Question 1

Why do you think many companies compensate executives with options based on long-term increases in the value of the company's stock?

Accepted Answer

Tying executive compensation to long-ter

Question 2

[blank] 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 3

One advantage of a corporation is [blank].

Accepted Answer

A) unlimited liability 
B) the life of the business is tied to the status of the investors 
C) the classical tax system 
D) ease of raising capital 
A) unlimited liability 
B) the life of the business is tied to the status of the investors 
C) the classical tax system 
D) ease of raising capital

Question 4

A key component of finance is the management and interpretation of [blank].

Accepted Answer

A) marketing managers 
B) accounting staff 
C) entrepreneurship 
D) information 
A) marketing managers 
B) accounting staff 
C) entrepreneurship 
D) information

Question 5

It is impossible to write a perfect contract.

Accepted Answer

A) True 
 B)False

Question 6

In efficient markets, prices rapidly adjust to new information.

Accepted Answer

A) True 
 B)False

Question 7

If an investor had a choice of receiving $1000 today, or $1000 in five years, which would the average investor prefer?

Accepted Answer

A) $1000 in five years because they are not good at saving money 
B) $1000 today because it will be worth more than $1000 received in five years 
C) $1000 in five years because it will be worth more than $1000 received today 
D) Investors would be indifferent to when they would receive the $1000 
A) $1000 in five years because they are not good at saving money 
B) $1000 today because it will be worth more than $1000 received in five years 
C) $1000 in five years because it will be worth more than $1000 received today 
D) Investors would be indifferent to when they would receive the $1000

Question 8

One of the problems associated with profit maximisation is that it ignores the timing of a project's return.

Accepted Answer

A) True 
 B)False

Question 9

A firm's Treasurer is typically responsible for [blank].

Accepted Answer

A) data processing 
B) capital expenditures 
C) cost accounting 
D) financial statements 
A) data processing 
B) capital expenditures 
C) cost accounting 
D) financial statements

Question 10

Ultimate control in a corporation is vested in the board of directors.

Accepted Answer

A) True 
 B)False

Question 11

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

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 12

Who was Alan Bond? What lessons does his story offer business entrepreneurs?

Accepted Answer

Bond was best known as the bankroller of

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

Incremental cash flows describe the tota

Question 15

In a general partnership, all partners have unlimited liability for the actions of any one partner when that partner is conducting business for the firm.

Accepted Answer

A) True 
 B)False

Question 16

The owners of a corporation are liable for the corporation's obligations up to the amount of their investment.

Accepted Answer

A) True 
 B)False

Question 17

The authors believe that [blank].

Accepted Answer

A) most businesses act out of greed to get rich quickly 
B) successful companies must choose between maximising return to shareholders and looking after the interests of their customers 
C) maximising the wealth of shareholders and doing the right thing for other stakeholders in the company go hand in hand 
D) companies that achieve their goals have competing objectives 
A) most businesses act out of greed to get rich quickly 
B) successful companies must choose between maximising return to shareholders and looking after the interests of their customers 
C) maximising the wealth of shareholders and doing the right thing for other stakeholders in the company go hand in hand 
D) companies that achieve their goals have competing objectives

Question 18

Working capital management refers to [blank].

Accepted Answer

A) long-term financing decisions 
B) the management of cash flows 
C) investing in product development 
D) capital structure 
A) long-term financing decisions 
B) the management of cash flows 
C) investing in product development 
D) capital structure

Question 19

Which of the following is most likely to motivate executives to maximise 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

In measuring value, the focus should be on [blank].

Accepted Answer

A) cash flow 
B) accounting profits 
C) time value of money 
D) earnings per share 
A) cash flow 
B) accounting profits 
C) time value of money 
D) earnings per share

Exam 1: Getting Startedprinciples of Finance

Why do you think many companies compensate executives with options based on long-term increases in the value of the company's stock?

[blank] are the principal owners of a corporation.

One advantage of a corporation is [blank].

A key component of finance is the management and interpretation of [blank].

It is impossible to write a perfect contract.

In efficient markets, prices rapidly adjust to new information.

If an investor had a choice of receiving $1000 today, or $1000 in five years, which would the average investor prefer?

One of the problems associated with profit maximisation is that it ignores the timing of a project's return.

A firm's Treasurer is typically responsible for [blank].

Ultimate control in a corporation is vested in the board of directors.

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

Who was Alan Bond? What lessons does his story offer business entrepreneurs?

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

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

In a general partnership, all partners have unlimited liability for the actions of any one partner when that partner is conducting business for the firm.

The owners of a corporation are liable for the corporation's obligations up to the amount of their investment.

The authors believe that [blank].

Working capital management refers to [blank].

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

In measuring value, the focus should be on [blank].

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

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