Question 1

Which of the following goals of the firm are synonymous (equivalent)to the maximization of shareholder wealth?

Accepted Answer

A)  profit maximization 
B)  risk minimization 
C)  maximization of the total market value of the firm's common stock 
D)  none of the above 
A)  profit maximization 
B)  risk minimization 
C)  maximization of the total market value of the firm's common stock 
D)  none of the above

Question 2

The sole proprietorship is for all practical purposes the absence of any formal legal business structure.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Investors generally don't like risk.Therefore,a typical investor

Accepted Answer

A)  will not be induced to take on any risk. 
B)  will only take on the least risk possible. 
C)  will only take on additional risk if he expects to be compensated in the form of additional return. 
D)  will only accept a zero return if the risk is zero. 
A)  will not be induced to take on any risk. 
B)  will only take on the least risk possible. 
C)  will only take on additional risk if he expects to be compensated in the form of additional return. 
D)  will only accept a zero return if the risk is zero.

Question 5

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 6

Shareholder selection committees select potential board of director nominees ensuring that board members will monitor management sufficiently to protect shareholder interests.

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

Profits are down so the controller decides to change the corporation's accounting policy relating to inventory costing.The change will allow the corporation to report higher income and higher assets,although the physical inventory has not changed.Which of the following statements is most correct?

Accepted Answer

A)  The stock price is likely to increase because income is higher. 
B)  The stock price is likely to be unaffected because the stock market is efficient. 
C)  The stock price is likely to decrease because reported inventory is higher. 
D)  If the stock price increases, the stock market is efficient. 
A)  The stock price is likely to increase because income is higher. 
B)  The stock price is likely to be unaffected because the stock market is efficient. 
C)  The stock price is likely to decrease because reported inventory is higher. 
D)  If the stock price increases, the stock market is efficient.

Question 9

Which of the following is not true for a limited partnership?

Accepted Answer

A)  limited liability for its owners 
B)  One general partner must exist who has unlimited liability. 
C)  Only the name of general partners can appear in the name of the firm. 
D)  Limited partners may sell their interest in the company. 
A)  limited liability for its owners 
B)  One general partner must exist who has unlimited liability. 
C)  Only the name of general partners can appear in the name of the firm. 
D)  Limited partners may sell their interest in the company.

Question 10

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 11

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

Question 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

Shareholder wealth maximization means maximizing the price of the existing common stock.

Accepted Answer

A) True 
 B)False

Question 16

Corporate managers should accept investment projects that maximize profits int he short run because of the time value of money.

Accepted Answer

A) True 
 B)False

Question 17

To measure value,the concept of time value of money is used

Accepted Answer

A)  to determine the interest rate paid on corporate debt. 
B)  to bring the future benefits and costs of a project, measured by its expected profits, back to the present. 
C)  to bring the future benefits and costs of a project, measured by its cash flows, back to the present. 
D)  to ensure that expected future profits exceed current profits today. 
A)  to determine the interest rate paid on corporate debt. 
B)  to bring the future benefits and costs of a project, measured by its expected profits, back to the present. 
C)  to bring the future benefits and costs of a project, measured by its cash flows, back to the present. 
D)  to ensure that expected future profits exceed current profits today.

Question 18

Documents uncovered after the Exxon Valdez oil spill in Alaska revealed that Exxon could have used double-hulled oil tankers that would have prevented the spill,but the cost of refitting their fleet of single-hulled tankers was considered too high.Exxon determined that the cost of cleaning up an oil spill would be less than the cost of refitting the ships,thus increasing shareholder value.Several years after the oil spill,however,Exxon was fined billions of dollars for the spill.How do the costs of the clean up and the fines pertain to a discussion of maximizing shareholder value and ethical responsibility?

Accepted Answer

Managers are supposed to maximize shareh

Question 19

Which of the following is not considered to be a disadvantage of the sole proprietorship form of business organization?

Accepted Answer

A)  limited ability to raise capital 
B)  life is limited to that of the owner 
C)  unlimited liability of business owners 
D)  fewer regulations and reporting requirements 
A)  limited ability to raise capital 
B)  life is limited to that of the owner 
C)  unlimited liability of business owners 
D)  fewer regulations and reporting requirements

Question 20

S-type corporations have all of the following advantages except:

Accepted Answer

A)  they are taxed as partnerships. 
B)  the owners have limited liability. 
C)  distributions are taxed twice, similar to corporate dividend payments. 
D)  all owners must be people, no corporations. 
A)  they are taxed as partnerships. 
B)  the owners have limited liability. 
C)  distributions are taxed twice, similar to corporate dividend payments. 
D)  all owners must be people, no corporations.

Which of the following goals of the firm are synonymous (equivalent)to the maximization of shareholder wealth?

The sole proprietorship is for all practical purposes the absence of any formal legal business structure.

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

Investors generally don't like risk.Therefore,a typical investor

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

Shareholder selection committees select potential board of director nominees ensuring that board members will monitor management sufficiently to protect shareholder interests.

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.

Profits are down so the controller decides to change the corporation's accounting policy relating to inventory costing.The change will allow the corporation to report higher income and higher assets,although the physical inventory has not changed.Which of the following statements is most correct?

Which of the following is not true for a limited partnership?

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

Which form of organization is free of initial legal requirements?

Which of the following categories of owners have limited liability?

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

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

Shareholder wealth maximization means maximizing the price of the existing common stock.

Corporate managers should accept investment projects that maximize profits int he short run because of the time value of money.

To measure value,the concept of time value of money is used

Which of the following is not considered to be a disadvantage of the sole proprietorship form of business organization?

S-type corporations have all of the following advantages except:

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

Which of the following goals of the firm are synonymous (equivalent)to the maximization of shareholder wealth?

The sole proprietorship is for all practical purposes the absence of any formal legal business structure.

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

Investors generally don't like risk.Therefore,a typical investor

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

Shareholder selection committees select potential board of director nominees ensuring that board members will monitor management sufficiently to protect shareholder interests.

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.

Profits are down so the controller decides to change the corporation's accounting policy relating to inventory costing.The change will allow the corporation to report higher income and higher assets,although the physical inventory has not changed.Which of the following statements is most correct?

Which of the following is not true for a limited partnership?

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

Which form of organization is free of initial legal requirements?

Which of the following categories of owners have limited liability?

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

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

Shareholder wealth maximization means maximizing the price of the existing common stock.

Corporate managers should accept investment projects that maximize profits int he short run because of the time value of money.

To measure value,the concept of time value of money is used

Which of the following is not considered to be a disadvantage of the sole proprietorship form of business organization?

S-type corporations have all of the following advantages except:

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