Question 1

Which of the following is a characteristic of a corporation?

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) It is legally owned by its current set of shareholders. 
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) It is legally owned by its current set of shareholders.

Question 2

Business dealings between people and firms ultimately depend on the [blank].

Accepted Answer

A) willingness of parties to trust one another 
B) perfectly crafted contract 
C) ability of all parties to not make errors 
D) maximising wealth of shareholders 
A) willingness of parties to trust one another 
B) perfectly crafted contract 
C) ability of all parties to not make errors 
D) maximising wealth of shareholders

Question 3

The life of a corporation is not dependent upon the status of the investors.

Accepted Answer

A) True 
 B)False

Question 4

If one security has a greater risk than another security, investors will most likely require a [blank] rate of return for the investment that has the [blank] risk.

Accepted Answer

A) lower; greater 
B) higher; lower 
C) higher; greater 
D) lower; lesser 
A) lower; greater 
B) higher; lower 
C) higher; greater 
D) lower; lesser

Question 5

Consider the following equally likely project outcomes:

Accepted Answer

A) Investors will prefer project X because it potentially offers a higher profit. 
B) Investors will reject both projects because the profit is too low. 
C) Investors will prefer project Y because the expected return is the same as for project X but the outcome is certain. 
D) Since projects X and Y have the same expected outcomes of $500, investors will view them as identical in value. 
A) Investors will prefer project X because it potentially offers a higher profit. 
B) Investors will reject both projects because the profit is too low. 
C) Investors will prefer project Y because the expected return is the same as for project X but the outcome is certain. 
D) Since projects X and Y have the same expected outcomes of $500, investors will view them as identical in value.

Question 6

A limited partner is liable [blank].

Accepted Answer

A) for only his or her own share of the partnership's debts 
B) for his or her own share of the partnership's debts and contingently liable for the other partners shares 
C) only up to the amount invested by that partner 
D) for none of the partnership's debts 
A) for only his or her own share of the partnership's debts 
B) for his or her own share of the partnership's debts and contingently liable for the other partners shares 
C) only up to the amount invested by that partner 
D) for none of the partnership's debts

Question 7

Most criticism of legislation aimed at preventing corporate collapses and scandals has focused on [blank].

Accepted Answer

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

Question 8

Managers of corporations need to act in an ethical manner [blank].

Accepted Answer

A) because ethics violations will be punished by the law 
B) because a business must be trusted by investors, customer and the public if it is to succeed 
C) because business managers must answer to a higher authority 
D) because ethical behaviour is its own justification 
A) because ethics violations will be punished by the law 
B) because a business must be trusted by investors, customer and the public if it is to succeed 
C) because business managers must answer to a higher authority 
D) because ethical behaviour is its own justification

Question 9

A corporation is owned by [blank].

Accepted Answer

A) its Chief Operations Officer 
B) the shareholders 
C) the Board of Directors 
D) its Chief Executive Officer (CEO) 
A) its Chief Operations Officer 
B) the shareholders 
C) the Board of Directors 
D) its Chief Executive Officer (CEO)

Question 10

Owners must register and pay yearly fees to their State of residence when establishing a sole proprietorship.

Accepted Answer

A) True 
 B)False

Question 11

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 12

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

Question 13

In 2002, following serious ethical violations by corporations such as Enron, the United States Congress passed the [blank].

Accepted Answer

A) Dodd-Frank Act 
B) Insider Trading Act of 1988 
C) Sarbanes-Oxley Act 
D) Bank Integration Act of 1901 
A) Dodd-Frank Act 
B) Insider Trading Act of 1988 
C) Sarbanes-Oxley Act 
D) Bank Integration Act of 1901

Question 14

Unethical insider trading by government officials inspired both the Sarbanes-Oxley Act and CLERP 9.

Accepted Answer

A) True 
 B)False

Question 15

The true owners of the corporation are the [blank].

Accepted Answer

A) holders of debt issues of the firm 
B) preferred stockholders 
C) board of directors of the firm 
D) common stockholders 
A) holders of debt issues of the firm 
B) preferred stockholders 
C) board of directors of the firm 
D) common stockholders

Question 16

Which of the following statements best represents what finance is about?

Accepted Answer

A) The study of how political, social and economic forces affect corporations 
B) Maximising profits 
C) The study of how people and businesses make investment decisions and how to finance those decisions 
D) Reducing risk 
A) The study of how political, social and economic forces affect corporations 
B) Maximising profits 
C) The study of how people and businesses make investment decisions and how to finance those decisions 
D) Reducing risk

Question 17

General partners have unrestricted transferability of ownership, while limited partners must have the consent of all partners to transfer their ownership.

Accepted Answer

A) True 
 B)False

Question 18

Capital structure refers to the financing of long-term investments.

Accepted Answer

A) True 
 B)False

Question 19

In a limited partnership, at least one general partner must remain in the association; the privilege of limited liability still applies to this partner.

Accepted Answer

A) True 
 B)False

Question 20

Which legal form of businesses will be examined most frequently in this book?

Accepted Answer

A) The sole proprietorship 
B) The general partnership 
C) The limited partnership 
D) The corporation 
A) The sole proprietorship 
B) The general partnership 
C) The limited partnership 
D) The corporation

Exam 1: Getting Startedprinciples of Finance

Which of the following is a characteristic of a corporation?

Business dealings between people and firms ultimately depend on the [blank].

The life of a corporation is not dependent upon the status of the investors.

If one security has a greater risk than another security, investors will most likely require a [blank] rate of return for the investment that has the [blank] risk.

Consider the following equally likely project outcomes:

A limited partner is liable [blank].

Most criticism of legislation aimed at preventing corporate collapses and scandals has focused on [blank].

Managers of corporations need to act in an ethical manner [blank].

A corporation is owned by [blank].

Owners must register and pay yearly fees to their State of residence when establishing a sole proprietorship.

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

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

In 2002, following serious ethical violations by corporations such as Enron, the United States Congress passed the [blank].

Unethical insider trading by government officials inspired both the Sarbanes-Oxley Act and CLERP 9.

The true owners of the corporation are the [blank].

Which of the following statements best represents what finance is about?

General partners have unrestricted transferability of ownership, while limited partners must have the consent of all partners to transfer their ownership.

Capital structure refers to the financing of long-term investments.

In a limited partnership, at least one general partner must remain in the association; the privilege of limited liability still applies to this partner.

Which legal form of businesses will be examined most frequently in this book?

Firms and the Financial Market

Understanding Financial Statements, Taxes and Cash Flows

Financial Analysissizing up Firm Performance

Time Value of Moneythe Basics

The Time Value of Moneyannuities and Other Topics

Risk and Returnan Introduction: History of Financial Market Returns

Risk and Returncapital Market Theory

Debt Valuation and Interest Rates

Shares Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluations

The Cost of Capital

Analysis and Impact of Leverage

Capital Structure Policy

Dividend and Share-Buyback Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters