Question 1

What does the agency problem refer to?

Accepted Answer

A)  The conflict that exists between the board of directors and the employees of the firm. 
B)  The problem associated with financial managers and Internal Revenue agents. 
C)  The conflict that exists between stockbrokers and investors. 
D)  The problem that results from potential conflicts of interest between the manager of a business and the stockholders. 
A)  The conflict that exists between the board of directors and the employees of the firm. 
B)  The problem associated with financial managers and Internal Revenue agents. 
C)  The conflict that exists between stockbrokers and investors. 
D)  The problem that results from potential conflicts of interest between the manager of a business and the stockholders.

Question 2

Most criticism of the Sarbanes-Oxley Act focuses on

Accepted Answer

A)  the excessive cost of compliance. 
B)  inadequate penalties for violations. 
C)  diminished competitiveness of U.S. corporations in international markets. 
D)  decreased confidence in financial reporting. 
A)  the excessive cost of compliance. 
B)  inadequate penalties for violations. 
C)  diminished competitiveness of U.S. corporations in international markets. 
D)  decreased confidence in financial reporting.

Question 3

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

Question 4

The goal of maximize shareholder wealth inevitably conflicts with socially responsible behavior on the part of corporation.

Accepted Answer

A) True 
 B)False

Question 5

The goal of profit maximization ignores the timing of profit.

Accepted Answer

A) True 
 B)False

Question 6

The Sarbane-Oxley Act addresses insider trading by members of Congress.

Accepted Answer

A) True 
 B)False

Question 7

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.

Question 8

From a financial point of view, a company that decides to develop new product is making

Accepted Answer

A)  a financing decision. 
B)  an investment decision. 
C)  a capital structure decision. 
D)  a cash flow decision. 
A)  a financing decision. 
B)  an investment decision. 
C)  a capital structure decision. 
D)  a cash flow decision.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

In an efficient market, prices will quickly adjust to new information.

Accepted Answer

A) True 
 B)False

Question 11

A corporation is owned by

Accepted Answer

A)  shareholders and partners. 
B)  the shareholders who hold the company's stock. 
C)  the Board of Directors 
D)  its Chief Executive Officer. 
A)  shareholders and partners. 
B)  the shareholders who hold the company's stock. 
C)  the Board of Directors 
D)  its Chief Executive Officer.

Question 12

What is the chief disadvantage of the sole proprietorship as a form of business organization when compared to the corporate form?

Accepted Answer

A)  Sole proprietorships are subject to double taxation of profits. 
B)  The cost of formation. 
C)  Inadequate profit sharing. 
D)  Owners have unlimited liability. 
A)  Sole proprietorships are subject to double taxation of profits. 
B)  The cost of formation. 
C)  Inadequate profit sharing. 
D)  Owners have unlimited liability.

Question 13

Investors prefer $1 today versus $1 in the future due to

Accepted Answer

A)  time value of money. 
B)  response to incentives. 
C)  the need for immediate gratification. 
D)  A and B. 
A)  time value of money. 
B)  response to incentives. 
C)  the need for immediate gratification. 
D)  A and B.

Question 14

The Sarbanes-Oxley Act of 2002

Accepted Answer

A)  protects managers of publicly held corporations from frivolous lawsuits for unethical behavior. 
B)  prohibits managers of publicly held corporations from personally profiting from non-public information. 
C)  holds those who influence corporate decisions legally accountable for unethical conduct. 
D)  allows corporate accountants greater latitude in the application of generally accepted accounting principles. 
A)  protects managers of publicly held corporations from frivolous lawsuits for unethical behavior. 
B)  prohibits managers of publicly held corporations from personally profiting from non-public information. 
C)  holds those who influence corporate decisions legally accountable for unethical conduct. 
D)  allows corporate accountants greater latitude in the application of generally accepted accounting principles.

