Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)  The corporate bylaws are a standard set of rules established by the state of incorporation.These rules are identical for all corporations in the state,and their purpose is to ensure that the firm's managers run the firm in accordance with state laws. 
B)  The corporate charter is a standard document prescribed by the state of incorporation,and its purpose is to ensure that the firm's managers run the firm in accordance with state laws.Procedures for electing corporate directors are contained in bylaws,while the declaration of the activities that the firm will pursue and the number of directors are included in the corporate charter. 
C)  Companies must establish a home office,or domicile,in a particular state,and that state must be the one in which most of their business (sales,manufacturing,and so forth)is conducted. 
D)  Attorney fees are generally involved when a company develops its charter and bylaws,but since these documents are voluntary,a new corporation can avoid these costs by deciding not to have either a charter or bylaws. 
E)  The corporate charter is concerned with things like what business the company will engage in,whereas the bylaws are concerned with things like procedures for electing the board of directors. 
A)  The corporate bylaws are a standard set of rules established by the state of incorporation.These rules are identical for all corporations in the state,and their purpose is to ensure that the firm's managers run the firm in accordance with state laws. 
B)  The corporate charter is a standard document prescribed by the state of incorporation,and its purpose is to ensure that the firm's managers run the firm in accordance with state laws.Procedures for electing corporate directors are contained in bylaws,while the declaration of the activities that the firm will pursue and the number of directors are included in the corporate charter. 
C)  Companies must establish a home office,or domicile,in a particular state,and that state must be the one in which most of their business (sales,manufacturing,and so forth)is conducted. 
D)  Attorney fees are generally involved when a company develops its charter and bylaws,but since these documents are voluntary,a new corporation can avoid these costs by deciding not to have either a charter or bylaws. 
E)  The corporate charter is concerned with things like what business the company will engage in,whereas the bylaws are concerned with things like procedures for electing the board of directors.

Question 2

If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other firms or individuals,Firm A is a financial intermediary.

Accepted Answer

A) True 
 B)False

Question 3

​ Which of the following statements is CORRECT?

Accepted Answer

A)  ​If Apple issues additional shares of common stock through an investment banker,this would be a secondary market transaction. 
B)  ​If you purchased 100 shares of Apple stock from your sister-in-law,this would be an example of a primary market transaction. 
C)  ​The IPO market is a subset of the secondary market. 
D)  ​Only institutions,and not individuals,can participate in derivatives market transactions. 
E)  ​As they are generally defined,money market transactions involve debt securities with maturities of less than one year. 
A)  ​If Apple issues additional shares of common stock through an investment banker,this would be a secondary market transaction. 
B)  ​If you purchased 100 shares of Apple stock from your sister-in-law,this would be an example of a primary market transaction. 
C)  ​The IPO market is a subset of the secondary market. 
D)  ​Only institutions,and not individuals,can participate in derivatives market transactions. 
E)  ​As they are generally defined,money market transactions involve debt securities with maturities of less than one year.

Question 4

Which of the following statements is CORRECT?

Accepted Answer

A)  Corporations generally are subject to more favorable tax treatment and fewer regulations than partnerships and sole proprietorships,which is why corporations do most of the business in the United States. 
B)  Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value than are managers who do not face the threat of hostile takeovers. 
C)  One advantage of the corporate form of organization is that liability of the owners of the firm is limited to their investment in the firm. 
D)  Because of their simplified organization,it is easier for sole proprietorships and partnerships to raise large amounts of outside capital than it is for corporations. 
E)  Bond covenants are an effective way to resolve conflicts between shareholders and managers. 
A)  Corporations generally are subject to more favorable tax treatment and fewer regulations than partnerships and sole proprietorships,which is why corporations do most of the business in the United States. 
B)  Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value than are managers who do not face the threat of hostile takeovers. 
C)  One advantage of the corporate form of organization is that liability of the owners of the firm is limited to their investment in the firm. 
D)  Because of their simplified organization,it is easier for sole proprietorships and partnerships to raise large amounts of outside capital than it is for corporations. 
E)  Bond covenants are an effective way to resolve conflicts between shareholders and managers.

Question 5

Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership?

