Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)  One of the advantages of the corporate form of organization is that it avoids double taxation. 
B)  It is easier to transfer one's ownership interest in a partnership than in a corporation. 
C)  One of the disadvantages of a proprietorship is that the proprietor is exposed to unlimited liability. 
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 advantages of the corporate form of organization is that it avoids double taxation. 
B)  It is easier to transfer one's ownership interest in a partnership than in a corporation. 
C)  One of the disadvantages of a proprietorship is that the proprietor is exposed to unlimited liability. 
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.

Question 2

In order to maximize its shareholders' value,a firm's management must attempt to maximize the expected EPS.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following could explain why a business might choose to operate as a corporation rather than as a proprietorship or a partnership?

Accepted Answer

A)  Corporations generally face fewer regulations. 
B)  Less of a corporation's income is generally subject to federal taxes. 
C)  Corporate shareholders are exposed to unlimited liability,but this factor is offset by the tax advantages of incorporation. 
D)  Corporate investors are exposed to unlimited liability. 
E)  Corporations generally find it easier to raise large amounts of capital. 
A)  Corporations generally face fewer regulations. 
B)  Less of a corporation's income is generally subject to federal taxes. 
C)  Corporate shareholders are exposed to unlimited liability,but this factor is offset by the tax advantages of incorporation. 
D)  Corporate investors are exposed to unlimited liability. 
E)  Corporations generally find it easier to raise large amounts of capital.

Question 4

A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership.

Accepted Answer

A) True 
 B)False

Question 5

If a firm's board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders),it should design an executive compensation system whose focus is on the firm's long-term value.

Accepted Answer

A) True 
 B)False

Question 6

In most corporations,the CFO ranks under the CEO.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is CORRECT?

Accepted Answer

A)  In a typical partnership,liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business. 
B)  In a limited partnership,the limited partners have voting control,while the general partner has operating control over the business,and the limited partners are individually responsible,on a pro rata basis,for the firm's debts in the event of bankruptcy. 
C)  A slow-growth company,with little need for new capital,would be more likely to organize as a corporation than would a faster growing company. 
D)  Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability,the need to reorganize when a partner dies,and the illiquidity (difficulty buying and selling)of partnership interests. 
E)  A major disadvantage of a partnership relative to a corporation is the fact that federal income taxes must be paid by the partners rather than by the firm itself. 
A)  In a typical partnership,liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business. 
B)  In a limited partnership,the limited partners have voting control,while the general partner has operating control over the business,and the limited partners are individually responsible,on a pro rata basis,for the firm's debts in the event of bankruptcy. 
C)  A slow-growth company,with little need for new capital,would be more likely to organize as a corporation than would a faster growing company. 
D)  Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability,the need to reorganize when a partner dies,and the illiquidity (difficulty buying and selling)of partnership interests. 
E)  A major disadvantage of a partnership relative to a corporation is the fact that federal income taxes must be paid by the partners rather than by the firm itself.

Question 8

One advantage of the corporate form of organization is that it avoids double taxation.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is CORRECT?

Accepted Answer

A)  Corporations face few regulations and more favorable tax treatment than do proprietorships and partnerships. 
B)  Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value compared to managers who do not face the threat of hostile takeovers. 
C)  Bond covenants are an effective way to resolve conflicts between shareholders and managers. 
D)  Because of their simplified organization,it is easier for proprietors and partnerships to raise large amounts of outside capital than it is for corporations. 
E)  One advantage to forming a corporation is that the owners of the firm have limited liability. 
A)  Corporations face few regulations and more favorable tax treatment than do proprietorships and partnerships. 
B)  Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value compared to managers who do not face the threat of hostile takeovers. 
C)  Bond covenants are an effective way to resolve conflicts between shareholders and managers. 
D)  Because of their simplified organization,it is easier for proprietors and partnerships to raise large amounts of outside capital than it is for corporations. 
E)  One advantage to forming a corporation is that the owners of the firm have limited liability.

Question 10

Which of the following statements is CORRECT?