Question 15

Limited liability companies (LLCs) differ from limited partnerships in that

Accepted Answer

A)  Owners of the LLC are subject to double taxation. 
B)  Owners of the LLC have unlimited liability for the firm's debt. 
C)  Owners of the LLC are not liable for the firm's debt. 
D)  Owners of the LLC may not exceed 12 in number. 
A)  Owners of the LLC are subject to double taxation. 
B)  Owners of the LLC have unlimited liability for the firm's debt. 
C)  Owners of the LLC are not liable for the firm's debt. 
D)  Owners of the LLC may not exceed 12 in number.

Question 16

Which of the following types of business forms is least risky to investors?

Accepted Answer

A)  Sole proprietorship 
B)  Limited partnership 
C)  General partnership 
D)  A public corporation 
A)  Sole proprietorship 
B)  Limited partnership 
C)  General partnership 
D)  A public corporation

Question 17

If managers do not pursue the goal of maximizing shareholder wealth

Accepted Answer

A)  they concentrate on more important matters like growing market share. 
B)  they can focus more on social responsibilities. 
C)  they are likely to lose their jobs. 
D)  they can focus more on long-term profitability. 
A)  they concentrate on more important matters like growing market share. 
B)  they can focus more on social responsibilities. 
C)  they are likely to lose their jobs. 
D)  they can focus more on long-term profitability.

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

Consider the timing of the profits of the following certain investment projects: Profit
L S
Year 1 $ 0 $ 3000
Year 2 $ 3000 $ 0

Accepted Answer

A)  Project S is preferred to Project L. 
B)  Project L is preferred to Project S. 
C)  Projects S and L are equally desirable. 
D)  A goal of profit maximization would favor Project S only. 
A)  Project S is preferred to Project L. 
B)  Project L is preferred to Project S. 
C)  Projects S and L are equally desirable. 
D)  A goal of profit maximization would favor Project S only.

Question 20

Which forms of organization are free of initial legal requirements?

Accepted Answer

A)  Sole proprietorship 
B)  General partnership 
C)  Corporation 
D)  Both A and B 
A)  Sole proprietorship 
B)  General partnership 
C)  Corporation 
D)  Both A and B

What does the agency problem refer to?

Most criticism of the Sarbanes-Oxley Act focuses on

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

The goal of maximize shareholder wealth inevitably conflicts with socially responsible behavior on the part of corporation.

The goal of profit maximization ignores the timing of profit.

The Sarbane-Oxley Act addresses insider trading by members of Congress.

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

From a financial point of view, a company that decides to develop new product is making

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

In an efficient market, prices will quickly adjust to new information.

A corporation is owned by

What is the chief disadvantage of the sole proprietorship as a form of business organization when compared to the corporate form?

Investors prefer $1 today versus $1 in the future due to

The Sarbanes-Oxley Act of 2002

Limited liability companies (LLCs) differ from limited partnerships in that

Which of the following types of business forms is least risky to investors?

If managers do not pursue the goal of maximizing shareholder wealth

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

Consider the timing of the profits of the following certain investment projects: Profit L S Year 1 $ 0 $ 3000 Year 2 $ 3000 $ 0

Which forms of organization are free of initial legal requirements?

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

What does the agency problem refer to?

Most criticism of the Sarbanes-Oxley Act focuses on

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

The goal of maximize shareholder wealth inevitably conflicts with socially responsible behavior on the part of corporation.

The goal of profit maximization ignores the timing of profit.

The Sarbane-Oxley Act addresses insider trading by members of Congress.

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

From a financial point of view, a company that decides to develop new product is making

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

In an efficient market, prices will quickly adjust to new information.

A corporation is owned by

What is the chief disadvantage of the sole proprietorship as a form of business organization when compared to the corporate form?

Investors prefer $1 today versus $1 in the future due to

The Sarbanes-Oxley Act of 2002

Limited liability companies (LLCs) differ from limited partnerships in that

Which of the following types of business forms is least risky to investors?

If managers do not pursue the goal of maximizing shareholder wealth

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

Consider the timing of the profits of the following certain investment projects: Profit L S Year 1 $ 0 $ 3000 Year 2 $ 3000 $ 0

Which forms of organization are free of initial legal requirements?

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