Question 1

Actions that help a firm increase the price of its stock also _____.

Accepted Answer

A) result in manufacturing of low-quality products 
B) result in inflation 
C) require the development of products that consumers want and need 
D) require investment in high-cost manufacturing plants 
E) result in sale of goods and services at highest possible prices 
A) result in manufacturing of low-quality products 
B) result in inflation 
C) require the development of products that consumers want and need 
D) require investment in high-cost manufacturing plants 
E) result in sale of goods and services at highest possible prices

Question 2

Which of the following is an example of ethical behavior of the management of a corporation?

Accepted Answer

A) Executives of the corporation pursue their own personal interests when making important business decisions. 
B) Payment of bribe by the management of the corporation to foreign governments to obtain business. 
C) The management of the corporation uses confidential information for personal gain. 
D) The management actions are often resulting in large gains for themselves and large losses for stockholders. 
E) The management takes steps to adhere to laws and regulations relating to product safety. 
A) Executives of the corporation pursue their own personal interests when making important business decisions. 
B) Payment of bribe by the management of the corporation to foreign governments to obtain business. 
C) The management of the corporation uses confidential information for personal gain. 
D) The management actions are often resulting in large gains for themselves and large losses for stockholders. 
E) The management takes steps to adhere to laws and regulations relating to product safety.

Question 3

Which of the following statements is correct?

Accepted Answer

A) The optimal dividend policy is the one that satisfies management, not shareholders. 
B) The use of debt financing has no effect on earnings per share (EPS) or stock price. 
C) The riskiness of projected EPS can impact the firm's value. 
D) Stock price is dependent on the projected EPS and the use of debt, but not on the timing of the earnings stream. 
E) Dividend policy is one aspect of the firm's financial policy that is determined solely by the shareholders. 
A) The optimal dividend policy is the one that satisfies management, not shareholders. 
B) The use of debt financing has no effect on earnings per share (EPS) or stock price. 
C) The riskiness of projected EPS can impact the firm's value. 
D) Stock price is dependent on the projected EPS and the use of debt, but not on the timing of the earnings stream. 
E) Dividend policy is one aspect of the firm's financial policy that is determined solely by the shareholders.

Question 4

Identify the external factor that affects the value of a firm's stock.

Accepted Answer

A) Capital structure decisions 
B) General level of economic activity 
C) Capital budgeting decisions 
D) Dividend policy decisions 
E) Cash flow of the firm 
A) Capital structure decisions 
B) General level of economic activity 
C) Capital budgeting decisions 
D) Dividend policy decisions 
E) Cash flow of the firm

Question 5

Managers of firms that use alternative accounting techniques to inflate current earnings are likely to generate long-term benefits to the shareholders of the firm.

Accepted Answer

A) True 
 B)False

Question 6

Having the manager's compensation tied to the company's performance increases the agency problem that corporations face.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is true of a hostile takeover?

Accepted Answer

A) A hostile takeover results when management wants the firm to be taken over. 
B) A hostile takeover is most likely to occur when a firm's stock is undervalued relative to its potential. 
C) After a hostile takeover, managers of the acquired firm generally retain the positions they had prior to the takeover. 
D) A hostile takeover does not allow managers to take actions that maximize stock prices. 
E) A hostile takeover results in poor management and inefficient operations after the takeover is completed. 
A) A hostile takeover results when management wants the firm to be taken over. 
B) A hostile takeover is most likely to occur when a firm's stock is undervalued relative to its potential. 
C) After a hostile takeover, managers of the acquired firm generally retain the positions they had prior to the takeover. 
D) A hostile takeover does not allow managers to take actions that maximize stock prices. 
E) A hostile takeover results in poor management and inefficient operations after the takeover is completed.

Question 8

Which of the following statements about the corporate form of business organization is correct?

Accepted Answer

A) A corporation has the legal authority to act like a person when conducting business. 
B) In the United States, corporations generate a lower percentage of total annual sales than either partnerships or proprietorships. 
C) Corporations generally are smaller than either partnerships or proprietorships. 
D) One of the most important features of the corporate form of business organization is that stockholders have unlimited liability. 
E) Corporations can operate under different degrees of formality, ranging from informal, oral understandings to formal agreements filed with the secretary of the state in which the corporations do business. 
A) A corporation has the legal authority to act like a person when conducting business. 
B) In the United States, corporations generate a lower percentage of total annual sales than either partnerships or proprietorships. 
C) Corporations generally are smaller than either partnerships or proprietorships. 
D) One of the most important features of the corporate form of business organization is that stockholders have unlimited liability. 
E) Corporations can operate under different degrees of formality, ranging from informal, oral understandings to formal agreements filed with the secretary of the state in which the corporations do business.

Question 9

The investment function of finance helps in _____.

