Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)  Corporations generally are subject to fewer regulations and more favorable tax treatment than sole proprietorships and partnerships. This is why corporations do most of the business in the United
States. 
B)  Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value than are
Managers who do not face the threat of hostile takeovers. 
C)  One advantage of the corporate form of organization is that liability of the owners of the firm is limited to their investment
In the firm. 
D)  Because of their simplified organization, it is easier for sole proprietorships and partnerships to raise large amounts of outside
Capital than it is for corporations. 
E)  Bond covenants are an effective way to resolve conflicts between shareholders and managers. 
A)  Corporations generally are subject to fewer regulations and more favorable tax treatment than sole proprietorships and partnerships. This is why corporations do most of the business in the United
States. 
B)  Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value than are
Managers who do not face the threat of hostile takeovers. 
C)  One advantage of the corporate form of organization is that liability of the owners of the firm is limited to their investment
In the firm. 
D)  Because of their simplified organization, it is easier for sole proprietorships and partnerships to raise large amounts of outside
Capital than it is for corporations. 
E)  Bond covenants are an effective way to resolve conflicts between shareholders and managers. C

Question 2

Which of the following statements is CORRECT?

Accepted Answer

A)  It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. 
B)  Corporate shareholders are exposed to unlimited liability. 
C)  Corporations generally face fewer regulations than sole
Proprietorships. 
D)  Corporate shareholders are exposed to unlimited liability, and this
Factor may be compounded by the tax disadvantages of incorporation. 
E)  Shareholders in a regular corporation (not an S corporation) pay
Higher taxes than owners of an otherwise identical proprietorship. 
A)  It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. 
B)  Corporate shareholders are exposed to unlimited liability. 
C)  Corporations generally face fewer regulations than sole
Proprietorships. 
D)  Corporate shareholders are exposed to unlimited liability, and this
Factor may be compounded by the tax disadvantages of incorporation. 
E)  Shareholders in a regular corporation (not an S corporation) pay
Higher taxes than owners of an otherwise identical proprietorship. A

Question 3

If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market transaction.

Accepted Answer

A) True 
 B)False  False

Question 4

If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other firms or individuals, Firm A is a financial intermediary.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is CORRECT?

Accepted Answer

A)  The corporate bylaws are a standard set of rules established by the state of incorporation. These rules are identical for all corporations in the state, and their purpose is to ensure that the
Firm's managers run the firm in accordance with state laws. 
B)  The corporate charter is a standard document prescribed by the state of incorporation, and its purpose is to ensure that the firm's managers run the firm in accordance with state laws.
Procedures for electing corporate directors are contained in bylaws, while the declaration of the activities that the firm will pursue and the number of directors are included in the corporate
Charter. 
C)  Companies must establish a home office, or domicile, in a particular state, and that state must be the one in which most of
Their business (sales, manufacturing, and so forth) is conducted. 
D)  Attorney fees are generally involved when a company develops its charter and bylaws, but since these documents are voluntary, a new corporation can avoid these costs by deciding not to have either a
Charter or bylaws. 
E)  The corporate charter is concerned with things like what business the company will engage in, whereas the bylaws are concerned with things like procedures for electing the board of directors. 
A)  The corporate bylaws are a standard set of rules established by the state of incorporation. These rules are identical for all corporations in the state, and their purpose is to ensure that the
Firm's managers run the firm in accordance with state laws. 
B)  The corporate charter is a standard document prescribed by the state of incorporation, and its purpose is to ensure that the firm's managers run the firm in accordance with state laws.
Procedures for electing corporate directors are contained in bylaws, while the declaration of the activities that the firm will pursue and the number of directors are included in the corporate
Charter. 
C)  Companies must establish a home office, or domicile, in a particular state, and that state must be the one in which most of
Their business (sales, manufacturing, and so forth) is conducted. 
D)  Attorney fees are generally involved when a company develops its charter and bylaws, but since these documents are voluntary, a new corporation can avoid these costs by deciding not to have either a
Charter or bylaws. 
E)  The corporate charter is concerned with things like what business the company will engage in, whereas the bylaws are concerned with things like procedures for electing the board of directors.

Question 6

Which of the following factors would be most likely to lead to an increase in interest rates in the economy?

Accepted Answer

A)  Households reduce their consumption and increase their savings. 
B)  The Central Bank decides to try to stimulate the economy. 
C)  There is a decrease in expected inflation. 
D)  The economy falls into a recession. 
E)  Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs. 
A)  Households reduce their consumption and increase their savings. 
B)  The Central Bank decides to try to stimulate the economy. 
C)  There is a decrease in expected inflation. 
D)  The economy falls into a recession. 
E)  Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs.

Question 7

Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's unlimited personal liability for the business' debts.

Accepted Answer

A) True 
 B)False

Question 8

The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively formed, are two key advantages to that form of business.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is CORRECT?

Accepted Answer

A)  One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt. 
B)  Sole proprietorships are subject to more regulations than
Corporations. 
C)  In any type of partnership, every partner has the same rights,
Privileges, and liability exposure as every other partner. 
D)  Sole proprietorships and partnerships generally have a tax
Advantage over many corporations, especially large ones. 
E)  Corporations of all types are subject to the corporate income tax. 
A)  One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt. 
B)  Sole proprietorships are subject to more regulations than
Corporations. 
C)  In any type of partnership, every partner has the same rights,
Privileges, and liability exposure as every other partner. 
D)  Sole proprietorships and partnerships generally have a tax
Advantage over many corporations, especially large ones. 
E)  Corporations of all types are subject to the corporate income tax.

Question 10

Which of the following statements is CORRECT?

Accepted Answer

A)  The New York Stock Exchange is an auction market with a physical location. 
B)  Capital market transactions involve only the purchase and sale of
Equity securities, i.e., common stocks. 
C)  If an investor sells shares of stock through a broker, then this
Would be a primary market transaction. 
D)  Consumer automobile loans are evidenced by legal documents called "promissory notes," and these individual notes are traded in the
Money market. 
E)  While the distinctions are blurring as investment banks are today buying commercial banks, and vice versa, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. 
A)  The New York Stock Exchange is an auction market with a physical location. 
B)  Capital market transactions involve only the purchase and sale of
Equity securities, i.e., common stocks. 
C)  If an investor sells shares of stock through a broker, then this
Would be a primary market transaction. 
D)  Consumer automobile loans are evidenced by legal documents called "promissory notes," and these individual notes are traded in the
Money market. 
E)  While the distinctions are blurring as investment banks are today buying commercial banks, and vice versa, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.

Question 11

Which of the following statements is CORRECT?

Accepted Answer

A)  Capital market instruments include both long-term debt and common stocks. 
B)  An example of a primary market transaction would be your uncle transferring 100 shares of Wal-Mart stock to you as a birthday
Gift. 
C)  The NYSE does not exist as a physical location; rather, it represents a loose collection of dealers who trade stocks
Electronically. 
D)  If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary
Market transaction. 
E)  While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from
Investors. 
A)  Capital market instruments include both long-term debt and common stocks. 
B)  An example of a primary market transaction would be your uncle transferring 100 shares of Wal-Mart stock to you as a birthday
Gift. 
C)  The NYSE does not exist as a physical location; rather, it represents a loose collection of dealers who trade stocks
Electronically. 
D)  If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary
Market transaction. 
E)  While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from
Investors.

Question 12

The major advantage of a regular partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not.

Accepted Answer

A) True 
 B)False

Question 13

One of the functions of NYSE specialists is to facilitate trading by keeping an inventory of shares of the stocks in which they specialize, buying when investors want to sell and selling when they want to buy. They change the bid and ask prices of the securities so as to keep supply and demand in balance.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

Accepted Answer

A)  Households start saving a larger percentage of their income. 
B)  The economy moves from a boom to a recession. 
C)  The level of inflation begins to decline. 
D)  Corporations step up their expansion plans and thus increase their
Demand for capital. 
E)  The Central Bank uses monetary policy in an attempt to stimulate the economy. 
A)  Households start saving a larger percentage of their income. 
B)  The economy moves from a boom to a recession. 
C)  The level of inflation begins to decline. 
D)  Corporations step up their expansion plans and thus increase their
Demand for capital. 
E)  The Central Bank uses monetary policy in an attempt to stimulate the economy.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.

Accepted Answer

A) True 
 B)False

Question 17

With which of the following statements would most people in business agree?

Accepted Answer

A)  A corporation's short-run profits will almost always increase if the firm takes actions that the government has determined are in the best interests of the nation. 
B)  Firms and government agencies almost always agree with one another regarding the restrictions that should be placed on hiring and
Firing employees. 
C)  Although people's moral characters are probably developed before they get into a business school, it is still useful for business schools to cover ethics, including giving students an idea about the adverse consequences of unethical behavior to themselves, their
Firms, and the nation. 
D)  It is not useful for a large corporation to develop a formal set of rules defining ethical and unethical behavior. Such rules generally can't be applied in many specific instances, so it is
Better to deal with ethical issues on a case-by-case basis. 
E)  "Whistle blowers," because of the courage it takes to blow the
Whistle, are generally promoted more rapidly than other employees. 
A)  A corporation's short-run profits will almost always increase if the firm takes actions that the government has determined are in the best interests of the nation. 
B)  Firms and government agencies almost always agree with one another regarding the restrictions that should be placed on hiring and
Firing employees. 
C)  Although people's moral characters are probably developed before they get into a business school, it is still useful for business schools to cover ethics, including giving students an idea about the adverse consequences of unethical behavior to themselves, their
Firms, and the nation. 
D)  It is not useful for a large corporation to develop a formal set of rules defining ethical and unethical behavior. Such rules generally can't be applied in many specific instances, so it is
Better to deal with ethical issues on a case-by-case basis. 
E)  "Whistle blowers," because of the courage it takes to blow the
Whistle, are generally promoted more rapidly than other employees.