Accepted Answer

A)  Corporations generally find it relatively difficult to raise large amounts of capital. 
B)  Less of a corporation's income is generally subjected to taxes than would be true if the firm were a partnership. 
C)  Corporate shareholders escape liability for the firm's debts,but this factor may be offset by the tax disadvantages of the corporate form of organization. 
D)  Corporate investors are exposed to unlimited liability. 
E)  Corporations generally face relatively few regulations. 
A)  Corporations generally find it relatively difficult to raise large amounts of capital. 
B)  Less of a corporation's income is generally subjected to taxes than would be true if the firm were a partnership. 
C)  Corporate shareholders escape liability for the firm's debts,but this factor may be offset by the tax disadvantages of the corporate form of organization. 
D)  Corporate investors are exposed to unlimited liability. 
E)  Corporations generally face relatively few regulations.

Question 6

If a firm's goal is to maximize its earnings per share,this is the best way to maximize the price of the common stock and thus shareholders' wealth.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is CORRECT?

Accepted Answer

A)  Corporations are at a disadvantage relative to partnerships because they have to file more reports to state and federal agencies,including the Securities and Exchange Administration,even if they are not publicly owned. 
B)  In a regular partnership,liability for the firm's debts is limited to the amount a particular partner has invested in the business. 
C)  A fast-growth company would be more likely to set up as a partnership for its business organization than would a slow-growth company. 
D)  Partnerships have difficulty attracting capital in part because of their unlimited liability,the lack of impermanence of the organization,and difficulty in transferring ownership. 
E)  A major disadvantage of a partnership relative to a corporation as a form of business organization is the high cost and practical difficulty of its formation. 
A)  Corporations are at a disadvantage relative to partnerships because they have to file more reports to state and federal agencies,including the Securities and Exchange Administration,even if they are not publicly owned. 
B)  In a regular partnership,liability for the firm's debts is limited to the amount a particular partner has invested in the business. 
C)  A fast-growth company would be more likely to set up as a partnership for its business organization than would a slow-growth company. 
D)  Partnerships have difficulty attracting capital in part because of their unlimited liability,the lack of impermanence of the organization,and difficulty in transferring ownership. 
E)  A major disadvantage of a partnership relative to a corporation as a form of business organization is the high cost and practical difficulty of its formation.

Question 8

One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is CORRECT?

Accepted Answer

A)  Most businesses (by number and total dollar sales)are organized as partnerships or proprietorships because it is easier to set up and operate in one of these forms rather than as a corporation.However,if the business gets very large,it becomes advantageous to convert to a corporation,mainly because corporations have important tax advantages over proprietorships and partnerships. 
B)  Due to limited liability,unlimited lives,and ease of ownership transfer,the vast majority of U.S.businesses (in terms of number of businesses)are organized as corporations. 
C)  Most business (measured by dollar sales)is conducted by corporations in spite of large corporations' often less favorable tax treatment,due to legal considerations related to ownership transfers and limited liability. 
D)  Large corporations are taxed more favorably than sole proprietorships. 
E)  Corporate stockholders are exposed to unlimited liability. 
A)  Most businesses (by number and total dollar sales)are organized as partnerships or proprietorships because it is easier to set up and operate in one of these forms rather than as a corporation.However,if the business gets very large,it becomes advantageous to convert to a corporation,mainly because corporations have important tax advantages over proprietorships and partnerships. 
B)  Due to limited liability,unlimited lives,and ease of ownership transfer,the vast majority of U.S.businesses (in terms of number of businesses)are organized as corporations. 
C)  Most business (measured by dollar sales)is conducted by corporations in spite of large corporations' often less favorable tax treatment,due to legal considerations related to ownership transfers and limited liability. 
D)  Large corporations are taxed more favorably than sole proprietorships. 
E)  Corporate stockholders are exposed to unlimited liability.

Question 10

Which of the following factors would be most likely to lead to an increase in interest rates in the economy?

Accepted Answer

A)  Households reduce their consumption and increase their savings. 
B)  The Federal Reserve decides to try to stimulate the economy. 
C)  There is a decrease in expected inflation. 
D)  The economy falls into a recession. 
E)  Most businesses decide to modernize and expand their manufacturing capacity,and to install new equipment to reduce labor costs. 
A)  Households reduce their consumption and increase their savings. 
B)  The Federal Reserve decides to try to stimulate the economy. 
C)  There is a decrease in expected inflation. 
D)  The economy falls into a recession. 
E)  Most businesses decide to modernize and expand their manufacturing capacity,and to install new equipment to reduce labor costs.

