Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)   In most corporations, the CFO ranks above the CEO.
B)   By law in most states, the chairman of the board must also be the CEO.
C)   The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking individual. The CEO generally works under the board and its chairman, and the board generally has the authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in the same person.
D)   The CFO generally reports to the firm's chief accounting officer, who is normally the controller.
E)   The CFO is responsible for raising capital and for making sure that capital expenditures are desirable, but he or she is not responsible for the validity of the financial statements, as the controller and the auditors have that responsibility.F) All of the above
G) C) and E)

Question 2

Which of the following statements is NOT CORRECT?

Accepted Answer

A)   When a corporation's shares are owned by a few individuals, we say that the firm is "closely, or privately, held."
B)   "Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares.
C)   The stock of publicly owned companies must generally be registered with and reported to a regulatory agency such as the SEC.
D)   When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public, or an IPO," and the market for such stock is called the new issue or IPO market.
E)   It is possible for a firm to go public and yet not raise any additional new capital for the firm itself.F) D) and E)
G) A) and D)

Question 3

In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price on a specific target date.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

Accepted Answer

A)   Compensating managers with stock options.
B)   Financing risky projects with additional debt.
C)   The threat of hostile takeovers.
D)   The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions.
E)   Abolishing the Security and Exchange Commission.F) B) and D)
G) B) and E)

Question 5

If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized.

Accepted Answer

A) True 
 B)False

Question 6

The term IPO stands for "individual purchase order," as when an individual (as opposed to an institution) places an order to buy a stock.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is CORRECT?

Accepted Answer

A)   Corporations face few regulations and more favorable tax treatment than do proprietorships and partnerships.
B)   Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value compared to managers who do not face the threat of hostile takeovers.
C)   Bond covenants are an effective way to resolve conflicts between shareholders and managers.
D)   Because of their simplified organization, it is easier for proprietors and partnerships to raise large amounts of outside capital than it is for corporations.
E)   One advantage to forming a corporation is that the owners of the firm have limited liability.F) All of the above
G) A) and D)

Question 8

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

Accepted Answer

A)   This is an example of a direct transfer of capital.
B)   This is an example of a primary market transaction.
C)   This is an example of an exchange of physical assets.
D)   This is an example of a money market transaction.
E)   This is an example of a derivative market transaction.F) C) and D)
G) A) and B) A

Question 9

You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:

Accepted Answer

A)   A money market transaction.
B)   A primary market transaction.
C)   A secondary market transaction.
D)   A futures market transaction.
E)   An over-the-counter market transaction.F) A) and D)
G) A) and B)

Question 10

In order to maximize its shareholders' value, a firm's management must attempt to maximize the expected EPS.

Accepted Answer

A) True 
 B)False  False

Question 11

In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in the long run, or the stock's "intrinsic value."

Accepted Answer

A) True 
 B)False

Question 12

A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership.

Accepted Answer

A) True 
 B)False

Question 13

A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary.

Accepted Answer

A) True 
 B)False

Question 14

The "over-the-counter" market received its name years ago because brokerage firms would hold inventories of stocks and then sell them by literally passing them over the counter to the buyer.

Accepted Answer

A) True 
 B)False

Question 15

If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy.

Accepted Answer

A) True 
 B)False  False

Question 16

If a firm's board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders), it should design an executive compensation system whose focus is on the firm's long-term value.

Accepted Answer

A) True 
 B)False

Question 17

The annual rate of return on any given stock can be found as the stock's dividend for the year plus the change in the stock's price during the year, divided by its beginning-of-year price. If you obtain such data on a large portfolio of stocks, like those in the S&P 500, find the rate of return on each stock, and then average those returns, this would give you an idea of stock market returns for the year in question.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is CORRECT?

Accepted Answer

A)   One of the advantages of the corporate form of organization is that it avoids double taxation.
B)   It is easier to transfer one's ownership interest in a partnership than in a corporation.
C)   One of the disadvantages of a proprietorship is that the proprietor is exposed to unlimited liability.
D)   One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one person, one vote."
E)   Corporations of all types are subject to the corporate income tax.F) A) and B)
G) C) and D)

Question 19

Which of the following statements is CORRECT?

Accepted Answer

A)   One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than are partners.
B)   Relative to proprietorships, corporations generally face fewer regulations, and they also find it easier to raise capital.
C)   There is no good reason to expect a firm's stockholders and bondholders to react differently to the types of assets in which it invests.
D)   Stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns.
E)   Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value.F) None of the above
G) C) and E)

Question 20

Which of the following is an example of a capital market instrument?

Accepted Answer

A)   Commercial paper.
B)   Preferred stock.
C)   U.S. Treasury bills.
D)   Banker's acceptances.
E)   Money market mutual funds.F) A) and D)
G) B) and D)

Exam 1: An Overview of Financial Management

Which of the following statements is CORRECT?

Correct Answer
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Which of the following statements is NOT CORRECT?

Correct Answer
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In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price on a specific target date.

Correct Answer
verified

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

Correct Answer
verified

If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized.

Correct Answer
verified

The term IPO stands for "individual purchase order," as when an individual (as opposed to an institution) places an order to buy a stock.

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

Correct Answer
verified
A

You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:

Correct Answer
verified

In order to maximize its shareholders' value, a firm's management must attempt to maximize the expected EPS.

Correct Answer
verified
False

In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in the long run, or the stock's "intrinsic value."

Correct Answer
verified

A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership.

Correct Answer
verified

A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary.

Correct Answer
verified

The "over-the-counter" market received its name years ago because brokerage firms would hold inventories of stocks and then sell them by literally passing them over the counter to the buyer.

Correct Answer
verified

If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy.

Correct Answer
verified
False

If a firm's board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders), it should design an executive compensation system whose focus is on the firm's long-term value.

Correct Answer
verified

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Which of the following is an example of a capital market instrument?

Correct Answer
verified

Exam 1: An Overview of Financial Management

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is NOT CORRECT?

Correct AnswerverifiedShow Answer

In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price on a specific target date.

Correct AnswerverifiedShow Answer

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

Correct AnswerverifiedShow Answer

If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized.

Correct AnswerverifiedShow Answer

The term IPO stands for "individual purchase order," as when an individual (as opposed to an institution) places an order to buy a stock.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

Correct AnswerverifiedA

You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:

Correct AnswerverifiedShow Answer

In order to maximize its shareholders' value, a firm's management must attempt to maximize the expected EPS.

Correct AnswerverifiedFalse

In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in the long run, or the stock's "intrinsic value."

Correct AnswerverifiedShow Answer

A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership.

Correct AnswerverifiedShow Answer

A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary.

Correct AnswerverifiedShow Answer

The "over-the-counter" market received its name years ago because brokerage firms would hold inventories of stocks and then sell them by literally passing them over the counter to the buyer.

Correct AnswerverifiedShow Answer

If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy.

Correct AnswerverifiedFalse

If a firm's board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders), it should design an executive compensation system whose focus is on the firm's long-term value.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following is an example of a capital market instrument?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A

Correct Answer
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Correct Answer
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False

Correct Answer
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Correct Answer
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Correct Answer
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False

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