Question 1

Which of the following is an advantage of the sole proprietorship?

Accepted Answer

A) limited liability for its owners 
B) double taxation for its owners 
C) no significant legal requirements for starting the business 
D) easily transferred ownership 
A) limited liability for its owners 
B) double taxation for its owners 
C) no significant legal requirements for starting the business 
D) easily transferred ownership C

Question 2

The principle of risk-return tradeoff means that

Accepted Answer

A) higher risk investments must earn higher returns. 
B) an investor who takes more risk will earn a higher return. 
C) a rational investor will only take on higher risk if he expects a higher return. 
D) an investor who bought stock in a small corporation five years ago has more money than an investor who bought U.S.Treasury bonds five years ago. 
A) higher risk investments must earn higher returns. 
B) an investor who takes more risk will earn a higher return. 
C) a rational investor will only take on higher risk if he expects a higher return. 
D) an investor who bought stock in a small corporation five years ago has more money than an investor who bought U.S.Treasury bonds five years ago. C

Question 3

Shareholders react to poor investment or dividend decisions by causing the total value of the firm's stock to fall,and they react to good decisions by bidding the price of the stock up.

Accepted Answer

A) True 
 B)False  True

Question 4

Assume that you won the Lotta Dough Lotto jackpot for $20 million.Further assume that you were offered a choice to receive the $20 million today,or receive it in equal installments of $1 million per year for 20 years.According to one of the principles of finance,which would you take?

Accepted Answer

A) the $20 million in equal installments of $1 million per year for 20 years because you would be afraid of spending it all right away 
B) the $20 million today because it would be worth more than if you would receive it in equal installments of $1 million per year for 20 years 
C) You would be indifferent as to when you would receive the $20 million since the total number of dollars received is the same either way. 
D) the $20 million in equal installments of $1 million per year for 20 years because it would be worth more than if you would receive it today 
A) the $20 million in equal installments of $1 million per year for 20 years because you would be afraid of spending it all right away 
B) the $20 million today because it would be worth more than if you would receive it in equal installments of $1 million per year for 20 years 
C) You would be indifferent as to when you would receive the $20 million since the total number of dollars received is the same either way. 
D) the $20 million in equal installments of $1 million per year for 20 years because it would be worth more than if you would receive it today

Question 5

Limited partnerships are not as prevalent as corporations because

Accepted Answer

A) limited partners can lose up to three times the amount they invested in the partnership if the business goes bankrupt. 
B) limited partnerships have the disadvantage of double taxation. 
C) the general partner has no liability,making it difficult for the partnership to borrow money. 
D) it is easier to transfer ownership by selling common stock than it is to sell partnership. 
A) limited partners can lose up to three times the amount they invested in the partnership if the business goes bankrupt. 
B) limited partnerships have the disadvantage of double taxation. 
C) the general partner has no liability,making it difficult for the partnership to borrow money. 
D) it is easier to transfer ownership by selling common stock than it is to sell partnership.

Question 6

A financial manager is evaluating a project which is expected to generate profits of $100,000 per year for the next 10 years.The project should be accepted if

Accepted Answer

A) the cost of the project is less than $1,000,000. 
B) the cost of the project is less than the present value of $100,000 per year for 10 years. 
C) this project's expected profits are higher than any other projects the corporation has available. 
D) the present value of the project's cash inflows exceeds the present value of the project's cash outflows. 
A) the cost of the project is less than $1,000,000. 
B) the cost of the project is less than the present value of $100,000 per year for 10 years. 
C) this project's expected profits are higher than any other projects the corporation has available. 
D) the present value of the project's cash inflows exceeds the present value of the project's cash outflows.

Question 7

A limited liability company (LLC)is taxed like a partnership but provides limited liability for its owners similar to a corporation.

Accepted Answer

A) True 
 B)False

Question 8

Shareholder wealth maximization means

Accepted Answer

A) maximizing earnings per share. 
B) maximizing dividends per share. 
C) maximizing the price of existing common stock. 
D) maximizing stockholders equity. 
A) maximizing earnings per share. 
B) maximizing dividends per share. 
C) maximizing the price of existing common stock. 
D) maximizing stockholders equity.

Question 9

A general partnership,unlike a limited partnership,is an entity that legally functions separate and apart from its owners.

Accepted Answer

A) True 
 B)False

Question 10

The fundamental goal of a business is to maximize the retained earnings available to the corporation's shareholders.

Accepted Answer

A) True 
 B)False

Question 11

An investment project is acceptable if the total cash received over the life of the project exceeds the total cash spent over the life of the project.

Accepted Answer

A) True 
 B)False

Question 12

Its ability to raise capital by selling stock makes the corporation the best form of organization in terms of raising capital.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is an advantage of the general partnership form of business organization?

Accepted Answer

A) limited liability of business owners 
B) low cost of formation 
C) easy ability to raise capital 
D) double taxation 
A) limited liability of business owners 
B) low cost of formation 
C) easy ability to raise capital 
D) double taxation

Question 14

Consider the after-tax cash flows for Project S and Project L:   A rational person would prefer ________.

Accepted Answer

A) Project S because the money can be reinvested sooner 
B) Project L because they can avoid taxes by receiving cash flows later 
C) information about profits instead of cash flows 
D) neither investment over the other 
A) Project S because the money can be reinvested sooner 
B) Project L because they can avoid taxes by receiving cash flows later 
C) information about profits instead of cash flows 
D) neither investment over the other

Question 15

Determining how a firm should raise money to fund its long-term investments is referred to as capital structure decisions.