Question 11

The form of organization for a business is not an important issue,as this decision has very little effect on the income and wealth of the firm's owners.

Accepted Answer

A) True 
 B)False

Question 12

Two disadvantages of a proprietorship are (1)the relative difficulty of raising new capital and (2)the owner's unlimited personal liability for the business' debts.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is CORRECT?

Accepted Answer

A)  It is generally more expensive to form a proprietorship than a corporation because,with a proprietorship,extensive legal documents are required. 
B)  Corporations face fewer regulations than sole proprietorships. 
C)  One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation,at both the firm level and the owner level. 
D)  One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership. 
E)  If a regular partnership goes bankrupt,each partner is exposed to liabilities only up to the amount of his or her investment in the business. 
A)  It is generally more expensive to form a proprietorship than a corporation because,with a proprietorship,extensive legal documents are required. 
B)  Corporations face fewer regulations than sole proprietorships. 
C)  One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation,at both the firm level and the owner level. 
D)  One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership. 
E)  If a regular partnership goes bankrupt,each partner is exposed to liabilities only up to the amount of his or her investment in the business.

Question 14

Which of the following statements is CORRECT?

Accepted Answer

A)  The financial manager's proper goal should be to attempt to maximize the firm's expected cash flows,since that will add the most to the individual shareholders' wealth. 
B)  The financial manager should seek that combination of assets,liabilities,and capital that will generate the largest expected projected after-tax income over the relevant time horizon,generally the coming year. 
C)  The riskiness inherent in a firm's earnings per share (EPS)depends on the characteristics of the projects the firm selects,and thus on the firm's assets.However,EPS is not affected by the manner in which those assets are financed. 
D)  Potential agency problems can arise between managers and stockholders,because managers hired as agents to act on behalf of the owners may instead make decisions favorable to themselves rather than the stockholders. 
E)  Large,publicly owned firms like IBM and GE are controlled by their management teams.Ownership is generally widely dispersed;hence managers have great freedom in how they run the firm.Managers may operate in stockholders' best interests,but they also may operate in their own personal best interests.As long as they stay within the law,there is no way to either force or motivate managers to act in the stockholders' best interests. 
A)  The financial manager's proper goal should be to attempt to maximize the firm's expected cash flows,since that will add the most to the individual shareholders' wealth. 
B)  The financial manager should seek that combination of assets,liabilities,and capital that will generate the largest expected projected after-tax income over the relevant time horizon,generally the coming year. 
C)  The riskiness inherent in a firm's earnings per share (EPS)depends on the characteristics of the projects the firm selects,and thus on the firm's assets.However,EPS is not affected by the manner in which those assets are financed. 
D)  Potential agency problems can arise between managers and stockholders,because managers hired as agents to act on behalf of the owners may instead make decisions favorable to themselves rather than the stockholders. 
E)  Large,publicly owned firms like IBM and GE are controlled by their management teams.Ownership is generally widely dispersed;hence managers have great freedom in how they run the firm.Managers may operate in stockholders' best interests,but they also may operate in their own personal best interests.As long as they stay within the law,there is no way to either force or motivate managers to act in the stockholders' best interests.

Question 15

​Recently,Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share.Hale sold the stock to an investment banker,who in turn sold it to individual and institutional investors.This is a primary market transaction.

Accepted Answer

A) True 
 B)False

Question 16

​Debt is a less risky than equity because a debtholder's claim has priority to an equity holder's claim.

Accepted Answer

A) True 
 B)False

Question 17

The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to

Accepted Answer

A)  Maximize the stock price per share over the long run,which is the stock's intrinsic value. 
B)  Maximize the firm's expected EPS. 
C)  Minimize the chances of losses. 
D)  Maximize the firm's expected total income. 
E)  Maximize the stock price on a specific target date. 
A)  Maximize the stock price per share over the long run,which is the stock's intrinsic value. 
B)  Maximize the firm's expected EPS. 
C)  Minimize the chances of losses. 
D)  Maximize the firm's expected total income. 
E)  Maximize the stock price on a specific target date.

Question 18

Which of the following statements is CORRECT?

