Exam 1: An Introduction to the Foundations of Financial Management

Managers should not be concerned with business ethics because ethical behavior is inconsistent with the primary goal of maximizing shareholder value.

The "perfect storm" of factors that contributed to the economic crisis of 2007 include

All of the following business organizations provide limited liability to their owners EXCEPT

The procedure by which significant changes may be made to a partnership,such as admission of a new partner or termination of the partnership,are governed by each state so no partnership agreement is needed.

Limited liability companies are more flexible than S-type Corporations because limited liability companies operate under state laws.

Joe is deciding whether or not to invest $10,000 in a business that has pending lawsuits against it.If Joe invests and the business loses the lawsuits,the most Joe can lose is

One of the causes of the recent financial crisis in the United States has been excessive risk taking due to underestimation of risk.How does this relate to financial leverage? Can overestimation of risk also be detrimental?

All of the following statements about agency problems are true EXCEPT

A financial manager is considering two projects,A and B.A is expected to add $2 million to profits this year while B is expected to add $2 million to profits this year while B is expected to add $1 million to profits this year.Which of the following statements is MOST correct?

Which of the following are characteristics of a limited partnership?

Which of the following forms of business organization limits the liability of owners?

The recent financial crises was exacerbated by

A corporate treasurer is typically responsible for each of the following duties EXCEPT

Your friend Ricky took a finance class and learned about the risk/return tradeoff.Wanting a high return,Ricky invested in a risky,start-up technology company.A year later the company went bankrupt and Ricky lost his entire investment.Ricky is furious with his finance professor for misleading him,claiming he was taught that higher return goes with higher risk.Explain how Ricky misinterpreted the risk/return tradeoff.

The board of directors of Wireless,Inc.is considering two compensation plans for the CEO of the company.The first would pay the CEO a salary of $250,000 for the upcoming year.The second would pay the CEO a salary of $100,000 and provide the CEO with a stock option to buy 100,000 shares of stock for $11 per share.The current price per share of Wireless,Inc.stock is $10 per share.The stock option expires at the end of the year.Why might shareholders prefer the second payment plan? As part of your answer,calculate the breakeven point for the CEO to obtain the same compensation under option two as he or she would under option one.

The financial manager most directly responsible for producing the company's financial statements and directing its cost accounting functions is the

Financial management deals with the maintenance and creation of economic value or wealth.

In a sole proprietorship,the owner is personally responsible without limitation for the liabilities incurred.

Which of the following forms of organizations have earnings that are taxed twice,once as business income and once as personal income as the earnings are distributed to the owners in the form of dividends?

Your friend,John,believes that since capital markets are efficient,he doesn't need to read the financial press or be involved in stock research before purchasing stocks for his portfolio.He simply throws darts at the stock pages and buys the stocks the darts hit.Is stock research and analysis important when buying and selling stocks in an efficient market?