Question 1

Which of the following statements is correct?

Accepted Answer

A) A good goal for a firm's management is maximization of expected EPS. 
B) Like corporations, the board of directors for an income trust supervises the operating entity on behalf of unitholders. 
C) There is a legal obligation to pay cash distributions for income trusts. 
D) Agency conflicts easily arise between shareholders and managers. 
A) A good goal for a firm's management is maximization of expected EPS. 
B) Like corporations, the board of directors for an income trust supervises the operating entity on behalf of unitholders. 
C) There is a legal obligation to pay cash distributions for income trusts. 
D) Agency conflicts easily arise between shareholders and managers. D

Question 2

If an individual investor trades currently outstanding common shares through a broker,this is a secondary market transaction.

Accepted Answer

A) True 
 B)False  True

Question 3

What should be done to maximize shareholder wealth and thus the value of the firm?

Accepted Answer

A) Decrease the size of expected cash flow of the company. 
B) Slow down the cash receipt of the organization. 
C) Increase the risk level of the firm. 
D) Raise the free cash flows of the business. 
A) Decrease the size of expected cash flow of the company. 
B) Slow down the cash receipt of the organization. 
C) Increase the risk level of the firm. 
D) Raise the free cash flows of the business. D

Question 4

Which of the following financial intermediaries is NOT a depository institution?

Accepted Answer

A) commercial bank 
B) investment bank 
C) trust company 
D) credit union 
A) commercial bank 
B) investment bank 
C) trust company 
D) credit union

Question 5

Today,trustee services can be arranged only with trust companies.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following services will NOT be offered by insurance companies?

Accepted Answer

A) taking deposits 
B) selling policies with saving features 
C) administrating pension funds 
D) making payments to beneficiaries 
A) taking deposits 
B) selling policies with saving features 
C) administrating pension funds 
D) making payments to beneficiaries

Question 7

Which of the following is NOT a variable used in the calculation of free cash flow (FCF)?

Accepted Answer

A) sales (revenues) 
B) operating expenses and taxes 
C) expected (required) investments in operating capital 
D) interest and other financing costs 
A) sales (revenues) 
B) operating expenses and taxes 
C) expected (required) investments in operating capital 
D) interest and other financing costs

Question 8

Recently,Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share.Hale sold the stock to an investment banker,which in turn sold it to individual and institutional investors.Where did this stock sale take place?

Accepted Answer

A) over-the-counter market 
B) secondary market 
C) forex market 
D) primary market 
A) over-the-counter market 
B) secondary market 
C) forex market 
D) primary market

Question 9

Which circumstance 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 federal government decides to try to stimulate the economy. 
C) There is an increase in expected inflation. 
D) The economy falls into a recession. 
A) Households reduce their consumption and increase their savings. 
B) The federal government decides to try to stimulate the economy. 
C) There is an increase in expected inflation. 
D) The economy falls into a recession.

Question 10

Which of the following statements is true regarding hedge funds and private equity funds?

Accepted Answer

A) Both operate primarily by buying stock (equity) to gain controlling interest in companies. 
B) Both have a limited number of investors. 
C) Hedge funds are highly regulated, while there are few controls over the activities of private equity funds. 
D) The risks involved in investing in private equity funds are significantly less than the risks involved in investing in hedge funds. 
A) Both operate primarily by buying stock (equity) to gain controlling interest in companies. 
B) Both have a limited number of investors. 
C) Hedge funds are highly regulated, while there are few controls over the activities of private equity funds. 
D) The risks involved in investing in private equity funds are significantly less than the risks involved in investing in hedge funds.

Question 11

Which of the following statements best describes firm organization?

Accepted Answer

A) One of the disadvantages of incorporating a business is that the owners have personal liabilities when 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 corporations, especially large ones. 
A) One of the disadvantages of incorporating a business is that the owners have personal liabilities when 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 corporations, especially large ones.

Question 12

Why might a business choose to operate as a corporation rather than as a sole proprietorship or a partnership?

Accepted Answer

A) Less of a corporation's income is generally subjected to taxes than would be true if the firm were a partnership. 
B) Corporate shareholders escape liability for the firm's debts, but this factor may be offset by the tax disadvantages of the corporate form of organization. 
C) Corporate investors are exposed to limited growth potential. 
D) Corporations generally face relatively few regulations. 
A) Less of a corporation's income is generally subjected to taxes than would be true if the firm were a partnership. 
B) Corporate shareholders escape liability for the firm's debts, but this factor may be offset by the tax disadvantages of the corporate form of organization. 
C) Corporate investors are exposed to limited growth potential. 
D) Corporations generally face relatively few regulations.

Question 13

Which of the following best describes the position of the bondholders of an incorporated firm?

Accepted Answer

A) They are owners of the corporation. 
B) They are creditors of the firm and thus expect to be paid interest on their investment according to their bond indenture (contract). 
C) They have the same rights and privileges of preferred shareholders of the firm. 
D) They are equity owners of the firm but they receive interest payments, not dividends. 
A) They are owners of the corporation. 
B) They are creditors of the firm and thus expect to be paid interest on their investment according to their bond indenture (contract). 
C) They have the same rights and privileges of preferred shareholders of the firm. 
D) They are equity owners of the firm but they receive interest payments, not dividends.

Question 14

Prior to changes in 2011,what was the main perceived attraction of income trusts?

Accepted Answer

A) reducing double taxation 
B) unregulated business environment 
C) fewer layers in the organizational structure 
D) maintenance-free business assets 
A) reducing double taxation 
B) unregulated business environment 
C) fewer layers in the organizational structure 
D) maintenance-free business assets

Question 15

Which of the following is NOT a primary disadvantage of a regular partnership?