Accepted Answer

A)  Hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management. 
B)  The efficiency of the U.S.economy would probably be increased if hostile takeovers were absolutely forbidden. 
C)  The managers of established,stable companies sometimes attempt to get their state legislatures to remove rules that make it more difficult for raiders to succeed with hostile takeovers. 
D)  In general,it is more in bondholders' interests than stockholders' interests for a firm to shift its investment focus away from safe,stable investments and into risky investments,especially those that primarily involve research and development. 
E)  Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value. 
A)  Hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management. 
B)  The efficiency of the U.S.economy would probably be increased if hostile takeovers were absolutely forbidden. 
C)  The managers of established,stable companies sometimes attempt to get their state legislatures to remove rules that make it more difficult for raiders to succeed with hostile takeovers. 
D)  In general,it is more in bondholders' interests than stockholders' interests for a firm to shift its investment focus away from safe,stable investments and into risky investments,especially those that primarily involve research and development. 
E)  Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value.

Question 11

If management operates in a manner designed to maximize the firm's expected profits for the current year,this will also maximize the stockholders' wealth as of the current year.

Accepted Answer

A) True 
 B)False

Question 12

The more capital a firm is likely to require,the greater the probability that it will be organized as a corporation.

Accepted Answer

A) True 
 B)False

Question 13

The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to

Accepted Answer

A)  Maximize its expected total corporate income. 
B)  Maximize its expected EPS. 
C)  Minimize the chances of losses. 
D)  Maximize the stock price per share over the long run,which is the stock's intrinsic value. 
E)  Maximize the stock price on a specific target date. 
A)  Maximize its expected total corporate income. 
B)  Maximize its expected EPS. 
C)  Minimize the chances of losses. 
D)  Maximize the stock price per share over the long run,which is the stock's intrinsic value. 
E)  Maximize the stock price on a specific target date.

Question 14

Which of the following statements is CORRECT?

Accepted Answer

A)  A hostile takeover is the main method of transferring ownership interest in a corporation. 
B)  A corporation is a legal entity created by a state,and it has a life and existence that is separate from the lives and existence of its owners and managers. 
C)  Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization. 
D)  Limited liability is an advantage of the corporate form of organization to its owners (stockholders),but corporations have more trouble raising money in financial markets because of the complexity of this form of organization. 
E)  Although the stockholders of the corporation are insulated by limited legal liability,the legal status of the corporation does not protect the firm's managers in the same way,i.e. ,bondholders can sue the firm's managers if the firm defaults on its debt. 
A)  A hostile takeover is the main method of transferring ownership interest in a corporation. 
B)  A corporation is a legal entity created by a state,and it has a life and existence that is separate from the lives and existence of its owners and managers. 
C)  Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization. 
D)  Limited liability is an advantage of the corporate form of organization to its owners (stockholders),but corporations have more trouble raising money in financial markets because of the complexity of this form of organization. 
E)  Although the stockholders of the corporation are insulated by limited legal liability,the legal status of the corporation does not protect the firm's managers in the same way,i.e. ,bondholders can sue the firm's managers if the firm defaults on its debt.

Question 15

It is generally harder to transfer one's ownership interest in a partnership than in a corporation.

Accepted Answer

A) True 
 B)False

Question 16

If a lower level person in a firm does something illegal,like "cooking the books" to understate costs and thereby increase profits above the correct profits because he or she was told to do so by a superior,the lower level person cannot be prosecuted but the superior can be prosecuted.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is CORRECT?

Accepted Answer

A)  One of the disadvantages of incorporating your business is that you could become subject to the firm's liabilities in the event of bankruptcy. 
B)  Proprietorships are subject to more regulations than corporations. 
C)  In any partnership,every partner has the same rights,privileges,and liability exposure as every other partner. 
D)  Corporations of all types are subject to the corporate income tax. 
E)  Proprietorships and partnerships generally have a tax advantage over corporations. 
A)  One of the disadvantages of incorporating your business is that you could become subject to the firm's liabilities in the event of bankruptcy. 
B)  Proprietorships are subject to more regulations than corporations. 
C)  In any partnership,every partner has the same rights,privileges,and liability exposure as every other partner. 
D)  Corporations of all types are subject to the corporate income tax. 
E)  Proprietorships and partnerships generally have a tax advantage over corporations.

Question 18

Which of the following statements is CORRECT?

