value 
B)  compound value 
C)  percentage value 
D)  present value 
A)  future value 
B)  compound value 
C)  percentage value 
D)  present value

Question 9

Corporate securities represent claims against the _____.

Accepted Answer

A)  corporate officers of the firm 
B)  agents of the corporation 
C)  liabilities and net worth of the firm 
D)  assets and future earnings of the firm 
A)  corporate officers of the firm 
B)  agents of the corporation 
C)  liabilities and net worth of the firm 
D)  assets and future earnings of the firm

Question 10

Giving top management ____ is one method that ensures managers will act in the interest of shareholders in merger decisions.

Accepted Answer

A)  "golden parachute" contracts 
B)  excellent pay 
C)  executive perks 
D)  job security 
A)  "golden parachute" contracts 
B)  excellent pay 
C)  executive perks 
D)  job security

Question 11

Protective covenants in a company's bond indentures are used in agency relationships involving ____.

Accepted Answer

A)  stockholders and managers 
B)  stockholders and creditors 
C)  management and workers 
D)  management and creditors 
A)  stockholders and managers 
B)  stockholders and creditors 
C)  management and workers 
D)  management and creditors

Question 12

The net present value rule provides appropriate guidance for financial decision makers when costs are incurred immediately but _____.

Accepted Answer

A)  future cash flows are not known with certainty 
B)  marginal costs are equal to marginal revenue 
C)  result in a stream of benefits over several future time periods 
D)  marginal costs are greater than marginal revenue 
A)  future cash flows are not known with certainty 
B)  marginal costs are equal to marginal revenue 
C)  result in a stream of benefits over several future time periods 
D)  marginal costs are greater than marginal revenue

Question 13

Because of accounting scandals, several methods have been developed to deal with the issues of corporate governance and include all the following EXCEPT _____.

Accepted Answer

A)  The Board must select only SEC approved consultants 
B)  Chairman of the Board position should be split from the CEO position 
C)  The majority of members on the Board of Directors should be independent directors 
D)  The Board of Directors must disclose whether it has adopted a code of ethics for the CEO and senior financial officers 
A)  The Board must select only SEC approved consultants 
B)  Chairman of the Board position should be split from the CEO position 
C)  The majority of members on the Board of Directors should be independent directors 
D)  The Board of Directors must disclose whether it has adopted a code of ethics for the CEO and senior financial officers

Question 14

A major disadvantage of a sole proprietorship is the fact that _____.

Accepted Answer

A)  it is expensive to establish 
B)  the owner has unlimited personal liability 
C)  it is easy to finance growth 
D)  the owner pays taxes on all the income 
A)  it is expensive to establish 
B)  the owner has unlimited personal liability 
C)  it is easy to finance growth 
D)  the owner pays taxes on all the income

Question 15

When considering the risk of receiving cash flows, financial managers must be aware that investors _____.

Accepted Answer

A)  want higher returns for perceived greater risk 
B)  want a lower valued firm to discourage future investors which might dilute their existing control 
C)  expect dividends and capital gains regardless of the risks associated with achieving them 
D)  always want lower returns so that the risk is minimized 
A)  want higher returns for perceived greater risk 
B)  want a lower valued firm to discourage future investors which might dilute their existing control 
C)  expect dividends and capital gains regardless of the risks associated with achieving them 
D)  always want lower returns so that the risk is minimized

Question 16

The primary objective of the firm is _______.

Accepted Answer

A)  shareholder wealth maximization 
B)  social responsibility 
C)  long-run survival 
D)  profit maximization 
A)  shareholder wealth maximization 
B)  social responsibility 
C)  long-run survival 
D)  profit maximization

Question 17

Per the shareholder wealth maximization goal, management should seek to maximize the ____ of the ____ to owners.

Accepted Answer

A)  present value; expected pretax cash flows 
B)  future value; expected pretax cash flows 
C)  present value; expected future returns 
D)  future value; expected future returns 
A)  present value; expected pretax cash flows 
B)  future value; expected pretax cash flows 
C)  present value; expected future returns 
D)  future value; expected future returns

Question 18

The primary reason for the divergence between the shareholder wealth maximization goal and the actual goals pursued by management has been attributed to _____.

Accepted Answer

A)  separation of social responsibility and stakeholders' concerns 
B)  separation of ownership and control 
C)  separation of personal welfare and long-run profit goals 
D)  the granting of "golden parachute" contracts 
A)  separation of social responsibility and stakeholders' concerns 
B)  separation of ownership and control 
C)  separation of personal welfare and long-run profit goals 
D)  the granting of "golden parachute" contracts

Question 19

There are three major factors that determine the market value of a company's share of stock. All of the following are factors EXCEPT _____.

Accepted Answer

A)  amount of cash flows expected 
B)  sales generated 
C)  timing of cash flows 
D)  risk taken to generate cash flows 
A)  amount of cash flows expected 
B)  sales generated 
C)  timing of cash flows 
D)  risk taken to generate cash flows

Question 20

The chief financial officer (CFO) normally has responsibility for all of the following EXCEPT _____.

Accepted Answer

A)  advertising strategy 
B)  managing interest rate risk 
C)  trading foreign currencies 
D)  accounting functions 
A)  advertising strategy 
B)  managing interest rate risk 
C)  trading foreign currencies 
D)  accounting functions

Exam 1: The Role and Objective of Financial Management

All of the following economic environment factors affect stock prices EXCEPT _____.

Examples of agency costs incurred by shareholders to minimize agency problems are expenditures associated with _____.

The type of corporate security that pays periodic interest as well as the eventual return of principal is _____.

The objective of maximizing shareholder wealth, as measured by the market value of the firm's stock, _____.

Preferred stock is considered priority stock. Explain this priority.

All of the following are responsibilities of a controller EXCEPT _____.

Firms normally recognize responsibilities to various constituencies, such as each of the following EXCEPT _____.

The shareholder wealth maximization goal states that management should seek to maximize the ____ of the expected future returns to the owners of the firm.

Corporate securities represent claims against the _____.

Giving top management ____ is one method that ensures managers will act in the interest of shareholders in merger decisions.

Protective covenants in a company's bond indentures are used in agency relationships involving ____.

The net present value rule provides appropriate guidance for financial decision makers when costs are incurred immediately but _____.

Because of accounting scandals, several methods have been developed to deal with the issues of corporate governance and include all the following EXCEPT _____.

A major disadvantage of a sole proprietorship is the fact that _____.

When considering the risk of receiving cash flows, financial managers must be aware that investors _____.

The primary objective of the firm is _______.

Per the shareholder wealth maximization goal, management should seek to maximize the ____ of the ____ to owners.

The primary reason for the divergence between the shareholder wealth maximization goal and the actual goals pursued by management has been attributed to _____.

There are three major factors that determine the market value of a company's share of stock. All of the following are factors EXCEPT _____.

The chief financial officer (CFO) normally has responsibility for all of the following EXCEPT _____.

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

Continuous Compounding and Discounting

Fixed Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Mutually Exclusive Investments Having Unequal Lives

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Breakeven Analysis

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-Term Financing

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate Term Financing

Financing With Derivatives

Bond Refunding Analysis

Risk Management

International Financial Management

Corporate Restructuring

Filters

Per the shareholder wealth maximization goal, management should seek to maximize the of the to owners.