Question 1

If a limited partner dies or leaves the business, the partnership is dissolved and a new partnership must be formed.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following is a characteristic of a limited partnership?

Accepted Answer

A)  It allows one or more partners to have limited liability. 
B)  It requires one or more of the partners to be a general partner to whom the privilege of limited liability does not apply. 
C)  It prohibits the limited partners from participating in the management of the partnership. 
D)  All of the above. 
A)  It allows one or more partners to have limited liability. 
B)  It requires one or more of the partners to be a general partner to whom the privilege of limited liability does not apply. 
C)  It prohibits the limited partners from participating in the management of the partnership. 
D)  All of the above. D

Question 3

Briefly discuss why financial decision makers must focus on incremental cash flows when evaluating new projects.

Accepted Answer

Incremental cash flows describe the total cash effect on the company, looking at the difference between total cash flow to the company with the cash flow, and without the cash flow. The company can then value these cash flows and see if the company is worth more with the project or without the project.

Question 4

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

Question 5

If an investor had a choice of receiving $1,000 today, or $1,000 in five years, which would the average investor prefer?

Accepted Answer

A)  $1,000 in five years because they are not good at saving money. 
B)  $1,000 today because it will be worth more than $1,000 received in five years. 
C)  $1,000 in five years because it will be worth more than $1,000 received today. 
D)  Investors would be indifferent to when they would receive the $1,000. 
E)  None of the above. 
A)  $1,000 in five years because they are not good at saving money. 
B)  $1,000 today because it will be worth more than $1,000 received in five years. 
C)  $1,000 in five years because it will be worth more than $1,000 received today. 
D)  Investors would be indifferent to when they would receive the $1,000. 
E)  None of the above.

Question 6

In a general partnership, each partner is liable for the partnership's obligations only up to a percentage of the obligation equal to that partner's percentage of ownership of the partnership.

Accepted Answer

A) True 
 B)False

Question 7

Profit maximization does not adequately describe the goal of the firm because

Accepted Answer

A)  profit maximization does not require the consideration of risk. 
B)  profit maximization ignores the timing of a project's return. 
C)  maximization of dividend payout ratio is a better description of the goal of the firm. 
D)  A and B. 
A)  profit maximization does not require the consideration of risk. 
B)  profit maximization ignores the timing of a project's return. 
C)  maximization of dividend payout ratio is a better description of the goal of the firm. 
D)  A and B.

Question 8

Which of the following is NOT true for limited partnerships?

Accepted Answer

A)  Only limited partners can manage the business. 
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)  Only limited partners can manage the business. 
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 9

Why do investors prefer receiving cash sooner rather than later, according to finance theory?

Accepted Answer

A)  Incremental profits are greater than accounting profits. 
B)  Money received earlier can be reinvested and returns can be increased. 
C)  Tax considerations are important when investing. 
D)  Diversification leads to increased value. 
A)  Incremental profits are greater than accounting profits. 
B)  Money received earlier can be reinvested and returns can be increased. 
C)  Tax considerations are important when investing. 
D)  Diversification leads to increased value.

Question 10

If one security has a greater risk than another security, how will investors respond?

Accepted Answer

A)  They will require a lower rate of return for the investment that has greater risk. 
B)  They would be indifferent regarding their expectation of rates of return for either investment. 
C)  They will require a higher rate of return for the investment that has greater risk. 
D)  None of the above. 
A)  They will require a lower rate of return for the investment that has greater risk. 
B)  They would be indifferent regarding their expectation of rates of return for either investment. 
C)  They will require a higher rate of return for the investment that has greater risk. 
D)  None of the above.

Question 11

There is no legal distinction made between the assets of the business and the personal assets of the owners in the limited partnership.

Accepted Answer

A) True 
 B)False

Question 12

Limited partners may actively manage the business.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following should be considered when assessing the financial impact of business decisions?

Accepted Answer

A)  The amount of projected earnings 
B)  The risk-return tradeoff 
C)  The timing of projected earnings; i.e., when they are expected to occur 
D)  All of the above 
A)  The amount of projected earnings 
B)  The risk-return tradeoff 
C)  The timing of projected earnings; i.e., when they are expected to occur 
D)  All of the above

Question 14

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 15

The personal decision to take a year off from work to obtain a graduate degree in business is primarily a(n)________ decision.

Accepted Answer

A)  social 
B)  financial 
C)  ethical 
D)  investment 
A)  social 
B)  financial 
C)  ethical 
D)  investment

Question 16

Maximization of shareholder wealth as a goal is superior to accounting profit maximization because

Accepted Answer

A)  it considers the time value of the money. 
B)  following the shareholder wealth maximization goal will ensure high stock prices. 
C)  accounting profits are not the same as cash flows. 
D)  A and C. 
A)  it considers the time value of the money. 
B)  following the shareholder wealth maximization goal will ensure high stock prices. 
C)  accounting profits are not the same as cash flows. 
D)  A and C.

Question 17

Financial decisions can be difficult because the cost of investments can be estimated with greater confidence than future payoffs.

Accepted Answer

A) True 
 B)False

Question 18

Investors choose to invest in higher risk investments because these investments offer higher

Accepted Answer

A)  expected returns. 
B)  inflation. 
C)  actual returns. 
D)  future consumption. 
A)  expected returns. 
B)  inflation. 
C)  actual returns. 
D)  future consumption.

Question 19

Which of the following is most likely to motivate executives to maximize shareholder wealth?

Accepted Answer

A)  Tying bonuses to cost reductions and meeting budget goals. 
B)  Offering them relatively high salaries. 
C)  Tying annual bonuses to increases in annual profits. 
D)  Compensating them with stock options that can only be exercised after five years. 
A)  Tying bonuses to cost reductions and meeting budget goals. 
B)  Offering them relatively high salaries. 
C)  Tying annual bonuses to increases in annual profits. 
D)  Compensating them with stock options that can only be exercised after five years.

Question 20

Foregoing the earning potential of a dollar today is referred to as the

Accepted Answer

A)  time value of money. 
B)  opportunity cost concept. 
C)  risk/return tradeoff. 
D)  creation of wealth. 
A)  time value of money. 
B)  opportunity cost concept. 
C)  risk/return tradeoff. 
D)  creation of wealth.

If a limited partner dies or leaves the business, the partnership is dissolved and a new partnership must be formed.

Which of the following is a characteristic of a limited partnership?

Briefly discuss why financial decision makers must focus on incremental cash flows when evaluating new projects.

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

If an investor had a choice of receiving $1,000 today, or $1,000 in five years, which would the average investor prefer?

In a general partnership, each partner is liable for the partnership's obligations only up to a percentage of the obligation equal to that partner's percentage of ownership of the partnership.

Profit maximization does not adequately describe the goal of the firm because

Which of the following is NOT true for limited partnerships?

Why do investors prefer receiving cash sooner rather than later, according to finance theory?

If one security has a greater risk than another security, how will investors respond?

There is no legal distinction made between the assets of the business and the personal assets of the owners in the limited partnership.

Limited partners may actively manage the business.

Which of the following should be considered when assessing the financial impact of business decisions?

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

The personal decision to take a year off from work to obtain a graduate degree in business is primarily a(n)________ decision.

Maximization of shareholder wealth as a goal is superior to accounting profit maximization because

Financial decisions can be difficult because the cost of investments can be estimated with greater confidence than future payoffs.

Investors choose to invest in higher risk investments because these investments offer higher

Which of the following is most likely to motivate executives to maximize shareholder wealth?

Foregoing the earning potential of a dollar today is referred to as the

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

If a limited partner dies or leaves the business, the partnership is dissolved and a new partnership must be formed.

Which of the following is a characteristic of a limited partnership?

Briefly discuss why financial decision makers must focus on incremental cash flows when evaluating new projects.

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

If an investor had a choice of receiving $1,000 today, or $1,000 in five years, which would the average investor prefer?

In a general partnership, each partner is liable for the partnership's obligations only up to a percentage of the obligation equal to that partner's percentage of ownership of the partnership.

Profit maximization does not adequately describe the goal of the firm because

Which of the following is NOT true for limited partnerships?

Why do investors prefer receiving cash sooner rather than later, according to finance theory?

If one security has a greater risk than another security, how will investors respond?

There is no legal distinction made between the assets of the business and the personal assets of the owners in the limited partnership.

Limited partners may actively manage the business.

Which of the following should be considered when assessing the financial impact of business decisions?

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

The personal decision to take a year off from work to obtain a graduate degree in business is primarily a(n)________ decision.

Maximization of shareholder wealth as a goal is superior to accounting profit maximization because

Financial decisions can be difficult because the cost of investments can be estimated with greater confidence than future payoffs.

Investors choose to invest in higher risk investments because these investments offer higher

Which of the following is most likely to motivate executives to maximize shareholder wealth?

Foregoing the earning potential of a dollar today is referred to as the

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