Accepted Answer

A)  One drawback of forming a corporation is that it generally subjects the firm to additional regulations. 
B)  One drawback of forming a corporation is that it subjects the firm's investors to increased personal liabilities. 
C)  One drawback of forming a corporation is that it makes it more difficult for the firm to raise capital. 
D)  One advantage of forming a corporation is that it subjects the firm's investors to fewer taxes. 
E)  One disadvantage of forming a corporation is that it is more difficult for the firm's investors to transfer their ownership interests. 
A)  One drawback of forming a corporation is that it generally subjects the firm to additional regulations. 
B)  One drawback of forming a corporation is that it subjects the firm's investors to increased personal liabilities. 
C)  One drawback of forming a corporation is that it makes it more difficult for the firm to raise capital. 
D)  One advantage of forming a corporation is that it subjects the firm's investors to fewer taxes. 
E)  One disadvantage of forming a corporation is that it is more difficult for the firm's investors to transfer their ownership interests.

Question 19

Which of the following statements is CORRECT?

Accepted Answer

A)  Because bankruptcy requires that corporate bondholders be paid in full before stockholders receive anything,bondholders generally prefer to see corporate managers invest in high risk/high return projects rather than low risk/low return projects. 
B)  Since bondholders receive fixed payments,they do not share in the gains if risky projects turn out to be highly successful.However,they do share in the losses if risky projects fail and drive the firm into bankruptcy.Therefore,bondholders generally prefer to see corporate managers invest in low risk/low return projects rather than high risk/high return projects. 
C)  One advantage of operating a business as a corporation is that stockholders can deduct their pro rata share of the taxes the firm pays,thereby eliminating the double taxation investors would face in a partnership. 
D)  One drawback of forming a corporation is that you lose the limited liability that you would otherwise receive as a proprietor. 
E)  Potential conflicts between stockholders and bondholders are increased if a firm's bonds are convertible into its common stock. 
A)  Because bankruptcy requires that corporate bondholders be paid in full before stockholders receive anything,bondholders generally prefer to see corporate managers invest in high risk/high return projects rather than low risk/low return projects. 
B)  Since bondholders receive fixed payments,they do not share in the gains if risky projects turn out to be highly successful.However,they do share in the losses if risky projects fail and drive the firm into bankruptcy.Therefore,bondholders generally prefer to see corporate managers invest in low risk/low return projects rather than high risk/high return projects. 
C)  One advantage of operating a business as a corporation is that stockholders can deduct their pro rata share of the taxes the firm pays,thereby eliminating the double taxation investors would face in a partnership. 
D)  One drawback of forming a corporation is that you lose the limited liability that you would otherwise receive as a proprietor. 
E)  Potential conflicts between stockholders and bondholders are increased if a firm's bonds are convertible into its common stock.

Question 20

In order to maximize its shareholders' value,a firm's management must attempt to maximize the stock price on a specific target date.

Accepted Answer

A) True 
 B)False

Exam 1: An Overview of Financial Management

Which of the following statements is CORRECT?

In order to maximize its shareholders' value,a firm's management must attempt to maximize the expected EPS.

Which of the following could explain why a business might choose to operate as a corporation rather than as a proprietorship or a partnership?

A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership.

If a firm's board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders),it should design an executive compensation system whose focus is on the firm's long-term value.

In most corporations,the CFO ranks under the CEO.

Which of the following statements is CORRECT?

One advantage of the corporate form of organization is that it avoids double taxation.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

If management operates in a manner designed to maximize the firm's expected profits for the current year,this will also maximize the stockholders' wealth as of the current year.

The more capital a firm is likely to require,the greater the probability that it will be organized as a corporation.

The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to

Which of the following statements is CORRECT?

It is generally harder to transfer one's ownership interest in a partnership than in a corporation.

If a lower level person in a firm does something illegal,like "cooking the books" to understate costs and thereby increase profits above the correct profits because he or she was told to do so by a superior,the lower level person cannot be prosecuted but the superior can be prosecuted.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

In order to maximize its shareholders' value,a firm's management must attempt to maximize the stock price on a specific target date.

Financial Markets and Institutions

Financial Statements,cash Flow and Taxes

Analysis of Financial Statements

Time Value of Money

A Continuous-Compounding-And-Discounting

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Multinational Financial Management

Zero-Coupon-Bonds

Bankruptcy and Reorganization

Calculating Beta Coefficients

Using the CAPM to Estimate the Risk-Adjusted Cost of Capital

Techniques for Measuring Beta Risk

Comparing Mutually Exclusive Projects with Unequal Lives

Degree of Leverage

Filters