Question 1

Shareholder wealth is measured by the ____ value of the shareholders' common stock holdings.

Accepted Answer

A)  book 
B)  market 
C)  historic 
D)  compound

Question 2

The major factors that determine the market value of a company's shares of stock include all of the following EXCEPT ____.

Accepted Answer

A)  risk of its cash flows 
B)  timing of its cash flows 
C)  book value of its assets 
D)  risk of its cash flows and the timing of its cash flows

Question 3

The financial manager uses ____ when determining the firm's most appropriate capital structure.

Accepted Answer

A)  accounting data 
B)  employment benefit data 
C)  federal regulations 
D)  computer software design

Question 4

____ deals with economic decisions of individuals, households, and firms.

Accepted Answer

A)  Economic accounting 
B)  Microeconomics 
C)  Blue Chip econometrics 
D)  Macroeconomics

Question 5

The controller normally has responsibility for all ____ related activities, while the treasurer is normally concerned with ____.

Accepted Answer

A)  acquisition; data processing 
B)  tax; cost accounting 
C)  tax; financial accounting 
D)  accounting; expenditure of funds

Question 6

A microeconomic concept used in financial management is _____.

Accepted Answer

A)  full utilization of data processing 
B)  setting marginal costs equal to marginal revenues 
C)  accrual basis of recognizing revenues and expenses 
D)  target capital structure

Question 7

A potential agency conflict can arise between stockholders and creditors because owners may _____.

Accepted Answer

A)  increase the risk of a firm's investments 
B)  decrease the amount of debt outstanding 
C)  decrease the risk of a firm's investments 
D)  increase the firm's net worth

Question 8

____ is (are) referred to as a residual form of ownership in a corporation.

Accepted Answer

A)  Common stock 
B)  Preferred stock 
C)  Bonds 
D)  Dividends

Question 9

A major advantage of using the maximization of shareholder wealth as the primary goal of the firm is that this goal considers _____.

Accepted Answer

A)  the timing and the risk of the expected benefits to be received 
B)  the investor's consumption utility 
C)  the value of closely held partnerships 
D)  All of these are correct

Question 10

Sole proprietorships, partnerships, and corporations are the three main forms of business organization. There are other types which are referred to as hybrids. Examples of hybrid business forms are _____.

Accepted Answer

A)  10K & 14B Corporations 
B)  section 8 and Subchapter S Corporations 
C)  subchapter S and LLCs 
D)  10K Corporations and LLCs

Question 11

The bottom-line earnings figure from the accounting system is misleading because _____.

Accepted Answer

A)  it does not reflect actual cash inflows and outflows of the firm 
B)  stock dividends are difficult to forecast 
C)  depreciation is a cash outlay but is not reflected as such 
D)  tax laws change regularly which cause the firm to misjudge its true tax obligation

Question 12

The two most important disciplines on which financial management relies are _____.

Accepted Answer

A)  accounting and production 
B)  accounting and marketing 
C)  economics and marketing 
D)  accounting and economics

Question 13

The difference between a firm's annual after-tax operating profit and its total annual cost of capital is known as _____.

Accepted Answer

A)  earned income 
B)  Economic Value Added 
C)  Managerial Value Added 
D)  operating income

Question 14

The net present value of an investment made by a firm represents the contribution of that investment to the ____ of the firm.

Accepted Answer

A)  book value 
B)  profit 
C)  value 
D)  cash flow

Question 15

Accounting is concerned primarily with matching _____.

Accepted Answer

A)  cost-based revenues and expenses 
B)  tax liability and future cash flows 
C)  revenue and long-term debt 
D)  inventory and cost of sales

Question 16

The existence of divergent objectives between owners and managers is one example of a class of problems arising from ____.

Accepted Answer

A)  social responsibility concerns 
B)  age differences between managers and owners 
C)  agency relationships 
D)  union-management relations

Question 17

Creditors have a fixed financial claim on a company's resources through all of the following EXCEPT _____.

Accepted Answer

A)  long term debt 
B)  bank loans 
C)  preferred stock 
D)  commercial paper

Question 18

Financial decisions should be consistent with the goal of shareholder wealth maximization. However, there may be a divergence between shareholder wealth maximization and the actual goals of management. The primary reason for this is which of the following?

Accepted Answer

A)  Management wants to ensure good public relations. 
B)  The Board of Directors is becoming increasingly uninvolved within the corporation. 
C)  Shareholders do not feel that wealth maximization is relevant. 
D)  There is a separation of ownership and control in corporations.

Question 19

The advantages of the corporate form of organization over both sole proprietorships and partnerships include ____.

Accepted Answer

A)  limited liability and lower tax rates 
B)  permanency and lower tax rates 
C)  limited liability and permanency 
D)  lower tax rates and permanency

Question 20

The success of a firm is linked to its stakeholders. This group includes _____.

Accepted Answer

A)  communities in which they operate 
B)  suppliers 
C)  employees 
D)  All of these are correct

Exam 1: The Role and Objective of Financial Management