Accepted Answer

A)  One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt. 
B)  Sole proprietorships are subject to more regulations than corporations. 
C)  In any type of partnership,every partner has the same rights,privileges,and liability exposure as every other partner. 
D)  Sole proprietorships and partnerships generally have a tax advantage over many corporations,especially large ones. 
E)  Corporations of all types are subject to the corporate income tax. 
A)  One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt. 
B)  Sole proprietorships are subject to more regulations than corporations. 
C)  In any type of partnership,every partner has the same rights,privileges,and liability exposure as every other partner. 
D)  Sole proprietorships and partnerships generally have a tax advantage over many corporations,especially large ones. 
E)  Corporations of all types are subject to the corporate income tax.

Question 19

With which of the following statements would most people in business agree?

Accepted Answer

A)  The short-run profits of a corporation will almost always increase if the firm takes actions the government has determined are in the nation's best interests. 
B)  Government agencies and firms almost always agree with one another regarding the restrictions that should be placed on hiring and firing employees. 
C)  Although people's moral characters are probably developed before they get into a business school,it is still useful for business schools to cover ethics,including giving students an idea about the adverse consequences of unethical behavior to themselves,their firms,and the nation. 
D)  Developing a formal set of rules defining ethical and unethical behavior is not useful for a large corporation.Such rules generally can't be applied in many specific instances,so it is better to deal with ethical issues on a case-by-case basis. 
E)  Because of the courage it takes to blow the whistle,"whistle blowers" are generally promoted more rapidly than other employees. 
A)  The short-run profits of a corporation will almost always increase if the firm takes actions the government has determined are in the nation's best interests. 
B)  Government agencies and firms almost always agree with one another regarding the restrictions that should be placed on hiring and firing employees. 
C)  Although people's moral characters are probably developed before they get into a business school,it is still useful for business schools to cover ethics,including giving students an idea about the adverse consequences of unethical behavior to themselves,their firms,and the nation. 
D)  Developing a formal set of rules defining ethical and unethical behavior is not useful for a large corporation.Such rules generally can't be applied in many specific instances,so it is better to deal with ethical issues on a case-by-case basis. 
E)  Because of the courage it takes to blow the whistle,"whistle blowers" are generally promoted more rapidly than other employees.

Question 20

The facts that a proprietorship,as a business,pays no corporate income tax,and that it is easily and inexpensively formed,are two key advantages to that form of business.

Accepted Answer

A) True 
 B)False

Exam 1: An Overview of Financial Management and the Financial Environment

Which of the following statements is CORRECT?

If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other firms or individuals,Firm A is a financial intermediary.

​ Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership?

If a firm's goal is to maximize its earnings per share,this is the best way to maximize the price of the common stock and thus shareholders' wealth.

Which of the following statements is CORRECT?

One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.

Which of the following statements is CORRECT?

Which of the following factors would be most likely to lead to an increase in interest rates in the economy?

The form of organization for a business is not an important issue,as this decision has very little effect on the income and wealth of the firm's owners.

Two disadvantages of a proprietorship are (1)the relative difficulty of raising new capital and (2)the owner's unlimited personal liability for the business' debts.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

​Recently,Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share.Hale sold the stock to an investment banker,who in turn sold it to individual and institutional investors.This is a primary market transaction.

​Debt is a less risky than equity because a debtholder's claim has priority to an equity holder's claim.

The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to

Which of the following statements is CORRECT?

With which of the following statements would most people in business agree?

The facts that a proprietorship,as a business,pays no corporate income tax,and that it is easily and inexpensively formed,are two key advantages to that form of business.

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds, Bond Valuation, and Interest Rates

Risk and Return

Corporate Valuation and Stock Valuation

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Financial Planning and Applications to Corporate Valuation

Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Supply Chains and Working Capital Management

Multinational Financial Management

Public and Private Financing: Initial Offerings, Seasoned Offerings, and Investment Banks

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Dynamic Capital Structures and Corporate Valuation

Mergers and Corporate Control

Enterprise Risk Management

Bankruptcy, Reorganization, and Liquidation

Portfolio Theory and Asset Pricing Models

Real Options

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not-For-Profit Businesses

Filters

Which of the following statements is CORRECT?

Recently,Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share.Hale sold the stock to an investment banker,who in turn sold it to individual and institutional investors.This is a primary market transaction.

Debt is a less risky than equity because a debtholder's claim has priority to an equity holder's claim.