Question 1

Which of the following goals is in the best long-term interest of stockholders?

Accepted Answer

A) Profit maximization 
B) Risk minimization 
C) Maximizing of the market value of the existing shareholders' common stock 
D) Maximizing sales revenues 
A) Profit maximization 
B) Risk minimization 
C) Maximizing of the market value of the existing shareholders' common stock 
D) Maximizing sales revenues C

Question 2

Briefly discuss mechanisms that can be used to align the interests of shareholders and managers.

Accepted Answer

The key is to align the interests of management to the interests of the shareholders.For instance,if management receives stock options,they have incentive to see the price of the stock go up.The board of directors can actively monitor management.Outsiders such as bankers monitor the firm,helping shareholders.If the company significantly underperforms,the stock price can fall and outsiders can take over the company.

Question 3

Which of the following is a significant disadvantage of a general partnership?

Accepted Answer

A) The cost of forming it is high. 
B) Each partner is fully responsible for the liabilities incurred by the partnership. 
C) There is a risk associated with the industry in which it operates. 
D) Forming the business is very complex. 
A) The cost of forming it is high. 
B) Each partner is fully responsible for the liabilities incurred by the partnership. 
C) There is a risk associated with the industry in which it operates. 
D) Forming the business is very complex. B

Question 4

Which of the following best describes the goal of the firm?

Accepted Answer

A) The maximization of the total market value of the firm's common stock 
B) Profit maximization 
C) Risk minimization 
D) None of the above 
A) The maximization of the total market value of the firm's common stock 
B) Profit maximization 
C) Risk minimization 
D) None of the above

Question 5

Ultimate control in a corporation is vested in the board of directors.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following goals of the firm is 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 7

The owners of a corporation are liable for the corporation's obligations up to the amount of their investment.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements best represents what finance is about?

Accepted Answer

A) How political,social,and economic forces affect corporations 
B) Maximizing profits 
C) Creation and maintenance of economic wealth 
D) Reducing risk 
A) How political,social,and economic forces affect corporations 
B) Maximizing profits 
C) Creation and maintenance of economic wealth 
D) Reducing risk

Question 9

Discuss the risk/return tradeoff and how it relates to finance.

Accepted Answer

As people are risk averse,they need a hi

Question 10

The corporation is the most effective form of organization in terms of raising capital.

Accepted Answer

A) True 
 B)False

Question 11

The goal of profit maximization is equivalent to the goal of maximization of share value.

Accepted Answer

A) True 
 B)False

Question 12

In regard to the agency problem,________ are the principal owners of a corporation.

Accepted Answer

A) shareholders 
B) managers 
C) employees 
D) suppliers 
A) shareholders 
B) managers 
C) employees 
D) suppliers

Question 13

In terms of organizational costs,which of the following sequences is generally correct,moving from lowest to highest 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 14

The goal of the firm should be the maximization of profit.

Accepted Answer

A) True 
 B)False

Question 15

If managers are making decisions to maximize shareholder wealth,then they are primarily concerned with making decisions that should:

Accepted Answer

A) positively affect profits. 
B) increase the market value of the firm's common stock. 
C) either increase or have no effect on the value of the firm's common stock. 
D) accomplish all of the above. 
A) positively affect profits. 
B) increase the market value of the firm's common stock. 
C) either increase or have no effect on the value of the firm's common stock. 
D) accomplish all of the above.

Question 16

Which of the following statements is FALSE?

Accepted Answer

A) All risk can be diversified away. 
B) Measuring a project's risk is difficult. 
C) Projects should focus on incremental cash flows. 
D) Taxes play a significant role in project analysis. 
A) All risk can be diversified away. 
B) Measuring a project's risk is difficult. 
C) Projects should focus on incremental cash flows. 
D) Taxes play a significant role in project analysis.

Question 17

Consider cash flows for Projects X and Y such as:  
A rational person would prefer receiving cash flows sooner because:

Accepted Answer

A) the money can be reinvested. 
B) the money is nice to have around. 
C) the investor may be tired of a particular investment. 
D) the investor is indifferent to either proposal. 
A) the money can be reinvested. 
B) the money is nice to have around. 
C) the investor may be tired of a particular investment. 
D) the investor is indifferent to either proposal.

Question 18

Which of the following is a characteristic of an efficient market?

Accepted Answer

A) Small number of individuals 
B) Opportunities exist for investors to profit from publicly available information. 
C) Security prices reflect fair value of the firm. 
D) Immediate response occurs for new public information. 
A) Small number of individuals 
B) Opportunities exist for investors to profit from publicly available information. 
C) Security prices reflect fair value of the firm. 
D) Immediate response occurs for new public information.

Question 19

What is incremental cash flow and how is it used in project analysis?

Accepted Answer

Incremental cash flow represents the dif

Question 20

The financial manager should examine available risk-return trade-offs and make his decision based upon the greatest expected return.

Accepted Answer

A) True 
 B)False

Which of the following goals is in the best long-term interest of stockholders?

Briefly discuss mechanisms that can be used to align the interests of shareholders and managers.

Which of the following is a significant disadvantage of a general partnership?

Which of the following best describes the goal of the firm?

Ultimate control in a corporation is vested in the board of directors.

Which of the following goals of the firm is equivalent to the maximization of shareholder wealth?

The owners of a corporation are liable for the corporation's obligations up to the amount of their investment.

Which of the following statements best represents what finance is about?

Discuss the risk/return tradeoff and how it relates to finance.

The corporation is the most effective form of organization in terms of raising capital.

The goal of profit maximization is equivalent to the goal of maximization of share value.

In regard to the agency problem,________ are the principal owners of a corporation.

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

The goal of the firm should be the maximization of profit.

If managers are making decisions to maximize shareholder wealth,then they are primarily concerned with making decisions that should:

Which of the following statements is FALSE?

Consider cash flows for Projects X and Y such as: A rational person would prefer receiving cash flows sooner because:

Which of the following is a characteristic of an efficient market?

What is incremental cash flow and how is it used in project analysis?

The financial manager should examine available risk-return trade-offs and make his decision based upon the greatest expected return.

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 1: Getting Started-Principles of Finance

Which of the following goals is in the best long-term interest of stockholders?

Briefly discuss mechanisms that can be used to align the interests of shareholders and managers.

Which of the following is a significant disadvantage of a general partnership?

Which of the following best describes the goal of the firm?

Ultimate control in a corporation is vested in the board of directors.

Which of the following goals of the firm is equivalent to the maximization of shareholder wealth?

The owners of a corporation are liable for the corporation's obligations up to the amount of their investment.

Which of the following statements best represents what finance is about?

Discuss the risk/return tradeoff and how it relates to finance.

The corporation is the most effective form of organization in terms of raising capital.

The goal of profit maximization is equivalent to the goal of maximization of share value.

In regard to the agency problem,________ are the principal owners of a corporation.

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

The goal of the firm should be the maximization of profit.

If managers are making decisions to maximize shareholder wealth,then they are primarily concerned with making decisions that should:

Which of the following statements is FALSE?

Consider cash flows for Projects X and Y such as: A rational person would prefer receiving cash flows sooner because:

Which of the following is a characteristic of an efficient market?

What is incremental cash flow and how is it used in project analysis?

The financial manager should examine available risk-return trade-offs and make his decision based upon the greatest expected return.

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters