Question 1

When making financial decisions,managers should always look at marginal,or incremental cash flows.

Accepted Answer

A) True 
 B)False

Question 2

High Tech Corp.cut its research and development budget in 2010 by $4,000,000 in order to improve its cash flow for the year.Which of the following statements is MOST correct?

Accepted Answer

A) The stock price will likely increase because the value of stock is based on reported cash flow. 
B) The stock price may decrease because investors may predict that future cash flows will decrease due to the lack of innovation and new products. 
C) The change will have no impact on stock price because the company's profits will not change in 2010. 
D) The stock price will increase only if reported profits in 2010 are also higher than profits reported in 2009. 
A) The stock price will likely increase because the value of stock is based on reported cash flow. 
B) The stock price may decrease because investors may predict that future cash flows will decrease due to the lack of innovation and new products. 
C) The change will have no impact on stock price because the company's profits will not change in 2010. 
D) The stock price will increase only if reported profits in 2010 are also higher than profits reported in 2009.

Question 3

The purchase of a pool of mortgages is often financed through the sale of securities called mortgage-backed securities,or MBS.This is a key part of the securitization process.

Accepted Answer

A) True 
 B)False

Question 4

One problem with maximization of shareholder wealth as a goal is that it ignores risk taken by the firm's financial decisions.

Accepted Answer

A) True 
 B)False

Question 5

In terms of the costs to organize each,which of the following sequences is correct,moving from highest to lowest cost?

Accepted Answer

A) general partnership,sole proprietorship,limited partnership,corporation 
B) sole proprietorship,general partnership,limited partnership,corporation 
C) corporation,limited partnership,general partnership,sole proprietorship 
D) sole proprietorship,general partnership,corporation,limited partnership 
A) general partnership,sole proprietorship,limited partnership,corporation 
B) sole proprietorship,general partnership,limited partnership,corporation 
C) corporation,limited partnership,general partnership,sole proprietorship 
D) sole proprietorship,general partnership,corporation,limited partnership

Question 6

The expected return on a riskless asset is greater than zero due to

Accepted Answer

A) an expected return for delaying consumption. 
B) an expected return for opportunity costs. 
C) an expected return for taxes. 
D) irrational investors who believe risk is always present. 
A) an expected return for delaying consumption. 
B) an expected return for opportunity costs. 
C) an expected return for taxes. 
D) irrational investors who believe risk is always present.

Question 7

A limited partnership provides limited liability to

Accepted Answer

A) all general partners. 
B) only limited partners responsible for day to day management of the firm. 
C) only to limited partners who do not participate in the management of the business. 
D) all partners. 
A) all general partners. 
B) only limited partners responsible for day to day management of the firm. 
C) only to limited partners who do not participate in the management of the business. 
D) all partners.

Question 8

The goal of profit maximization ignores the risk of financial decisions

Accepted Answer

A) True 
 B)False

Question 9

Investors want a return that satisfies the following expectations:

Accepted Answer

A) A return for delaying consumption 
B) An additional return for taking on risk 
C) An additional return for accepting dividends rather than capital gains 
D) Both A and B. 
A) A return for delaying consumption 
B) An additional return for taking on risk 
C) An additional return for accepting dividends rather than capital gains 
D) Both A and B.

Question 10

The five basic principles of finance include all of the following EXCEPT

Accepted Answer

A) Cash flow is what matters. 
B) Money has a time value. 
C) Risk requires a reward. 
D) Incremental profits determine value. 
A) Cash flow is what matters. 
B) Money has a time value. 
C) Risk requires a reward. 
D) Incremental profits determine value.

Question 11

If the stock market is efficient,then investors do not need to read the Wall Street Journal or research companies before they select which stocks to buy because market prices already reflect all publicly available information.

Accepted Answer

A) True 
 B)False

Question 12

Assume that you went to Las Vegas and hit the jackpot for $5 million.Further assume that you were offered a choice to receive the $5 million today,or receive it in two years.According to one of the principles of finance,which would you take?

Accepted Answer

A) the $5 million in two years because you would be afraid of spending it all right away 
B) the $5 million in two years because it would be worth more than if you would receive it today 
C) You would be indifferent as to when you would receive the $5 million. 
D) the $5 million today because it would be worth more than if you would receive it in two years 
A) the $5 million in two years because you would be afraid of spending it all right away 
B) the $5 million in two years because it would be worth more than if you would receive it today 
C) You would be indifferent as to when you would receive the $5 million. 
D) the $5 million today because it would be worth more than if you would receive it in two years

Question 13

Joe,a risk-averse investor,is trying to choose between investment A and investment B.If investment A is riskier than investment B and Joe selects investment A anyway,then

Accepted Answer

A) the actual return for investment A will be higher than the actual return for investment B. 
B) the actual return for investment A will be higher than the expected return for investment B. 
C) the expected return for investment A will be higher than the actual return for investment B. 
D) the expected return for investment A will be higher than the expected return for investment B. 
A) the actual return for investment A will be higher than the actual return for investment B. 
B) the actual return for investment A will be higher than the expected return for investment B. 
C) the expected return for investment A will be higher than the actual return for investment B. 
D) the expected return for investment A will be higher than the expected return for investment B.

Question 14

Profits represent money that can be spent,and as such,form the basis for determining the value of financial decisions.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) The corporate form has the disadvantage of double taxation relative to a sole proprietorship. 
B) The corporate form is preferred over the sole proprietorship because a corporation is easier to form and faces less regulation. 
C) Sole proprietorships are the most common form of business organization because liability is limited to the amount invested in the business by the sole proprietor. 
D) The corporate form has the advantage of unlimited liability. 
A) The corporate form has the disadvantage of double taxation relative to a sole proprietorship. 
B) The corporate form is preferred over the sole proprietorship because a corporation is easier to form and faces less regulation. 
C) Sole proprietorships are the most common form of business organization because liability is limited to the amount invested in the business by the sole proprietor. 
D) The corporate form has the advantage of unlimited liability.

Question 16

Investors will be indifferent between two investments if both investments have the same expected return.

Accepted Answer

A) True 
 B)False

Question 17

Project A is expected to generate positive cash flow of $1 million in 10 years while Project B is expected to generate $500,000 in 5 years.Therefore

Accepted Answer

A) Project A is preferred because shareholder value is based on cash flow. 
B) Project B is preferred because its cash flow is expected to be received sooner than the cash flow from Project A. 
C) Both projects have equal value because they average $100,000 per year. 
D) Project B may be preferred to Project A if the opportunity cost of money is high enough. 
A) Project A is preferred because shareholder value is based on cash flow. 
B) Project B is preferred because its cash flow is expected to be received sooner than the cash flow from Project A. 
C) Both projects have equal value because they average $100,000 per year. 
D) Project B may be preferred to Project A if the opportunity cost of money is high enough.

Question 18

Determining the best way to raise money to fund a firm's long-term investments is called

Accepted Answer

A) the capital budgeting decision. 
B) the portfolio decision. 
C) the money flow processing decision. 
D) the capital structure decision. 
A) the capital budgeting decision. 
B) the portfolio decision. 
C) the money flow processing decision. 
D) the capital structure decision.

Question 19

Which of the following categories of owners have limited liability?

Accepted Answer

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

Question 20

Which form of organization is free of initial legal requirements?

Accepted Answer

A) sole proprietorship 
B) general partnership 
C) corporation 
D) both A and B 
A) sole proprietorship 
B) general partnership 
C) corporation 
D) both A and B

When making financial decisions,managers should always look at marginal,or incremental cash flows.

High Tech Corp.cut its research and development budget in 2010 by $4,000,000 in order to improve its cash flow for the year.Which of the following statements is MOST correct?

The purchase of a pool of mortgages is often financed through the sale of securities called mortgage-backed securities,or MBS.This is a key part of the securitization process.

One problem with maximization of shareholder wealth as a goal is that it ignores risk taken by the firm's financial decisions.

In terms of the costs to organize each,which of the following sequences is correct,moving from highest to lowest cost?

The expected return on a riskless asset is greater than zero due to

A limited partnership provides limited liability to

The goal of profit maximization ignores the risk of financial decisions

Investors want a return that satisfies the following expectations:

The five basic principles of finance include all of the following EXCEPT

If the stock market is efficient,then investors do not need to read the Wall Street Journal or research companies before they select which stocks to buy because market prices already reflect all publicly available information.

Assume that you went to Las Vegas and hit the jackpot for $5 million.Further assume that you were offered a choice to receive the $5 million today,or receive it in two years.According to one of the principles of finance,which would you take?

Joe,a risk-averse investor,is trying to choose between investment A and investment B.If investment A is riskier than investment B and Joe selects investment A anyway,then

Profits represent money that can be spent,and as such,form the basis for determining the value of financial decisions.

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

Investors will be indifferent between two investments if both investments have the same expected return.

Project A is expected to generate positive cash flow of $1 million in 10 years while Project B is expected to generate $500,000 in 5 years.Therefore

Determining the best way to raise money to fund a firm's long-term investments is called

Which of the following categories of owners have limited liability?

Which form of organization is free of initial legal requirements?

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

Exam 1: An Introduction to the Foundations of Financial Management

When making financial decisions,managers should always look at marginal,or incremental cash flows.

High Tech Corp.cut its research and development budget in 2010 by $4,000,000 in order to improve its cash flow for the year.Which of the following statements is MOST correct?

The purchase of a pool of mortgages is often financed through the sale of securities called mortgage-backed securities,or MBS.This is a key part of the securitization process.

One problem with maximization of shareholder wealth as a goal is that it ignores risk taken by the firm's financial decisions.

In terms of the costs to organize each,which of the following sequences is correct,moving from highest to lowest cost?

The expected return on a riskless asset is greater than zero due to

A limited partnership provides limited liability to

The goal of profit maximization ignores the risk of financial decisions

Investors want a return that satisfies the following expectations:

The five basic principles of finance include all of the following EXCEPT

If the stock market is efficient,then investors do not need to read the Wall Street Journal or research companies before they select which stocks to buy because market prices already reflect all publicly available information.

Assume that you went to Las Vegas and hit the jackpot for $5 million.Further assume that you were offered a choice to receive the $5 million today,or receive it in two years.According to one of the principles of finance,which would you take?

Joe,a risk-averse investor,is trying to choose between investment A and investment B.If investment A is riskier than investment B and Joe selects investment A anyway,then

Profits represent money that can be spent,and as such,form the basis for determining the value of financial decisions.

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

Investors will be indifferent between two investments if both investments have the same expected return.

Project A is expected to generate positive cash flow of $1 million in 10 years while Project B is expected to generate $500,000 in 5 years.Therefore

Determining the best way to raise money to fund a firm's long-term investments is called

Which of the following categories of owners have limited liability?

Which form of organization is free of initial legal requirements?

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