Question 1

Which forms of organisation are free of initial legal requirements?

Accepted Answer

A) Sole proprietorship 
B) General partnership 
C) Corporation 
D) Both A and B

Question 2

The life of a corporation is not dependent upon the status of the investors.

Accepted Answer

A) True 
 B)False

Question 3

A reputation for unethical behavior can negatively affect the value of a company's stock.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) a financing decision. 
B) an investment decision. 
C) a capital structure decision. 
D) a cash flow decision.

Question 5

Rewarding executives for increasing quarterly earnings will motivate them to act in the long-term best interests of shareholders.

Accepted Answer

A) True 
 B)False

Question 6

The personal decision to obtain a college degree in business is primarily a(n)________ decision.

Accepted Answer

A) social 
B) investment 
C) ethical 
D) financing

Question 7

Which of the following goals of the firm is equivalent to the maximisation of shareholder wealth?

Accepted Answer

A) rofit maximisation 
B) isk minimisation 
C) stock maximisation 
D) None of the above

Question 8

If one security has a greater risk than another security,how will investors respond?

Accepted Answer

A) They will require a lower rate of return for the investment that has greater risk. 
B) They would be indifferent regarding their expectation of rates of return for either investment. 
C) They will require a higher rate of return for the investment that has greater risk. 
D) None of the above.

Question 9

As firms grow and their capital needs increase,they are more likely to become a

Accepted Answer

A) sole proprietorship. 
B) general partnership. 
C) limited partnership. 
D) joint venture. 
E) corporation.

Question 10

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 11

Consider the timing of the profits of the following certain investment projects: Profit
L S
Year 1 $ 0 $ 3000
Year 2 $ 3000 $ 0

Accepted Answer

A) Project S is preferred to Project L. 
B) Project L is preferred to Project S. 
C) Projects S and L are equally desirable. 
D) A goal of profit maximisation would favor Project S only.

Question 12

Limited partners may actively manage the business.

Accepted Answer

A) True 
 B)False

Question 13

What are the three basic questions addressed by the study of finance?

Accepted Answer

The answer of What are the three basic questions addressed...

Question 14

How could you compensate an investor for taking on a significant amount of risk?

Accepted Answer

A) Increase the expected rate of return 
B) Raise more debt capital 
C) Offer stock at a higher price 
D) Increase sales

Question 15

In an efficient market,prices will quickly adjust to new information.

Accepted Answer

A) True 
 B)False

Question 16

Maximisation of shareholder wealth as a goal is superior to accounting profit maximisation because

Accepted Answer

A) the former avoids an excessively short term focus. 
B) the former ensures high stock prices. 
C) accounting profits are not the same as cash flows. 
D) both A and C.

Question 17

Consider cash flows for Projects X and Y such as: Project X Project Y
Year 1 $3000 $ 0
Year 2 $ 0 $3000
A rational person would prefer receiving cash flows sooner because

Accepted Answer

A) the money can be reinvested. 
B) the money is nice to have around. 
C) the investor may be tired of a particular investment. 
D) the investor is indifferent to either proposal.

Question 18

Which of the following is true concerning a sole proprietorship?

Accepted Answer

A) It has limited liability for the owner. 
B) The business survives the death of the owner. 
C) It has only one owner. 
D) Profits are taxed at the company tax rate.

Question 19

The sole proprietorship is the same as the individual for liability purposes.

Accepted Answer

A) True 
 B)False

Question 20

Consider the following equally likely project outcomes: Profit
X Y
Pessimistic prediction $ 0 $500
Expected outcome $ 500 $500
Optimistic prediction $1000 $500

Accepted Answer

A) Investors will prefer project X because it potentially offers a higher profit. 
B) Investors will reject both projects because the profit is too low. 
C) Investors will prefer project Y because the expected return is the same as for project X but the outcome is certain. 
D) Since Projects X and Y have the same expected outcomes of $500,investors will view them as identical in value.

Exam 1: Getting Started-Principles of Finance

Which forms of organisation are free of initial legal requirements?

The life of a corporation is not dependent upon the status of the investors.

A reputation for unethical behavior can negatively affect the value of a company's stock.

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

Rewarding executives for increasing quarterly earnings will motivate them to act in the long-term best interests of shareholders.

The personal decision to obtain a college degree in business is primarily a(n) ________ decision.

Which of the following goals of the firm is equivalent to the maximisation of shareholder wealth?

If one security has a greater risk than another security,how will investors respond?

As firms grow and their capital needs increase,they are more likely to become a

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.

Consider the timing of the profits of the following certain investment projects: Profit L S Year 1 $ 0 $ 3000 Year 2 $ 3000 $ 0

Limited partners may actively manage the business.

What are the three basic questions addressed by the study of finance?

How could you compensate an investor for taking on a significant amount of risk?

In an efficient market,prices will quickly adjust to new information.

Maximisation of shareholder wealth as a goal is superior to accounting profit maximisation because

Consider cash flows for Projects X and Y such as: Project X Project Y Year 1 $3000 $ 0 Year 2 $ 0 $3000 A rational person would prefer receiving cash flows sooner because

Which of the following is true concerning a sole proprietorship?

The sole proprietorship is the same as the individual for liability purposes.

Consider the following equally likely project outcomes: Profit X Y Pessimistic prediction $ 0 $500 Expected outcome $ 500 $500 Optimistic prediction $1000 $500