Question 18

Which of the following statements is CORRECT?

Accepted Answer

A)  It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal
Documents are required. 
B)  Corporations face fewer regulations than sole proprietorships. 
C)  One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm
Level and the owner level. 
D)  One advantage of forming a corporation is that equity investors are
Usually exposed to less liability than in a regular partnership. 
E)  If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business. 
A)  It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal
Documents are required. 
B)  Corporations face fewer regulations than sole proprietorships. 
C)  One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm
Level and the owner level. 
D)  One advantage of forming a corporation is that equity investors are
Usually exposed to less liability than in a regular partnership. 
E)  If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.

Question 19

Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into a regular corporation. Which of the following statements is CORRECT?

Accepted Answer

A)  Assuming Cheers is profitable, less of its income will be subject to income taxes. 
B)  Cheers will now be subject to fewer regulations. 
C)  Cheers' shareholders (the ex-partners) will now be exposed to less
Liability. 
D)  Cheers' investors will be exposed to less liability, but they will
Find it more difficult to transfer their ownership. 
E)  Cheers will find it more difficult to raise additional capital. 
A)  Assuming Cheers is profitable, less of its income will be subject to income taxes. 
B)  Cheers will now be subject to fewer regulations. 
C)  Cheers' shareholders (the ex-partners) will now be exposed to less
Liability. 
D)  Cheers' investors will be exposed to less liability, but they will
Find it more difficult to transfer their ownership. 
E)  Cheers will find it more difficult to raise additional capital.

Question 20

Which of the following statements is CORRECT?

Accepted Answer

A)  The proper goal of the financial manager should be to attempt to maximize the firm's expected cash flows, because this will add the
Most to the wealth of the individual shareholders. 
B)  The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected projected after-tax income over the relevant time horizon,
Generally the coming year. 
C)  The riskiness inherent in a firm's earnings per share (EPS) depends on the characteristics of the projects the firm selects, and thus on the firm's assets. However, EPS is not affected by the manner
In which those assets are financed. 
D)  Potential agency problems can arise between stockholders and managers, because managers hired as agents to act on behalf of the owners may instead make decisions favorable to themselves rather
Than the stockholders. 
E)  Large, publicly-owned firms like AT&T and GM are controlled by their management teams. Ownership is generally widely dispersed, hence managers have great freedom in how they manage the firm.
Managers may operate in stockholders' best interests, but they may also operate in their own personal best interests. As long as managers stay within the law, there is no way to either force or
Motivate them to act in the stockholders' best interests. 
A)  The proper goal of the financial manager should be to attempt to maximize the firm's expected cash flows, because this will add the
Most to the wealth of the individual shareholders. 
B)  The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected projected after-tax income over the relevant time horizon,
Generally the coming year. 
C)  The riskiness inherent in a firm's earnings per share (EPS) depends on the characteristics of the projects the firm selects, and thus on the firm's assets. However, EPS is not affected by the manner
In which those assets are financed. 
D)  Potential agency problems can arise between stockholders and managers, because managers hired as agents to act on behalf of the owners may instead make decisions favorable to themselves rather
Than the stockholders. 
E)  Large, publicly-owned firms like AT&T and GM are controlled by their management teams. Ownership is generally widely dispersed, hence managers have great freedom in how they manage the firm.
Managers may operate in stockholders' best interests, but they may also operate in their own personal best interests. As long as managers stay within the law, there is no way to either force or
Motivate them to act in the stockholders' best interests.

Exam 1: An Overview of Financial Management and the Financial Environment

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market transaction.

If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other firms or individuals, Firm A is a financial intermediary.

Which of the following statements is CORRECT?

Which of the following factors would be most likely to lead to an increase in interest rates in the economy?

Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's unlimited personal liability for the business' debts.

The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively formed, are two key advantages to that form of business.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

The major advantage of a regular partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not.

Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.

With which of the following statements would most people in business agree?

Which of the following statements is CORRECT?

Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into a regular corporation. Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds, Bond Valuation, and Interest Rates

Risk, Return, and the Capital Asset Pricing Model

Stocks, Stock Valuation, and Stock Market Equilibrium

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Financial Planning and Forecasting Financial Statements

Corporate Valuation, Value-Based Management and Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Working Capital Management

Multinational Financial Management

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Initial Public Offerings, Investment Banking, and Financial Restructuring

Mergers, Lbos, Divestitures, and Holding Companies

Bankruptcy, Reorganization, and Liquidation

Derivatives and Risk Management

Portfolio Theory, Asset Pricing Models, and Behavioral Finance

Real Options

Analysis of Capital Structure Theory

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not-For-Profit Businesses

Filters