Question 1

In order to maximize its shareholders' value, a firm's management must attempt to maximize the expected EPS.

Accepted Answer

A) True 
 B)False  False

Question 2

If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy.

Accepted Answer

A) True 
 B)False  False

Question 3

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

Accepted Answer

A)  This is an example of a direct transfer of capital. 
B)  This is an example of a primary market transaction. 
C)  This is an example of an exchange of physical assets. 
D)  This is an example of a money market transaction. 
E)  This is an example of a derivative market transaction. 
A)  This is an example of a direct transfer of capital. 
B)  This is an example of a primary market transaction. 
C)  This is an example of an exchange of physical assets. 
D)  This is an example of a money market transaction. 
E)  This is an example of a derivative market transaction. A

Question 4

Which of the following is an example of a capital market instrument?

Accepted Answer

A)  Commercial paper. 
B)  Preferred stock. 
C)  U.S. Treasury bills. 
D)  Banker's acceptances. 
E)  Money market mutual funds. 
A)  Commercial paper. 
B)  Preferred stock. 
C)  U.S. Treasury bills. 
D)  Banker's acceptances. 
E)  Money market mutual funds.

Question 5

A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is CORRECT?

Accepted Answer

A)  One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than are partners. 
B)  Relative to proprietorships, corporations generally face fewer regulations, and they also find it easier to raise capital. 
C)  There is no good reason to expect a firm's stockholders and bondholders to react differently to the types of assets in which it invests. 
D)  Stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns. 
E)  Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value. 
A)  One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than are partners. 
B)  Relative to proprietorships, corporations generally face fewer regulations, and they also find it easier to raise capital. 
C)  There is no good reason to expect a firm's stockholders and bondholders to react differently to the types of assets in which it invests. 
D)  Stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns. 
E)  Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value.

Question 7

The "over-the-counter" market received its name years ago because brokerage firms would hold inventories of stocks and then sell them by literally passing them over the counter to the buyer.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is CORRECT?

Accepted Answer

A)  Corporations face few regulations and more favorable tax treatment than do proprietorships and partnerships. 
B)  Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value compared to managers who do not face the threat of hostile takeovers. 
C)  Bond covenants are an effective way to resolve conflicts between shareholders and managers. 
D)  Because of their simplified organization, it is easier for proprietors and partnerships to raise large amounts of outside capital than it is for corporations. 
E)  One advantage to forming a corporation is that the owners of the firm have limited liability. 
A)  Corporations face few regulations and more favorable tax treatment than do proprietorships and partnerships. 
B)  Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value compared to managers who do not face the threat of hostile takeovers. 
C)  Bond covenants are an effective way to resolve conflicts between shareholders and managers. 
D)  Because of their simplified organization, it is easier for proprietors and partnerships to raise large amounts of outside capital than it is for corporations. 
E)  One advantage to forming a corporation is that the owners of the firm have limited liability.

Question 9

If a firm's board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders), it should design an executive compensation system whose focus is on the firm's long-term value.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

Accepted Answer

A)  Compensating managers with stock options. 
B)  Financing risky projects with additional debt. 
C)  The threat of hostile takeovers. 
D)  The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions. 
E)  Abolishing the Security and Exchange Commission. 
A)  Compensating managers with stock options. 
B)  Financing risky projects with additional debt. 
C)  The threat of hostile takeovers. 
D)  The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions. 
E)  Abolishing the Security and Exchange Commission.

Question 11

Which of the following statements is NOT CORRECT?

Accepted Answer

A)  When a corporation's shares are owned by a few individuals, we say that the firm is "closely, or privately, held." 
B)  "Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares. 
C)  The stock of publicly owned companies must generally be registered with and reported to a regulatory agency such as the SEC. 
D)  When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public, or an IPO," and the market for such stock is called the new issue or IPO market. 
E)  It is possible for a firm to go public and yet not raise any additional new capital for the firm itself. 
A)  When a corporation's shares are owned by a few individuals, we say that the firm is "closely, or privately, held." 
B)  "Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares. 
C)  The stock of publicly owned companies must generally be registered with and reported to a regulatory agency such as the SEC. 
D)  When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public, or an IPO," and the market for such stock is called the new issue or IPO market. 
E)  It is possible for a firm to go public and yet not raise any additional new capital for the firm itself.

Question 12

If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized.

Accepted Answer

A) True 
 B)False

Question 13

The term IPO stands for "individual purchase order," as when an individual (as opposed to an institution) places an order to buy a stock.