Accepted Answer

A) unlimited liability 
B) limited life of the organization 
C) difficulty in transferring ownership 
D) unlimited life of the organization 
A) unlimited liability 
B) limited life of the organization 
C) difficulty in transferring ownership 
D) unlimited life of the organization

Question 16

What does the separation theorem demonstrate?

Accepted Answer

A) Firms that separate share price and cost minimize costs and thus produce more goods, which benefits society. 
B) Firms should separate their management decisions between those that benefit society and those that benefit shareholders. 
C) All investors are better off when firms separate their investment decisions from the preferences of their owner/investors. 
D) Investors that own shares directly should be separated from investors that own shares indirectly. 
A) Firms that separate share price and cost minimize costs and thus produce more goods, which benefits society. 
B) Firms should separate their management decisions between those that benefit society and those that benefit shareholders. 
C) All investors are better off when firms separate their investment decisions from the preferences of their owner/investors. 
D) Investors that own shares directly should be separated from investors that own shares indirectly.

Question 17

Suppose the Bank of Canada announces plans to issue $50 billion of new bonds.Assuming the announcement was not expected,what effect,other things held constant,would that have on bond prices and interest rates?

Accepted Answer

A) Prices and interest rates would both rise. 
B) Prices would decline and interest rates would rise. 
C) Prices and interest rates would both decline. 
D) Prices would rise and interest rates would decline. 
A) Prices and interest rates would both rise. 
B) Prices would decline and interest rates would rise. 
C) Prices and interest rates would both decline. 
D) Prices would rise and interest rates would decline.

Question 18

Which of the following statements best describes financial markets?

Accepted Answer

A) If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction. 
B) The IPO market is a major part of the secondary market. 
C) Only institutions, not individuals, can participate in derivatives market transactions. 
D) Money market transactions involve debt securities with maturities of less than one year. 
A) If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction. 
B) The IPO market is a major part of the secondary market. 
C) Only institutions, not individuals, can participate in derivatives market transactions. 
D) Money market transactions involve debt securities with maturities of less than one year.

Question 19

Which statement regarding corporations is most accurate?

Accepted Answer

A) Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of businesses are organized as corporations. 
B) Due to legal considerations related to ownership transfers and limited liability, most business is conducted by corporations in spite of large corporations' often less favourable tax treatment. 
C) Large corporations are taxed more favourably than sole proprietorships. 
D) Corporate stockholders are exposed to unlimited liability. 
A) Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of businesses are organized as corporations. 
B) Due to legal considerations related to ownership transfers and limited liability, most business is conducted by corporations in spite of large corporations' often less favourable tax treatment. 
C) Large corporations are taxed more favourably than sole proprietorships. 
D) Corporate stockholders are exposed to unlimited liability.

Question 20

Which of the following statements would most people in business agree with?

Accepted Answer

A) Firms should not be punished because they have unintentionally built incentive schemes that induce unethical behaviour. 
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 moral characters are developed differently, it is useful to educate people about the adverse consequences of unethical behaviour to themselves, their firms, and the nation. 
D) Because of the courage it takes to blow the whistle, whistle blowers are generally promoted more rapidly than other employees. 
A) Firms should not be punished because they have unintentionally built incentive schemes that induce unethical behaviour. 
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 moral characters are developed differently, it is useful to educate people about the adverse consequences of unethical behaviour to themselves, their firms, and the nation. 
D) Because of the courage it takes to blow the whistle, whistle blowers are generally promoted more rapidly than other employees.

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

Which of the following statements is correct?

If an individual investor trades currently outstanding common shares through a broker,this is a secondary market transaction.

What should be done to maximize shareholder wealth and thus the value of the firm?

Which of the following financial intermediaries is NOT a depository institution?

Today,trustee services can be arranged only with trust companies.

Which of the following services will NOT be offered by insurance companies?

Which of the following is NOT a variable used in the calculation of free cash flow (FCF)?

Recently,Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share.Hale sold the stock to an investment banker,which in turn sold it to individual and institutional investors.Where did this stock sale take place?

Which circumstance would be most likely to lead to an increase in interest rates in the economy?

Which of the following statements is true regarding hedge funds and private equity funds?

Which of the following statements best describes firm organization?

Why might a business choose to operate as a corporation rather than as a sole proprietorship or a partnership?

Which of the following best describes the position of the bondholders of an incorporated firm?

Prior to changes in 2011,what was the main perceived attraction of income trusts?

Which of the following is NOT a primary disadvantage of a regular partnership?

What does the separation theorem demonstrate?

Suppose the Bank of Canada announces plans to issue $50 billion of new bonds.Assuming the announcement was not expected,what effect,other things held constant,would that have on bond prices and interest rates?

Which of the following statements best describes financial markets?

Which statement regarding corporations is most accurate?

Which of the following statements would most people in business agree with?

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Financial Planning and Forecasting Financial Statements

Bonds, Bond Valuation, and Interest Rates

Risk, Return, and the Capital Asset Pricing Model

Stocks, Stock Valuation, and Stock Market Equilibrium

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Capital Structure Decisions

Distributions to Shareholders: Dividends and Repurchases

Initial Public Offerings Investment Banking and Financial Restructuring

Lease Financing

Capital Market Financing: Hybrid and Other Securities

Working Capital Management and Short-Term Financing

Current Asset Management

Financial Options and Applications in Corporate Finance

Enterprise Risk Management

International Financial Management

Corporate Valuation and Governance

Mergers,Acquisitions,and Restructuring

Decision Trees,real Options and Other Capital Budgeting Techniques

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