Question 1

This should be the primary objective of a firm as it may actually be the most beneficial for society in the long run.

Accepted Answer

A) minimizing layoffs 
B) maximizing market share 
C) minimizing costs 
D) maximizing shareholder value

Question 2

The portion of a company's profits that are kept by the company rather than distributed to the stockholders as cash dividends is referred to as

Accepted Answer

A) restricted earnings. 
B) venture capital. 
C) retained earnings. 
D) institutional investment.

Question 3

For corporations, maximizing the value of owner's equity can also be stated as

Accepted Answer

A) maximizing retained earnings. 
B) maximizing earnings per share. 
C) maximizing net income. 
D) maximizing the stock price.

Question 4

Not all cash a company generates will be returned to the investors. Which of the following will NOT reduce the amount of capital returned to the investors?

Accepted Answer

A) retained earnings 
B) taxes 
C) dividends

Question 5

The overall goal of the financial manager is to

Accepted Answer

A) minimize total costs. 
B) maximize net income. 
C) maximize earnings per share. 
D) maximize shareholder wealth.

Question 6

What is the difference in perspective between finance and accounting?

Accepted Answer

A) timing 
B) risk 
C) liability 
D) ownership

Question 7

The agency relationship in corporate finance occurs

Accepted Answer

A) when the shareholders hire a manager to run their company. 
B) when the corporate hires an advertising agency to market their new product or service. 
C) when the board of directors are elected to staggered terms. 
D) when the board of directors oversee the CEO.

Question 8

These individuals examine the firm's accounting systems and comment on whether financial statements fairly represent the firm's financial position.

Accepted Answer

A) accounting departments 
B) chief financial officers 
C) board of directors 
D) auditors

Question 9

Which of the following is the firm's highest-level financial manager?

Accepted Answer

A) chief executive officer 
B) chief financial officer 
C) board of directors 
D) corporate governance

Question 10

This subarea of finance looks at firm decisions in acquiring and utilizing cash received from investors or from retained earnings.

Accepted Answer

A) investments 
B) financial management 
C) treasury management

Question 11

The opportunity to buy stock at a fixed price over a specific period of time is referred to as

Accepted Answer

A) stock opportunities. 
B) stock options. 
C) real assets. 
D) restricted stock.

Question 12

Which of the following do not ensure firm viability over the long run?

Accepted Answer

A) maximizing employment 
B) market share 
C) profits 
D) all of these choices are correct.

Question 13

Which of the following can create ethical dilemmas between corporate managers and stockholders?

Accepted Answer

A) agency relationship 
B) auditors 
C) boards of directors 
D) venture capitalist

Question 14

All of the following are advantages to organizing as a corporation EXCEPT

Accepted Answer

A) limited liability. 
B) double taxation. 
C) easy access to capital. 
D) easy to transfer ownership.

Question 15

Nonwage compensation that might actually enhance owner value, in that such items may boost managers' productivity.

Accepted Answer

A) agency theory 
B) angel investor 
C) invisible hand 
D) perks or perquisites

Question 16

An employee stock option plan is

Accepted Answer

A) a perk usually only given to the board of directors as compensation. 
B) a plan that only partnerships can use to defer compensation to partners. 
C) a way to align the interests of employees with those of the owners.

Question 17

Maximizing owners' equity value means carefully considering all of the following EXCEPT

Accepted Answer

A) how to best bring additional funds into the firm. 
B) which projects to invest in. 
C) how best to increase the firm's risk. 
D) how best to return the profits from those projects to the owners over time.

Question 18

Which of these is the system of incentives and monitors that tries to overcome the agency problem?

Accepted Answer

A) Security Exchange Commission 
B) checks and Balances 
C) board of Directors 
D) corporate Governance

Question 19

A potential future negative impact to value and/or cash flows is often discussed in terms of probability of loss and the expected magnitude of the loss. This is called

Accepted Answer

A) options. 
B) standard deviation. 
C) coefficient of variation. 
D) risk.

Question 20

A metaphor used to illustrate how an individual pursuing his own interests also tends to promote the good of the community.

Accepted Answer