Question 1

Which of the following statements is NOT correct?

Accepted Answer

A) When a corporation's shares are owned by a few individuals and are not traded on public markets, we say that the firm is "closely, or privately, held." 
B) "Going public" establishes a firm's true intrinsic value, and it also ensures that a highly liquid market will always exist for the firm's shares. 
C) When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public," and the market for such stock is called the new issue market. 
D) Publicly owned companies have shares owned by investors who are not associated with management, and public companies must register with and report to a regulatory agency such as the SEC. 
A) When a corporation's shares are owned by a few individuals and are not traded on public markets, we say that the firm is "closely, or privately, held." 
B) "Going public" establishes a firm's true intrinsic value, and it also ensures that a highly liquid market will always exist for the firm's shares. 
C) When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public," and the market for such stock is called the new issue market. 
D) Publicly owned companies have shares owned by investors who are not associated with management, and public companies must register with and report to a regulatory agency such as the SEC.

Question 2

Which of the following statements best describes partnerships?

Accepted Answer

A) In a regular partnership, liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business. 
B) Partnerships have trouble attracting large capital due to factors such as unlimited liability, and the illiquidity of partnership interests. 
C) A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster-growing company. 
D) A major disadvantage of all partnerships relative to all corporations is the fact that taxes must be paid by the partners rather than by the firm itself. 
A) In a regular partnership, liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business. 
B) Partnerships have trouble attracting large capital due to factors such as unlimited liability, and the illiquidity of partnership interests. 
C) A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster-growing company. 
D) A major disadvantage of all partnerships relative to all corporations is the fact that taxes must be paid by the partners rather than by the firm itself.

Question 3

Which of the following statements best describes financial markets?

Accepted Answer

A) Capital market transactions involve only the purchase and sale of equity securities, i.e., common stocks. 
B) If an investor sells shares of stock through a broker, then this would be an indirect finance transaction. 
C) Money market mutual funds have a high degree of default risk. 
D) Commercial papers have maturities longer than one year. 
A) Capital market transactions involve only the purchase and sale of equity securities, i.e., common stocks. 
B) If an investor sells shares of stock through a broker, then this would be an indirect finance transaction. 
C) Money market mutual funds have a high degree of default risk. 
D) Commercial papers have maturities longer than one year.

Question 4

Cheers Canada Inc.operates as a partnership.Now the partners have decided to convert the business into a regular corporation.What will be the effect?

Accepted Answer

A) Assuming Cheers Canada Inc. is profitable, less of its income will be subject to taxes. 
B) Cheers Canada Inc. will now be subject to fewer regulations. 
C) Cheers' Canada Inc. shareholders (the ex-partners) will now be exposed to less liability. 
D) Cheers Canada Inc. will find it more difficult to raise additional capital. 
A) Assuming Cheers Canada Inc. is profitable, less of its income will be subject to taxes. 
B) Cheers Canada Inc. will now be subject to fewer regulations. 
C) Cheers' Canada Inc. shareholders (the ex-partners) will now be exposed to less liability. 
D) Cheers Canada Inc. will find it more difficult to raise additional capital.

Question 5

By being too involved in the business operation,limited partners can lose their limited liability status.

Accepted Answer

A) True 
 B)False

Question 6

What is traded on money markets?

Accepted Answer

A) foreign stocks 
B) consumer automobile loans 
C) short-term debt securities 
D) long-term bonds 
A) foreign stocks 
B) consumer automobile loans 
C) short-term debt securities 
D) long-term bonds

Question 7

In 2011,the Canadian government made significant changes to its treatment of income trusts.What was the principal reason for this action?

Accepted Answer

A) Trusts were becoming too large compared to corporations. 
B) Trusts offered unfair tax advantages compared to corporations. 
C) The government did not have adequate legislative power to manage the activities of income trusts. 
D) Corporations were able to successfully influence government policymakers to bring about these changes. 
A) Trusts were becoming too large compared to corporations. 
B) Trusts offered unfair tax advantages compared to corporations. 
C) The government did not have adequate legislative power to manage the activities of income trusts. 
D) Corporations were able to successfully influence government policymakers to bring about these changes.

Question 8

Share price maximization is good for society because consumers benefit.Which of the following best describes this idea?

Accepted Answer

A) Firms that maximize share price minimize costs and produce low-quality goods, which only benefits producers. 
B) Firms that maximize share price minimize costs and produce high quality goods that consumers demand. 
C) Firms that maximize share price maximize costs and produce low-quality goods, which benefits society. 
D) Most Canadian households do not own or participate, directly or indirectly, in the stock market and as such they do not benefit from the production of quality goods produced at low cost. 
A) Firms that maximize share price minimize costs and produce low-quality goods, which only benefits producers. 
B) Firms that maximize share price minimize costs and produce high quality goods that consumers demand. 
C) Firms that maximize share price maximize costs and produce low-quality goods, which benefits society. 
D) Most Canadian households do not own or participate, directly or indirectly, in the stock market and as such they do not benefit from the production of quality goods produced at low cost.

Question 9

What is the rate of return normally required by investors when investing in a firm?

Accepted Answer

A) capital required ROI 
B) capitalization rate 
C) weighted average cost of capital (WAC
C) _ 
D) current yield 
A) capital required ROI 
B) capitalization rate 
C) weighted average cost of capital (WAC
C) _ 
D) current yield

Question 10

Which of the following is true of stock ownership in Canada?

Accepted Answer

A) 61% of Canadian households directly own stock. 
B) 10% of Canadian households directly own stock. 
C) 90% of Canadian households directly own stock. 
D) Most Canadian households do not own or participate, directly or indirectly, in the stock market. 
A) 61% of Canadian households directly own stock. 
B) 10% of Canadian households directly own stock. 
C) 90% of Canadian households directly own stock. 
D) Most Canadian households do not own or participate, directly or indirectly, in the stock market.

Question 11

Which of the following statements best describes firm organization?

Accepted Answer

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

Question 12

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 13

Which of the following best defines an income trust?

Accepted Answer

A) a fund that is set up for the purchase of debt for the company 
B) a fund that is set up to receive the after-tax dividends of the corporation 
C) a fund that is set up to receive the before-tax cash payments of the corporation 
D) a fund that holds assets for the corporation 
A) a fund that is set up for the purchase of debt for the company 
B) a fund that is set up to receive the after-tax dividends of the corporation 
C) a fund that is set up to receive the before-tax cash payments of the corporation 
D) a fund that holds assets for the corporation

Question 14

Which of the following statements best describes partnerships?

Accepted Answer

A) Corporations are at a disadvantage relative to partnerships because they have to file more reports to regulatory agencies, even if they are not publicly owned. 
B) In a regular partnership, liability for the firm's debts is limited to the amount a particular partner has invested in the business. 
C) A fast-growth company would be more likely to set up as a partnership for its business organization than would a slow-growth company. 
D) There must be at least one person acting as a general partner in a limited partnership. 
A) Corporations are at a disadvantage relative to partnerships because they have to file more reports to regulatory agencies, even if they are not publicly owned. 
B) In a regular partnership, liability for the firm's debts is limited to the amount a particular partner has invested in the business. 
C) A fast-growth company would be more likely to set up as a partnership for its business organization than would a slow-growth company. 
D) There must be at least one person acting as a general partner in a limited partnership.

Question 15

The best way to maximize the intrinsic value of a company and thus shareholders' wealth is to maximize its earnings per share.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements best describes firm organization?

Accepted Answer

A) It is generally more expensive to form a proprietorship than a corporation because a proprietorship requires extensive legal documents. 
B) 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. 
C) One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership. 
D) 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 a proprietorship requires extensive legal documents. 
B) 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. 
C) One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership. 
D) 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 17

In which type of organization do all partners enjoy limited liability in regards to negligence and potential losses limited to their original investment?

Accepted Answer

A) general partnership 
B) REIT 
C) sole proprietorship 
D) limited liability partnership (LLP) 
A) general partnership 
B) REIT 
C) sole proprietorship 
D) limited liability partnership (LLP)

Question 18

With the more formal nature of the partnership agreement and the commitment of all partners' personal assets,partnerships have no difficulty raising large amounts of capital as do proprietorships.

Accepted Answer

A) True 
 B)False

Question 19

What should be the primary operating goal of a publicly owned firm interested in serving its shareholders?

Accepted Answer

A) maximize the stock price per share, which is the stock's intrinsic value, over the long run 
B) maximize the firm's expected EPS 
C) maximize the firm's expected total income 
D) maximize the stock price on a specific target date 
A) maximize the stock price per share, which is the stock's intrinsic value, over the long run 
B) maximize the firm's expected EPS 
C) maximize the firm's expected total income 
D) maximize the stock price on a specific target date

Question 20

Which of the following statements best describes financial markets?

Accepted Answer

A) Capital market instruments include both long-term debt and common stocks. 
B) Banker's acceptance has no default risk. 
C) Foreign banks are more restricted from operating in Canada. 
D) The original maturity of a commercial loan can go up to 10 years. 
A) Capital market instruments include both long-term debt and common stocks. 
B) Banker's acceptance has no default risk. 
C) Foreign banks are more restricted from operating in Canada. 
D) The original maturity of a commercial loan can go up to 10 years.

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

Which of the following statements is NOT correct?

Which of the following statements best describes partnerships?

Which of the following statements best describes financial markets?

Cheers Canada Inc.operates as a partnership.Now the partners have decided to convert the business into a regular corporation.What will be the effect?

By being too involved in the business operation,limited partners can lose their limited liability status.

What is traded on money markets?

In 2011,the Canadian government made significant changes to its treatment of income trusts.What was the principal reason for this action?

Share price maximization is good for society because consumers benefit.Which of the following best describes this idea?

What is the rate of return normally required by investors when investing in a firm?

Which of the following is true of stock ownership in Canada?

Which of the following statements best describes firm organization?

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 best defines an income trust?

Which of the following statements best describes partnerships?

The best way to maximize the intrinsic value of a company and thus shareholders' wealth is to maximize its earnings per share.

Which of the following statements best describes firm organization?

In which type of organization do all partners enjoy limited liability in regards to negligence and potential losses limited to their original investment?

With the more formal nature of the partnership agreement and the commitment of all partners' personal assets,partnerships have no difficulty raising large amounts of capital as do proprietorships.

What should be the primary operating goal of a publicly owned firm interested in serving its shareholders?

Which of the following statements best describes financial markets?

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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