Accepted Answer

A) making decisions regarding the dividends paid by a corporation 
B) determining the expenses to be incurred to ensure that the behavior of an investment corporation is socially acceptable 
C) determining the values, risks, and returns associated with such financial assets as stocks and bonds 
D) ensuring that 50 percent of all investments in a portfolio are in environment-friendly corporations 
E) ensuring that the corporations payout maximum dividends per share 
A) making decisions regarding the dividends paid by a corporation 
B) determining the expenses to be incurred to ensure that the behavior of an investment corporation is socially acceptable 
C) determining the values, risks, and returns associated with such financial assets as stocks and bonds 
D) ensuring that 50 percent of all investments in a portfolio are in environment-friendly corporations 
E) ensuring that the corporations payout maximum dividends per share

Question 10

If a firm raises its product prices beyond reasonable levels, it will generally lose some of its market share.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is true of agency problems?

Accepted Answer

A) Regardless of economic conditions, if a firm's stock price falls during the year, this indicates that the firm's managers must not be acting in the best interests of the shareholders. 
B) One method of controlling agency problems is to engage in the taking of "poison pills." 
C) One of the best means to control agency problems is to require the managers and other important decision-makers of the firm to also be owners of the firm. 
D) Agency problems probably would not exist if the important decisions of a firm were made by persons who have no vested interests, such as ownership, in the firm. 
E) Shareholders can solve agency problems by selling their stock to other investors. 
A) Regardless of economic conditions, if a firm's stock price falls during the year, this indicates that the firm's managers must not be acting in the best interests of the shareholders. 
B) One method of controlling agency problems is to engage in the taking of "poison pills." 
C) One of the best means to control agency problems is to require the managers and other important decision-makers of the firm to also be owners of the firm. 
D) Agency problems probably would not exist if the important decisions of a firm were made by persons who have no vested interests, such as ownership, in the firm. 
E) Shareholders can solve agency problems by selling their stock to other investors.

Question 12

The disadvantages associated with a proprietorship are similar to those of a partnership. A major difference between these two forms of business organization is that a partnership requires a legal agreement that commits the partners' personal assets, which means that partnerships have little difficulty raising large amounts of capital (similar to corporations).

Accepted Answer

A) True 
 B)False

Question 13

The term multinational corporation is used to describe a firm that operates in two or more countries.

Accepted Answer

A) True 
 B)False

Question 14

Identify a true statement about an S corporation.

Accepted Answer

A) An S Corporation is required to have more than 100 stockholders. 
B) An S Corporation is required to have more than one type of stock outstanding. 
C) The income of an S Corporation passes through the company to the owners. 
D) The income of an S Corporation is taxed twice, at the corporate level and the owner level. 
E) The income of an S Corporation is taxed as capital gains to the owners. 
A) An S Corporation is required to have more than 100 stockholders. 
B) An S Corporation is required to have more than one type of stock outstanding. 
C) The income of an S Corporation passes through the company to the owners. 
D) The income of an S Corporation is taxed twice, at the corporate level and the owner level. 
E) The income of an S Corporation is taxed as capital gains to the owners.

Question 15

Paying Payroll Service (PPS) recently declared bankruptcy. The price of PPS's stock has dropped from approximately $10 per share one year ago to $1 today. You can imagine that stockholders are not happy that the value of their stock has dropped so significantly. At the same time the financial position of the firm was deteriorating, PPS executives increased their salaries and perquisites substantially. Nothing they did violated any laws or was considered an unethical act. We would most likely describe this situation as _____.

Accepted Answer

A) an agency problem 
B) an accounting glitch 
C) an appropriate use of the tax laws 
D) an appropriate action, because executive compensation should always be increased substantially each year 
E) acceptable, because it is obvious that the executives were trying to maximize the value of the firm, which is what the shareholders want them to do 
A) an agency problem 
B) an accounting glitch 
C) an appropriate use of the tax laws 
D) an appropriate action, because executive compensation should always be increased substantially each year 
E) acceptable, because it is obvious that the executives were trying to maximize the value of the firm, which is what the shareholders want them to do

Question 16

Which of the following is true of stockholders in continental Europe?

Accepted Answer

A) The stocks of corporations are widely dispersed among a large number of different investors, both individuals and institutions. 
B) Many stockholders assign banks their proxy votes for the directors of the companies. 
C) Banks are major stockholders of corporations in continental Europe. 
D) Major stockholders of closed corporations are not involved in the firms' daily operations. 
E) Stockholders in continental Europe are often family units resulting from the universal banking relationship existing in the United States. 
A) The stocks of corporations are widely dispersed among a large number of different investors, both individuals and institutions. 
B) Many stockholders assign banks their proxy votes for the directors of the companies. 
C) Banks are major stockholders of corporations in continental Europe. 
D) Major stockholders of closed corporations are not involved in the firms' daily operations. 
E) Stockholders in continental Europe are often family units resulting from the universal banking relationship existing in the United States.

