Question 1

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.F) A) and B)
G) B) and C)

Question 2

Explain what capital structure management is and give three examples of capital structure decisions.

Accepted Answer

Capital structure management relates to ...

Question 3

Capital budgeting includes the evaluation of which of the following?

Accepted Answer

A)   Size of future cash flows only
B)   Size and timing of future cash flows only
C)   Timing and risk of future cash flows only
D)   Risk and size of future cash flows only
E)   Size, timing, and risk of future cash flowsF) A) and D)
G) All of the above

Question 4

Margie opened a used book store 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 partnershipF) D) and E)
G) C) and D)

Question 5

Give an example of a situation where the management of a firm is acting in a manner that is contrary to the principal goal of financial management.

Accepted Answer

The primary goal of financial management is to maximize the current value of the existing stock. Any management action that is contrary to this goal would be an acceptable answer.

Question 6

Which one of the following statements correctly applies to a sole proprietorship?

Accepted Answer

A)   The business entity has an unlimited life.
B)   The ownership can easily be transferred to another individual.
C)   The owner enjoys limited liability for the firm's debts.
D)   Debt financing is easy to arrange in the firm's name.
E)   Obtaining additional equity is dependent on the owner's personal finances.F) A) and E)
G) C) and D)

Question 7

The goal of financial management is to increase the:

Accepted Answer

A)   future value of the firm's total equity.
B)   book value of equity.
C)   dividends paid per share.
D)   current market value per share.
E)   number of shares outstanding.F) A) and E)
G) All of the above

Question 8

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.F) A) and C)
G) A) and B)

Question 9

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 ratioF) B) and D)
G) All of the above

Question 10

If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?

Accepted Answer

A)   international finance
B)   private placements
C)   corporate finance
D)   capital management
E)   investmentsF) B) and E)
G) A) and E)

Question 11

Limited liability companies are primarily designed to:

Accepted Answer

A)   allow a portion of its owners to enjoy limited liability while granting the other portion of its owners control over the entity.
B)   provide the benefits of the corporate structure 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.F) B) and E)
G) A) and B)

Question 12

Which of the following individuals commonly use finance in the course of their job? I. Chief financial officers
II)  Accountants
III)  Security analysts
IV)  Strategic managers

Accepted Answer

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

Question 13

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.F) B) and D)
G) C) and E)

Question 14

Which one of the following correctly defines a common chain of command within a corporation?

Accepted Answer

A)   The controller reports directly to corporate treasurer.
B)   The treasurer reports directly to the board of directors.
C)   The chief financial officer reports directly to the board of directors.
D)   The credit manager reports directly to the controller.
E)   The controller reports directly to the chief financial officer.F) A) and B)
G) A) and C) E

Question 15

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.F) A) and D)
G) D) and E)

Question 16

Ted currently owns 100 shares of a publicly traded stock which he would like to sell. Which one of the following provides the most efficient means for Ted to sell his shares?

Accepted Answer

A)   Issuer sponsored Dutch auction
B)   Proxy statement
C)   Private placement transaction
D)   Stakeholder purchase
E)   Secondary market transactionF) A) and B)
G) A) and E)

Question 17

The "Say on Pay" bill requires corporations to do which one of the following?

Accepted Answer

A)   Give the chairman 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 payF) A) and C)
G) B) and D) D

Question 18

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.F) B) and D)
G) D) and E)

Question 19

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 non-owner sources.F) A) and B)
G) A) and E)

Question 20

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

Student answers will vary but most shoul...

Exam 1: Introduction to Financial Management

The Sarbanes-Oxley Act:

Correct AnswerverifiedShow Answer

Explain what capital structure management is and give three examples of capital structure decisions.

Correct AnswerverifiedCapital structure management relates to ...View AnswerShow Answer

Capital budgeting includes the evaluation of which of the following?

Correct AnswerverifiedShow Answer

Margie opened a used book store 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?

Correct AnswerverifiedShow Answer

Give an example of a situation where the management of a firm is acting in a manner that is contrary to the principal goal of financial management.

Correct AnswerverifiedThe primary goal of financial management is to maximize the current value of the existing stock. Any management action that is contrary to this goal would be an acceptable answer.

Which one of the following statements correctly applies to a sole proprietorship?

Correct AnswerverifiedShow Answer

The goal of financial management is to increase the:

Correct AnswerverifiedShow Answer

Which one of the following applies to a general partnership?

Correct AnswerverifiedShow Answer

Working capital management includes which one of the following?

Correct AnswerverifiedShow Answer

If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?

Correct AnswerverifiedShow Answer

Limited liability companies are primarily designed to:

Correct AnswerverifiedShow Answer

Which of the following individuals commonly use finance in the course of their job? I. Chief financial officers II) Accountants III) Security analysts IV) Strategic managers

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which one of the following correctly defines a common chain of command within a corporation?

Correct AnswerverifiedE

An auction market:

Correct AnswerverifiedShow Answer

Ted currently owns 100 shares of a publicly traded stock which he would like to sell. Which one of the following provides the most efficient means for Ted to sell his shares?

Correct AnswerverifiedShow Answer

The "Say on Pay" bill requires corporations to do which one of the following?

Correct AnswerverifiedD

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:

Correct AnswerverifiedShow Answer

A sole proprietorship:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedStudent answers will vary but most shoul...View AnswerShow Answer

Correct Answer
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Capital structure management relates to ...
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The primary goal of financial management is to maximize the current value of the existing stock. Any management action that is contrary to this goal would be an acceptable answer.

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E

Correct Answer
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D

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Student answers will vary but most shoul...
View Answer