Accepted Answer

A) True 
 B)False

Question 14

The annual rate of return on any given stock can be found as the stock's dividend for the year plus the change in the stock's price during the year, divided by its beginning-of-year price. If you obtain such data on a large portfolio of stocks, like those in the S&P 500, find the rate of return on each stock, and then average those returns, this would give you an idea of stock market returns for the year in question.

Accepted Answer

A) True 
 B)False

Question 15

In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price on a specific target date.

Accepted Answer

A) True 
 B)False

Question 16

In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in the long run, or the stock's "intrinsic value."

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is CORRECT?

Accepted Answer

A)  In most corporations, the CFO ranks above the CEO. 
B)  By law in most states, the chairman of the board must also be the CEO. 
C)  The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking individual. The CEO generally works under the board and its chairman, and the board generally has the authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in the same person. 
D)  The CFO generally reports to the firm's chief accounting officer, who is normally the controller. 
E)  The CFO is responsible for raising capital and for making sure that capital expenditures are desirable, but he or she is not responsible for the validity of the financial statements, as the controller and the auditors have that responsibility. 
A)  In most corporations, the CFO ranks above the CEO. 
B)  By law in most states, the chairman of the board must also be the CEO. 
C)  The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking individual. The CEO generally works under the board and its chairman, and the board generally has the authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in the same person. 
D)  The CFO generally reports to the firm's chief accounting officer, who is normally the controller. 
E)  The CFO is responsible for raising capital and for making sure that capital expenditures are desirable, but he or she is not responsible for the validity of the financial statements, as the controller and the auditors have that responsibility.

Question 18

Which of the following statements is CORRECT?

Accepted Answer

A)  One of the advantages of the corporate form of organization is that it avoids double taxation. 
B)  It is easier to transfer one's ownership interest in a partnership than in a corporation. 
C)  One of the disadvantages of a proprietorship is that the proprietor is exposed to unlimited liability. 
D)  One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one person, one vote." 
E)  Corporations of all types are subject to the corporate income tax. 
A)  One of the advantages of the corporate form of organization is that it avoids double taxation. 
B)  It is easier to transfer one's ownership interest in a partnership than in a corporation. 
C)  One of the disadvantages of a proprietorship is that the proprietor is exposed to unlimited liability. 
D)  One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one person, one vote." 
E)  Corporations of all types are subject to the corporate income tax.

Question 19

A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary.

Accepted Answer

A) True 
 B)False

Question 20

You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:

Accepted Answer

A)  A money market transaction. 
B)  A primary market transaction. 
C)  A secondary market transaction. 
D)  A futures market transaction. 
E)  An over-the-counter market transaction. 
A)  A money market transaction. 
B)  A primary market transaction. 
C)  A secondary market transaction. 
D)  A futures market transaction. 
E)  An over-the-counter market transaction.

In order to maximize its shareholders' value, a firm's management must attempt to maximize the expected EPS.

If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy.

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

Which of the following is an example of a capital market instrument?

A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership.

Which of the following statements is CORRECT?

The "over-the-counter" market received its name years ago because brokerage firms would hold inventories of stocks and then sell them by literally passing them over the counter to the buyer.

Which of the following statements is CORRECT?

If a firm's board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders), it should design an executive compensation system whose focus is on the firm's long-term value.

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

Which of the following statements is NOT CORRECT?

If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized.

The term IPO stands for "individual purchase order," as when an individual (as opposed to an institution) places an order to buy a stock.

In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price on a specific target date.

In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in the long run, or the stock's "intrinsic value."

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary.

You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:

Financial Markets and Institutions

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

The Value of Money

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Multinational Financial Management

Financial and Operating Leverage: Analysis and Calculation

Filters

Exam 1: An Overview of Financial Management

In order to maximize its shareholders' value, a firm's management must attempt to maximize the expected EPS.

If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy.

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

Which of the following is an example of a capital market instrument?

A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership.

Which of the following statements is CORRECT?

The "over-the-counter" market received its name years ago because brokerage firms would hold inventories of stocks and then sell them by literally passing them over the counter to the buyer.

Which of the following statements is CORRECT?

If a firm's board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders), it should design an executive compensation system whose focus is on the firm's long-term value.

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

Which of the following statements is NOT CORRECT?

If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized.

The term IPO stands for "individual purchase order," as when an individual (as opposed to an institution) places an order to buy a stock.

In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price on a specific target date.

In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in the long run, or the stock's "intrinsic value."

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary.

You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:

Financial Markets and Institutions

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

The Value of Money

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Multinational Financial Management

Financial and Operating Leverage: Analysis and Calculation

Filters