Question 1

Jamie is employed as a commercial loan officer for a regional bank centered in the midwestern section of the U.S.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) Investments

Question 2

Give an example of a potential agency problem for a corporation and identify means by which the firm can help reduce or eliminate that problem.

Accepted Answer

The answer of Give an example of a potential agency...

Question 3

A sole proprietorship:

Accepted Answer

A) provides limited liability for its owner. 
B) involves significant legal costs during the formation process. 
C) has an unlimited life. 
D) has its profits taxed as personal income. 
E) can generally raise significant capital from nonowner sources.

Question 4

Which of the following are effective means of aligning management goals with shareholder interests?
I.Employee stock options
II.Threat of a takeover
III.Management bonuses tied to performance goals
IV.Threat of a proxy fight

Accepted Answer

A) I and III only 
B) II and IV only 
C) I, II, and III only 
D) I, III, and IV only 
E) I, II, III, and IV

Question 5

Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50-50 basis.Which type of entity did they create if they have no personal liability for the firm's debts?

Accepted Answer

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

Question 6

Which one of the following statements about a limited partnership is correct?

Accepted Answer

A) All partners have their losses limited to their capital investment in the partnership. 
B) All partners are treated equally. 
C) There must be at least one general partner. 
D) Equity financing is easy to obtain and unlimited. 
E) Any partner can transfer his or her ownership interest without ending the partnership.

Question 7

Lester's BBQ has $121,000 in current assets and $109,000 in current liabilities.These values as referred to as the firm's:

Accepted Answer

A) capital structure. 
B) cash equivalents. 
C) working capital. 
D) net assets. 
E) fixed accounts.

Question 8

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

Accepted Answer

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

Question 9

The federal government has a tax claim on the cash flows of The Window Store.This claim is defined as a claim by one of the firm's:

Accepted Answer

A) residual owners. 
B) shareholders. 
C) financiers. 
D) provisional partners. 
E) stakeholders.

Question 10

The Sarbanes-Oxley Act:

Accepted Answer

A) makes the officers of a public corporation personally responsible for the firm's financial statements. 
B) requires all corporations to fully disclose its financial dealings to the general public. 
C) places the responsibility for a firm's financial statements solely on the chief financial officer. 
D) requires that the board of directors be solely responsible for the firm's financial dealings. 
E) places total responsibility for the financial statements of a firm on the auditor who certifies the statements.

Question 11

Stadford,Inc.is financed with 40 percent debt and 60 percent equity.This mixture of debt and equity is referred to as the firm's:

Accepted Answer

A) capital structure. 
B) capital budget. 
C) asset allocation. 
D) working capital. 
E) risk structure.

Question 12

The Sarbanes-Oxley Act of 2002 has:

Accepted Answer

A) reduced the annual compliance costs of all publicly traded firms in the U.S. 
B) decreased senior management's involvement in the corporate annual report. 
C) greatly increased the number of U.S. firms that are going public for the first time. 
D) decreased the number of U.S. firms going public on foreign exchanges. 
E) made officers of publicly traded firms personally responsible for the firm's financial statements.

Question 13

The "say on pay" portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires corporations to do which one of the following?

Accepted Answer

A) Give the chair of the board the final say on executive pay 
B) Give the firm's creditors a nonbinding say on executive pay 
C) Give the firm's creditors a binding say on executive pay 
D) Give shareholders a nonbinding vote on executive pay 
E) Give shareholders a binding vote on executive pay

Question 14

Working capital management includes which one of the following?

Accepted Answer

A) Deciding which new projects to accept 
B) Deciding whether to purchase a new machine or fix a current machine 
C) Determining which customers will be granted credit 
D) Determining how many new shares of stock should be issued 
E) Establishing the target debt-equity ratio

Question 15

Will and Bill both enjoy sunshine,water,and surfboards.Thus,the two friends decided to create a business together renting surfboards,paddle boats,and inflatable devices in California.Will and Bill will equally share in the decision making and in the profits or losses.Which type of business did they create if they both have full personal liability for the firm's debts?

Accepted Answer

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

Question 16

Which of the following are advantages of the corporate form of organization?
I.Ability to raise large sums of equity capital
II.Ease of ownership transfer
III.Profits taxed at the corporate level
IV.Limited liability for all owners

Accepted Answer

A) I and II only 
B) III and IV only 
C) II, III, and IV only 
D) I, II, and IV only 
E) I, II, III, and IV

Question 17

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 18

An auction market:

Accepted Answer

A) is an electronic means of exchanging securities. 
B) has a physical trading floor. 
C) handles primary market transactions exclusively. 
D) is also referred to as an OTC market. 
E) is dealer based.

Question 19

Which one of the following applies to a general partnership?

Accepted Answer

A) The firm's operations must be controlled by a single partner. 
B) Any one of the partners can be held solely liable for all of the partnership's debt. 
C) The profits of the firm are taxed as a separate entity. 
D) Each partner's liability for the firm's debts is limited to each partner's investment in the firm. 
E) The profits of a general partnership are taxed the same as those of a corporation.

Question 20

Marti had an unexpected surprise when she ate her Lotsa Good cereal this morning.She found a piece of metal mixed in her cereal.The potential claim that Marti has against this firm is that of a(n):

Accepted Answer

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

Exam 1: Introduction to Financial Management