Question 1

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. D

Question 2

Which of the following statements is CORRECT?

Accepted Answer

A)  One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. 
B)  It is generally easier to transfer one's ownership interest in a partnership than in a corporation. 
C)  One of the advantages of the corporate form of organization is that it avoids double taxation. 
D)  One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one person, one vote." 
E)  Corporations of all types are subject to the corporate income tax. 
A)  One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. 
B)  It is generally easier to transfer one's ownership interest in a partnership than in a corporation. 
C)  One of the advantages of the corporate form of organization is that it avoids double taxation. 
D)  One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one person, one vote." 
E)  Corporations of all types are subject to the corporate income tax. A

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A)  One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners. 
B)  There is no good reason to expect a firm's bondholders and stockholders to react differently to the types of new asset investments a firm makes. 
C)  Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. 
D)  Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. 
E)  Relative to sole proprietorships, corporations generally face fewer regulations, which makes raising capital easier for corporations. 
A)  One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners. 
B)  There is no good reason to expect a firm's bondholders and stockholders to react differently to the types of new asset investments a firm makes. 
C)  Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. 
D)  Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. 
E)  Relative to sole proprietorships, corporations generally face fewer regulations, which makes raising capital easier for corporations. D

Question 4

​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 5

​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 6

Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

Accepted Answer

A)  Households start saving a larger percentage of their income. 
B)  The economy moves from a boom to a recession. 
C)  The level of inflation begins to decline. 
D)  Corporations step up their expansion plans and thus increase their demand for capital. 
E)  The Federal Reserve uses monetary policy in an attempt to stimulate the economy. 
A)  Households start saving a larger percentage of their income. 
B)  The economy moves from a boom to a recession. 
C)  The level of inflation begins to decline. 
D)  Corporations step up their expansion plans and thus increase their demand for capital. 
E)  The Federal Reserve uses monetary policy in an attempt to stimulate the economy.

Question 7

​You recently sold 200 shares of Apple stock to your brother. The transfer was made through a broker, and the trade occurred on the NYSE. This is an example of:

Accepted Answer

A)  ​A futures market transaction. 
B)  ​A primary market transaction. 
C)  ​A secondary market transaction. 
D)  ​A money market transaction. 
E)  ​An over-the-counter market transaction. 
A)  ​A futures market transaction. 
B)  ​A primary market transaction. 
C)  ​A secondary market transaction. 
D)  ​A money market transaction. 
E)  ​An over-the-counter market transaction.

Question 8

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 9

​Money markets are markets for

Accepted Answer

A)  ​Foreign stocks. 
B)  ​Consumer automobile loans. 
C)  ​U.S. stocks. 
D)  ​Short-term debt securities. 
E)  ​Long-term bonds. 
A)  ​Foreign stocks. 
B)  ​Consumer automobile loans. 
C)  ​U.S. stocks. 
D)  ​Short-term debt securities. 
E)  ​Long-term bonds.

Question 10

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 11

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 12

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 13

You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following statements best describes this transaction?

Accepted Answer

A)  This is an example of an exchange of physical assets. 
B)  This is an example of a primary market transaction. 
C)  This is an example of a direct transfer of capital. 
D)  This is an example of a money market transaction. 
E)  This is an example of a derivatives market transaction 
A)  This is an example of an exchange of physical assets. 
B)  This is an example of a primary market transaction. 
C)  This is an example of a direct transfer of capital. 
D)  This is an example of a money market transaction. 
E)  This is an example of a derivatives market transaction

Question 14

​ 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 15

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 16

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 17

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 18

The major advantage of a regular partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is CORRECT?

Accepted Answer

A)  A good goal for a firm's management is maximization of expected EPS. 
B)  Most business in the U.S. is conducted by corporations, and corporations' popularity results primarily from their favorable tax treatment. 
C)  Because most stock ownership is concentrated in the hands of a relatively small segment of society, firms' actions to maximize their stock prices have little benefit to society. 
D)  Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited. 
E)  The potential exists for agency conflicts between stockholders and managers. 
A)  A good goal for a firm's management is maximization of expected EPS. 
B)  Most business in the U.S. is conducted by corporations, and corporations' popularity results primarily from their favorable tax treatment. 
C)  Because most stock ownership is concentrated in the hands of a relatively small segment of society, firms' actions to maximize their stock prices have little benefit to society. 
D)  Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited. 
E)  The potential exists for agency conflicts between stockholders and managers.

Question 20

Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into a regular corporation. Which of the following statements is CORRECT?

Accepted Answer

A)  Assuming Cheers is profitable, less of its income will be subject to federal income taxes. 
B)  Cheers will now be subject to fewer regulations. 
C)  Cheers' shareholders (the ex-partners) will now be exposed to less liability. 
D)  Cheers' investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. 
E)  Cheers will find it more difficult to raise additional capital. 
A)  Assuming Cheers is profitable, less of its income will be subject to federal income taxes. 
B)  Cheers will now be subject to fewer regulations. 
C)  Cheers' shareholders (the ex-partners) will now be exposed to less liability. 
D)  Cheers' investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. 
E)  Cheers will find it more difficult to raise additional capital.

Which of the following statements is CORRECT?

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.

Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

You recently sold 200 shares of Apple stock to your brother. The transfer was made through a broker, and the trade occurred on the NYSE. This is an example of:

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?

Money markets are markets for

Which of the following statements is CORRECT?

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.

You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following statements best describes this transaction?

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?

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.

The major advantage of a regular partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not.

Which of the following statements is CORRECT?

Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into a regular corporation. Which of the following statements is CORRECT?

Analysis of Financial Statements

Time Value of Money

Bonds, Bond Valuation, and Interest Rates

Risk, Return, and the Capital Asset Pricing Model

Stocks, Stock Valuation, and Stock Market Equilibrium

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 Forecasting Financial Statements

Corporate Valuation, Value-Based Management and Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Working Capital Management

Multinational Financial Management

Filters

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

Which of the following statements is CORRECT?

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.

Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

​You recently sold 200 shares of Apple stock to your brother. The transfer was made through a broker, and the trade occurred on the NYSE. This is an example of:

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?

​Money markets are markets for

Which of the following statements is CORRECT?

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.

You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following statements best describes this transaction?

​ 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?

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.

The major advantage of a regular partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not.

Which of the following statements is CORRECT?

Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into a regular corporation. Which of the following statements is CORRECT?

Analysis of Financial Statements

Time Value of Money

Bonds, Bond Valuation, and Interest Rates

Risk, Return, and the Capital Asset Pricing Model

Stocks, Stock Valuation, and Stock Market Equilibrium

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 Forecasting Financial Statements

Corporate Valuation, Value-Based Management and Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Working Capital Management

Multinational Financial Management

Filters

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.

You recently sold 200 shares of Apple stock to your brother. The transfer was made through a broker, and the trade occurred on the NYSE. This is an example of:

Money markets are markets for

Which of the following statements is CORRECT?