Accepted Answer

A) True 
 B)False

Question 16

All of the following contributed to recent financial crises EXCEPT

Accepted Answer

A) Focusing on earnings instead of cash flow. 
B) Focusing on the short run. 
C) Relying on the efficiency of financial markets. 
D) Excessive risk taking due to underestimation of risk. 
A) Focusing on earnings instead of cash flow. 
B) Focusing on the short run. 
C) Relying on the efficiency of financial markets. 
D) Excessive risk taking due to underestimation of risk.

Question 17

Which of the following categories of owners have unlimited liability?

Accepted Answer

A) general partners in a limited partnership 
B) sole proprietors 
C) shareholders of a corporation 
D) both A and B 
A) general partners in a limited partnership 
B) sole proprietors 
C) shareholders of a corporation 
D) both A and B

Question 18

The true owners of the corporation are the

Accepted Answer

A) holders of debt issues of the firm. 
B) preferred stockholders. 
C) board of directors of the firm. 
D) common stockholders. 
A) holders of debt issues of the firm. 
B) preferred stockholders. 
C) board of directors of the firm. 
D) common stockholders.

Question 19

A homeowner that owes more on his/her mortgage than the home is worth is said to be "under water".

Accepted Answer

A) True 
 B)False

Question 20

The CEO of High Tech International decides to change an accounting method at the end of the current year.The change results in reported profits increasing by 5%,but the company's cash flows are not changed.If capital markets are efficient,then

Accepted Answer

A) the stock price will not be affected by the accounting change. 
B) the stock price will increase due to higher profits. 
C) the stock price will increase only if the accounting change will also result in higher profits in the next year. 
D) the stock price will decrease because accounting method changes are not permitted under generally accepted accounting principles. 
A) the stock price will not be affected by the accounting change. 
B) the stock price will increase due to higher profits. 
C) the stock price will increase only if the accounting change will also result in higher profits in the next year. 
D) the stock price will decrease because accounting method changes are not permitted under generally accepted accounting principles.

Which of the following is an advantage of the sole proprietorship?

The principle of risk-return tradeoff means that

Shareholders react to poor investment or dividend decisions by causing the total value of the firm's stock to fall,and they react to good decisions by bidding the price of the stock up.

Assume that you won the Lotta Dough Lotto jackpot for $20 million.Further assume that you were offered a choice to receive the $20 million today,or receive it in equal installments of $1 million per year for 20 years.According to one of the principles of finance,which would you take?

Limited partnerships are not as prevalent as corporations because

A financial manager is evaluating a project which is expected to generate profits of $100,000 per year for the next 10 years.The project should be accepted if

A limited liability company (LLC)is taxed like a partnership but provides limited liability for its owners similar to a corporation.

Shareholder wealth maximization means

A general partnership,unlike a limited partnership,is an entity that legally functions separate and apart from its owners.

The fundamental goal of a business is to maximize the retained earnings available to the corporation's shareholders.

An investment project is acceptable if the total cash received over the life of the project exceeds the total cash spent over the life of the project.

Its ability to raise capital by selling stock makes the corporation the best form of organization in terms of raising capital.

Which of the following is an advantage of the general partnership form of business organization?

Consider the after-tax cash flows for Project S and Project L: A rational person would prefer ________.

Determining how a firm should raise money to fund its long-term investments is referred to as capital structure decisions.

All of the following contributed to recent financial crises EXCEPT

Which of the following categories of owners have unlimited liability?

The true owners of the corporation are the

A homeowner that owes more on his/her mortgage than the home is worth is said to be "under water".

The CEO of High Tech International decides to change an accounting method at the end of the current year.The change results in reported profits increasing by 5%,but the company's cash flows are not changed.If capital markets are efficient,then

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

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Exam 1: An Introduction to the Foundations of Financial Management

Which of the following is an advantage of the sole proprietorship?

The principle of risk-return tradeoff means that

Shareholders react to poor investment or dividend decisions by causing the total value of the firm's stock to fall,and they react to good decisions by bidding the price of the stock up.

Assume that you won the Lotta Dough Lotto jackpot for $20 million.Further assume that you were offered a choice to receive the $20 million today,or receive it in equal installments of $1 million per year for 20 years.According to one of the principles of finance,which would you take?

Limited partnerships are not as prevalent as corporations because

A financial manager is evaluating a project which is expected to generate profits of $100,000 per year for the next 10 years.The project should be accepted if

A limited liability company (LLC)is taxed like a partnership but provides limited liability for its owners similar to a corporation.

Shareholder wealth maximization means

A general partnership,unlike a limited partnership,is an entity that legally functions separate and apart from its owners.

The fundamental goal of a business is to maximize the retained earnings available to the corporation's shareholders.

An investment project is acceptable if the total cash received over the life of the project exceeds the total cash spent over the life of the project.

Its ability to raise capital by selling stock makes the corporation the best form of organization in terms of raising capital.

Which of the following is an advantage of the general partnership form of business organization?

Consider the after-tax cash flows for Project S and Project L: A rational person would prefer ________.

Determining how a firm should raise money to fund its long-term investments is referred to as capital structure decisions.

All of the following contributed to recent financial crises EXCEPT

Which of the following categories of owners have unlimited liability?

The true owners of the corporation are the

A homeowner that owes more on his/her mortgage than the home is worth is said to be "under water".

The CEO of High Tech International decides to change an accounting method at the end of the current year.The change results in reported profits increasing by 5%,but the company's cash flows are not changed.If capital markets are efficient,then

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters