Question 1

The issuer of a security must be involved in all _____ transactions involving that security.

Accepted Answer

A)  exchange-listed
B)  secondary market
C)  over-the-counter
D)  dealer market
E)  primary market E

Question 2

A private placement is most apt to involve:

Accepted Answer

A)  a large number of private investors.
B)  only foreign investors.
C)  a life-insurance company.
D)  several private securities dealers.
E)  the U.S.Treasury department. C

Question 3

Which one of the following situations is most apt to create an agency conflict?

Accepted Answer

A)  Compensating a manager based on his or her division's net income
B)  Giving all employees a bonus if a certain level of efficiency is maintained
C)  Hiring an independent consultant to study the operating efficiency of the firm
D)  Basing management bonuses on the length of employment
E)  Laying off employees during a slack period D

Question 4

Which one of the following functions should be assigned to the corporate treasurer rather than to the controller?

Accepted Answer

A)  Data processing
B)  Cost accounting
C)  Tax management
D)  Cash management
E)  Financial accounting

Question 5

Which one of the following is an advantage of being a limited partner?

Accepted Answer

A)  Nontaxable share of any profits
B)  Control over the daily operations of the firm
C)  Losses limited to capital invested
D)  Unlimited profits without risk of incurring a loss
E)  Active market for ownership interest

Question 6

Limited liability companies are primarily designed to:

Accepted Answer

A)  allow a portion of their owners to enjoy limited liability while granting the other portion of their owners control over the entity.
B)  provide the benefits of the corporate structure only to foreign-based entities.
C)  spin off a wholly owned subsidiary.
D)  allow companies to reorganize themselves through the bankruptcy process.
E)  provide limited liability while avoiding double taxation.

Question 7

Which one of the following statements is correct?

Accepted Answer

A)  All secondary markets are dealer markets.
B)  All secondary markets are broker markets.
C)  All stock trades between existing shareholders are primary market transactions.
D)  All stock transactions are secondary market transactions.
E)  All over-the-counter sales occur in dealer markets.

Question 8

A limited liability company (LLC):

Accepted Answer

A)  is a hybrid between a sole proprietorship and a partnership.
B)  prefers its profits be taxed as personal income to its owners.
C)  that meets the IRS criteria to be an LLC will be taxed like a corporation.
D)  provides limited liability for some, but not all, of its owners.
E)  cannot be created for professional service firms, such as accountants and attorneys.

Question 9

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE.This sale will occur in the:

Accepted Answer

A)  dealer market.
B)  over-the-counter market.
C)  secondary market.
D)  primary market.
E)  tertiary market.

Question 10

Which one of the following is most apt to align management's priorities with shareholders' interests?

Accepted Answer

A)  Holding corporate and shareholder meetings at high-end resort-type locations preferred by managers
B)  Compensating managers with shares of stock that must be held for a minimum of three years
C)  Paying a special management bonus on every fifth year of employment
D)  Increasing the number of paid holidays that long-term employees are entitled to receive
E)  Allowing employees to retire early with full retirement benefits

Question 11

The daily financial operations of a firm are primarily controlled by managing the:

Accepted Answer

A)  total debt level.
B)  working capital.
C)  capital structure.
D)  capital budget.
E)  long-term liabilities.

Question 12

One advantage of the corporate form of organization is the:

Accepted Answer

A)  taxation of the corporate profits.
B)  unlimited liability for its shareholders.
C)  double taxation of profits.
D)  ability to raise larger sums of equity capital than other organizational forms.
E)  ease of formation compared to other organizational forms.

Question 13

The primary goal of financial management is most associated with increasing the:

Accepted Answer

A)  dollar amount of each sale.
B)  traffic flow within the firm's stores.
C)  the fixed costs while lowering the variable costs.
D)  firm's liquidity.
E)  market value of the firm.

Question 14

Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?

Accepted Answer

A)  Decrease the number of corporations that can be publicly traded
B)  Increase the protections against corporate fraud
C)  Limit secondary issues of corporate securities
D)  Increase the dividends paid to shareholders
E)  Increase the number of firms that "go dark"

Question 15

A corporation:

Accepted Answer

A)  is ultimately controlled by its board of directors.
B)  is a legal entity separate from its owners.
C)  is prohibited from entering into contractual agreements.
D)  has its identity defined by its bylaws.
E)  has its existence regulated by the rules set forth in its charter.

Question 16

Levi had an unexpected surprise when he returned home this morning.He found that a chemical spill from a local manufacturer had spilled over onto his property.The potential claim that he has against this manufacturer is that of a(n):

Accepted Answer

A)  general creditor.
B)  debtholder.
C)  shareholder.
D)  stakeholder.
E)  agent.

Question 17

Corporate shareholders:

Accepted Answer

A)  are proportionately liable for the firm's debts.
B)  are protected from all financial losses.
C)  have the ability to change the corporation's bylaws.
D)  receive tax-free distributions since all profits are taxed at the corporate level.
E)  have basically no control over the actual corporation.

Question 18

Margie opened a used bookstore and is both the 100 percent owner and the store's manager.Which type of business entity does Margie own if she is personally liable for all the store's debts?

Accepted Answer

A)  Sole proprietorship
B)  Limited partnership
C)  Corporation
D)  Joint stock company
E)  General partnership

Question 19

Which one of the following parties can sell shares of ABC stock in the primary market?

Accepted Answer

A)  ABC company
B)  Any corporation, other than the ABC Company
C)  Any institutional shareholder
D)  Any private individual shareholder
E)  Only officers and directors of ABC Company

Question 20

Jamie is employed as a currency trader in the Japanese yen market.Her job falls into which one of the following areas of finance?

Accepted Answer

A)  International finance
B)  Financial institutions
C)  Corporate finance
D)  Capital management
E)  Personal finance

Exam 1: Introduction to Financial Management