Question 1

How is the CPA firm insulated from being pressured by management?

Accepted Answer

A)  The audit committee approves hiring, firing and fees paid to external auditors. 
B)  The chairman of the board approves the external auditor's fees as well as the engagement letter. 
C)  The IRS approves the external auditor's fees as well as the engagement letter. 
D)  The CPA firm is not insulated from management. 
A)  The audit committee approves hiring, firing and fees paid to external auditors. 
B)  The chairman of the board approves the external auditor's fees as well as the engagement letter. 
C)  The IRS approves the external auditor's fees as well as the engagement letter. 
D)  The CPA firm is not insulated from management.

Question 2

Which of the following can help align the behavior of managers with the goals of shareholders?

Accepted Answer

A)  management compensation 
B)  managerial labor markets 
C)  an independent board of directors 
D)  all of the above 
A)  management compensation 
B)  managerial labor markets 
C)  an independent board of directors 
D)  all of the above

Question 3

Corruption in business does not affect the functioning of the financial markets.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is responsible for performing an independent audit of the firm's financial statements?

Accepted Answer

A)  CFO 
B)  CEO 
C)  CPA firm 
D)  audit committee 
A)  CFO 
B)  CEO 
C)  CPA firm 
D)  audit committee

Question 5

An officer of a firm that is a majority owner in a competing firm will probably be subject to

Accepted Answer

A)  an IRS audit. 
B)  a conflict of interest with his share holders. 
C)  arbitrage profit returns to the SEC. 
D)  an FBI investigation. 
A)  an IRS audit. 
B)  a conflict of interest with his share holders. 
C)  arbitrage profit returns to the SEC. 
D)  an FBI investigation.

Question 6

The process of transferring ownership of a sole proprietorship is relatively easy.

Accepted Answer

A) True 
 B)False

Question 7

Current liabilities are liabilities that

Accepted Answer

A)  will be converted to cash within a year. 
B)  must be paid within a year. 
C)  will be converted to equity within a year. 
D)  none of the above 
A)  will be converted to cash within a year. 
B)  must be paid within a year. 
C)  will be converted to equity within a year. 
D)  none of the above

Question 8

The financial manager is responsible for making decisions that are in the best interest of the firm's owners.

Accepted Answer

A) True 
 B)False

Question 9

The financing decision determines how firms raise cash to pay for their investments.

Accepted Answer

A) True 
 B)False

Question 10

Privately held corporations are allowed to have shareholders.

Accepted Answer

A) True 
 B)False

Question 11

Capital budgeting decisions generally involve

Accepted Answer

A)  the fixed asset portion of the balance sheet. 
B)  the short-term portion of the balance sheet. 
C)  the current liability portion of the balance sheet. 
D)  all of the above. 
A)  the fixed asset portion of the balance sheet. 
B)  the short-term portion of the balance sheet. 
C)  the current liability portion of the balance sheet. 
D)  all of the above.

Question 12

Shareholders elect ______________ to represent their interest in the firm.

Accepted Answer

A)  a chairman 
B)  CEO 
C)  a board of directors 
D)  all of the above 
A)  a chairman 
B)  CEO 
C)  a board of directors 
D)  all of the above

Question 13

Which of the following is responsible for seeing that the best possible financial analysis is presented?

Accepted Answer

A)  CFO 
B)  CEO 
C)  board of directors 
D)  audit committee 
A)  CFO 
B)  CEO 
C)  board of directors 
D)  audit committee

Question 14

A trademark is an example of

Accepted Answer

A)  a productive asset. 
B)  an intangible asset. 
C)  a nebulous asset. 
D)  none of the above. 
A)  a productive asset. 
B)  an intangible asset. 
C)  a nebulous asset. 
D)  none of the above.

Question 15

Corporations do not have their income subject to double taxation.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is an appropriate goal for the firm?

Accepted Answer

A)  profit maximization 
B)  revenue maximization 
C)  shareholder wealth maximization 
D)  tax minimization 
A)  profit maximization 
B)  revenue maximization 
C)  shareholder wealth maximization 
D)  tax minimization

Question 17

An example of a direct agency cost is

Accepted Answer

A)  a manager turning down a value-contributing project because of its risks. 
B)  a manager expensing a large dinner on the company expense report. 
C)  a manager using too little debt within the firm's capital structure because of the additional risk associated with debt. 
D)  all of the above 
A)  a manager turning down a value-contributing project because of its risks. 
B)  a manager expensing a large dinner on the company expense report. 
C)  a manager using too little debt within the firm's capital structure because of the additional risk associated with debt. 
D)  all of the above

Question 18

Which of the following cannot be engaged in managing the business?

Accepted Answer

A)  a sole proprietor 
B)  a general partner 
C)  a limited partner 
D)  none of the above 
A)  a sole proprietor 
B)  a general partner 
C)  a limited partner 
D)  none of the above

Question 19

A good capital budgeting decision is

Accepted Answer

A)  one in which the benefits of the project are equal to the cost of the asset. 
B)  one in which the benefits of the project are less than the cost of the asset. 
C)  one in which the benefits of the project are more than the cost of the asset. 
D)  all of the above. 
A)  one in which the benefits of the project are equal to the cost of the asset. 
B)  one in which the benefits of the project are less than the cost of the asset. 
C)  one in which the benefits of the project are more than the cost of the asset. 
D)  all of the above.

Question 20

Maximizing revenue should be the goal of the firm.

Accepted Answer

A) True 
 B)False

Exam 1: The Financial Manager and the Company

How is the CPA firm insulated from being pressured by management?

Which of the following can help align the behavior of managers with the goals of shareholders?

Corruption in business does not affect the functioning of the financial markets.

Which of the following is responsible for performing an independent audit of the firm's financial statements?

An officer of a firm that is a majority owner in a competing firm will probably be subject to

The process of transferring ownership of a sole proprietorship is relatively easy.

Current liabilities are liabilities that

The financial manager is responsible for making decisions that are in the best interest of the firm's owners.

The financing decision determines how firms raise cash to pay for their investments.

Privately held corporations are allowed to have shareholders.

Capital budgeting decisions generally involve

Shareholders elect ______________ to represent their interest in the firm.

Which of the following is responsible for seeing that the best possible financial analysis is presented?

A trademark is an example of

Corporations do not have their income subject to double taxation.

Which of the following is an appropriate goal for the firm?

An example of a direct agency cost is

Which of the following cannot be engaged in managing the business?

A good capital budgeting decision is

Maximizing revenue should be the goal of the firm.

The Financial System and the Level of Interest Rates

Financial Statements, Cash Flows and Tax

Analysing Financial Statements

The Time Value of Money

Discounted Cash Flows and Valuation

Risk and Return

Bond Valuation and the Structure of Interest Rates

Share Valuation

The Fundamentals of Capital Budgeting

Cash Flows and Capital Budgeting

Evaluating Project Economics and Capital Rationing

The Cost of Capital

Working Capital Management

How Companies Raise Capital

Capital Structure Policy

Dividends and Dividend Policy

Business Formation, Growth and Valuation

Strategic Financial Planning and Forecasting

Options and Corporate Finance

International Financial Management

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