Question 17

Everything else equal, including firm size, dollar sales, type of product sold, and so forth, the primary difference between proprietorship and partnership business forms is that _____.

Accepted Answer

A) a partnership has more owners than a proprietorship 
B) the combined personal liability associated with a partnership is significantly less than the combined personal liability associated with a proprietorship 
C) a partnership is generally easier to form than a proprietorship 
D) the annual growth rate of a proprietorship is limited by law, whereas the growth rate of a partnership is always potentially unlimited 
E) many more businesses are formed as partnerships than proprietorships 
A) a partnership has more owners than a proprietorship 
B) the combined personal liability associated with a partnership is significantly less than the combined personal liability associated with a proprietorship 
C) a partnership is generally easier to form than a proprietorship 
D) the annual growth rate of a proprietorship is limited by law, whereas the growth rate of a partnership is always potentially unlimited 
E) many more businesses are formed as partnerships than proprietorships

Question 18

It is possible to limit the liability faced by some of the partners in a partnership form of business by establishing a _____.

Accepted Answer

A) limited liability partnership (LLP) 
B) general partnership 
C) Proprietorship 
D) concentrated partnership 
E) limited accumulation partnership 
A) limited liability partnership (LLP) 
B) general partnership 
C) Proprietorship 
D) concentrated partnership 
E) limited accumulation partnership

Question 19

Financial services refer to functions provided by organizations that _____.

Accepted Answer

A) deal with the most efficient management of the human resources 
B) ensure that regulations of the Sarbanes-Oxley Act are followed by public corporations 
C) recommend the most environment friendly method of operations to a corporation 
D) recommend the types of securities to be issued to finance plant expansions 
E) deal with the management of money 
A) deal with the most efficient management of the human resources 
B) ensure that regulations of the Sarbanes-Oxley Act are followed by public corporations 
C) recommend the most environment friendly method of operations to a corporation 
D) recommend the types of securities to be issued to finance plant expansions 
E) deal with the management of money

Question 20

The accounting and tax departments are the responsibility of the _____.

Accepted Answer

A) treasurer 
B) inventory manager 
C) director of capital budgeting 
D) vice president of finance 
E) controller 
A) treasurer 
B) inventory manager 
C) director of capital budgeting 
D) vice president of finance 
E) controller

Actions that help a firm increase the price of its stock also _____.

Which of the following is an example of ethical behavior of the management of a corporation?

Which of the following statements is correct?

Identify the external factor that affects the value of a firm's stock.

Managers of firms that use alternative accounting techniques to inflate current earnings are likely to generate long-term benefits to the shareholders of the firm.

Having the manager's compensation tied to the company's performance increases the agency problem that corporations face.

Which of the following statements is true of a hostile takeover?

Which of the following statements about the corporate form of business organization is correct?

The investment function of finance helps in _____.

If a firm raises its product prices beyond reasonable levels, it will generally lose some of its market share.

Which of the following statements is true of agency problems?

The term multinational corporation is used to describe a firm that operates in two or more countries.

Identify a true statement about an S corporation.

Which of the following is true of stockholders in continental Europe?

Everything else equal, including firm size, dollar sales, type of product sold, and so forth, the primary difference between proprietorship and partnership business forms is that _____.

It is possible to limit the liability faced by some of the partners in a partnership form of business by establishing a _____.

Financial services refer to functions provided by organizations that _____.

The accounting and tax departments are the responsibility of the _____.

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

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters

Exam 1: An Overview of Managerial Finance

Actions that help a firm increase the price of its stock also _____.

Which of the following is an example of ethical behavior of the management of a corporation?

Which of the following statements is correct?

Identify the external factor that affects the value of a firm's stock.

Managers of firms that use alternative accounting techniques to inflate current earnings are likely to generate long-term benefits to the shareholders of the firm.

Having the manager's compensation tied to the company's performance increases the agency problem that corporations face.

Which of the following statements is true of a hostile takeover?

Which of the following statements about the corporate form of business organization is correct?

The investment function of finance helps in _____.

If a firm raises its product prices beyond reasonable levels, it will generally lose some of its market share.

Which of the following statements is true of agency problems?

The term multinational corporation is used to describe a firm that operates in two or more countries.

Identify a true statement about an S corporation.

Which of the following is true of stockholders in continental Europe?

Everything else equal, including firm size, dollar sales, type of product sold, and so forth, the primary difference between proprietorship and partnership business forms is that _____.

It is possible to limit the liability faced by some of the partners in a partnership form of business by establishing a _____.

Financial services refer to functions provided by organizations that _____.

The accounting and tax departments are the responsibility of the _____.

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

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters