Question 1

Executive compensation in the United States

Accepted Answer

A)  is dominated by performance-based compensation that ensures fair and just pay for corporate executives. 
B)  is dominated by performance-based compensation designed to reduce agency problems. 
C)  cannot be linked to stock prices as this would create a conflict of interest with existing shareholders. 
D)  is well below levels in Europe and Asia. 
A)  is dominated by performance-based compensation that ensures fair and just pay for corporate executives. 
B)  is dominated by performance-based compensation designed to reduce agency problems. 
C)  cannot be linked to stock prices as this would create a conflict of interest with existing shareholders. 
D)  is well below levels in Europe and Asia. B

Question 2

It is important to evaluate a corporate manager's financial decision by measuring the effect the decision should have on the corporation's stock price if everything else were held constant.

Accepted Answer

A) True 
 B)False  True

Question 3

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  False

Question 4

Due to unstable world markets,most large U.S.corporations do almost all of their business in the United States.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following forms of business organization has the greatest ability to attract new capital?

Accepted Answer

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

Question 6

Which of the following categories of owners enjoy limited liability?

Accepted Answer

A)  all partners in a limited partnership 
B)  common shareholders of a corporation 
C)  in a partnership, only the general partners 
D)  only B and C above 
A)  all partners in a limited partnership 
B)  common shareholders of a corporation 
C)  in a partnership, only the general partners 
D)  only B and C above

Question 7

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 8

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.

Question 9

Cash and credit management are typically the responsibility of the

Accepted Answer

A)  Controller. 
B)  Vice President of Production and Operations. 
C)  Chief Executive Officer, or CEO. 
D)  Treasurer. 
A)  Controller. 
B)  Vice President of Production and Operations. 
C)  Chief Executive Officer, or CEO. 
D)  Treasurer.

Question 10

Advantages of the corporate form of business organization include

Accepted Answer

A)  easier transfer of ownership. 
B)  double taxation. 
C)  minimal legal requirements. 
D)  none of the above 
A)  easier transfer of ownership. 
B)  double taxation. 
C)  minimal legal requirements. 
D)  none of the above

Question 11

All of the following forms of business organizations provide limited liability to all owners except:

Accepted Answer

A)  Limited Liability Company. 
B)  S-Type Corporation. 
C)  Corporation. 
D)  Limited Partnership. 
A)  Limited Liability Company. 
B)  S-Type Corporation. 
C)  Corporation. 
D)  Limited Partnership.

Question 12

The CEO of JLI Corp.decided to expand into a new market in 2010.At the end of 2010,JLI's stock price had decreased 5% since the beginning of the year.Which of the following statements is most correct?

Accepted Answer

A)  The CEO made a poor decision to expand because the stock price decreased during the year. 
B)  The CEO made a poor decision to expand because the company's profits for the year obviously decreased, causing the drop in stock price. 
C)  The CEO's decision may have been optimal, keeping the stock price from falling more than 5% for the year. 
D)  CEO decisions are irrelevant because the efficient market determines the value of a company's stock. 
A)  The CEO made a poor decision to expand because the stock price decreased during the year. 
B)  The CEO made a poor decision to expand because the company's profits for the year obviously decreased, causing the drop in stock price. 
C)  The CEO's decision may have been optimal, keeping the stock price from falling more than 5% for the year. 
D)  CEO decisions are irrelevant because the efficient market determines the value of a company's stock.

Question 13

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 14

The risk-return tradeoff is seen in many areas of finance.

Accepted Answer

A) True 
 B)False

Question 15

Working capital management is concerned with

Accepted Answer

A)  how a firm can best manage its cash flows as they arise in its day-to-day operations. 
B)  how a firm should raise money to fund its investments. 
C)  what long-term investments a firm should undertake. 
D)  managing a firms capital stock. 
A)  how a firm can best manage its cash flows as they arise in its day-to-day operations. 
B)  how a firm should raise money to fund its investments. 
C)  what long-term investments a firm should undertake. 
D)  managing a firms capital stock.

Question 16

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 17

Only a firm's financial decisions affect its stock prices.

Accepted Answer

A) True 
 B)False

Question 18

John won the lottery on Monday and can take either $50,000 per year for 20 years,or $500,000 today.Bill won the same lottery on Tuesday and has the same options for receiving the cash.A well respected financial advisor is hired by both John and Bill.The advisor recommends that John take the $50,000 per year for 20 years but advises Bill to take the $500,000 up front payment.How is it possible to give different advice to two clients regarding the exact same cash flows?

Accepted Answer

The time value of money is based on oppo

Question 19

There is no legal distinction made between the assets of the business and the personal assets of any of the owners in the limited partnership.

Accepted Answer

A) True 
 B)False

Question 20

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

Executive compensation in the United States

It is important to evaluate a corporate manager's financial decision by measuring the effect the decision should have on the corporation's stock price if everything else were held constant.

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

Due to unstable world markets,most large U.S.corporations do almost all of their business in the United States.

Which of the following forms of business organization has the greatest ability to attract new capital?

Which of the following categories of owners enjoy limited liability?

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

The principle of risk-return tradeoff means that

Cash and credit management are typically the responsibility of the

Advantages of the corporate form of business organization include

All of the following forms of business organizations provide limited liability to all owners except:

The CEO of JLI Corp.decided to expand into a new market in 2010.At the end of 2010,JLI's stock price had decreased 5% since the beginning of the year.Which of the following statements is most correct?

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 risk-return tradeoff is seen in many areas of finance.

Working capital management is concerned with

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,

Only a firm's financial decisions affect its stock prices.

There is no legal distinction made between the assets of the business and the personal assets of any of the owners in the limited partnership.

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

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

Current Asset Management

International Business Finance

Filters

Exam 1: An Introduction to the Foundations of Financial Management

Executive compensation in the United States

It is important to evaluate a corporate manager's financial decision by measuring the effect the decision should have on the corporation's stock price if everything else were held constant.

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

Due to unstable world markets,most large U.S.corporations do almost all of their business in the United States.

Which of the following forms of business organization has the greatest ability to attract new capital?

Which of the following categories of owners enjoy limited liability?

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

The principle of risk-return tradeoff means that

Cash and credit management are typically the responsibility of the

Advantages of the corporate form of business organization include

All of the following forms of business organizations provide limited liability to all owners except:

The CEO of JLI Corp.decided to expand into a new market in 2010.At the end of 2010,JLI's stock price had decreased 5% since the beginning of the year.Which of the following statements is most correct?

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 risk-return tradeoff is seen in many areas of finance.

Working capital management is concerned with

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,

Only a firm's financial decisions affect its stock prices.

There is no legal distinction made between the assets of the business and the personal assets of any of the owners in the limited partnership.

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

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

Current Asset Management

International Business Finance

Filters