Question 1

Institutional investors are important in today's business world because

Accepted Answer

A)   as large investors they have more say in how businesses are managed.
B)   they have a fiduciary responsibility to the workers and investors that they represent to see that the firms they own are managed in an ethical way.
C)   as a group they can vote large blocks of stock for the election of board members.
D)   all of these.E) None of the above
F) B) and C)

Question 2

The financial markets allocate capital to corporations by

Accepted Answer

A)   reflecting expectations of the market participants in the prices of the corporations.
B)   requiring higher returns from companies with lower risk than their competitors.
C)   rewarding companies with expected high returns with lower relative stock prices.
D)   relying on the opinion of investment bankers.E) B) and D)
F) None of the above

Question 3

A corporate restructuring can result in

Accepted Answer

A)   changes in the capital structure.
B)   selling of low-profit margin divisions.
C)   reductions in the work force.
D)   all of these.E) A) and D)
F) All of the above

Question 4

One of the major advantages of a sole proprietorship is

Accepted Answer

A)   that the owner has limited liability.
B)   that stock in the proprietorship can be easily transferred.
C)   that it is exempt from many tax rules that would otherwise apply when employees are hired by the firm.
D)   low operating costs.E) A) and B)
F) B) and C)

Question 5

One of the primary disadvantages of maximizing shareholder value is that it only provides a short-term perspective.

Accepted Answer

A) True 
 B)False

Question 6

Regarding risk levels, financial managers should

Accepted Answer

A)   pursue higher risk projects because they increase value
B)   avoid higher risk projects because they destroy value
C)   focus primarily on market fluctuations
D)   evaluate investor's desire for riskE) None of the above
F) B) and C)

Question 7

Corporate governance is the

Accepted Answer

A)   relationship and exercise of oversight by the board of directors of the company.
B)   relationship between the chief financial officer and institutional investors.
C)   operation of a company by the chief executive officer (CEO)  and other senior executives on the management team.
D)   governance of the company by the board of directors with a focus on social responsibility.E) B) and D)
F) All of the above

Question 8

During the 1930s, financial practice revolved around such topics as the preservation of capital, maintenance of liquidity, reorganization of financially troubled corporations and bankruptcy.

Accepted Answer

A) True 
 B)False

Question 9

Recently, the emphasis of financial management has been on the relationship between risk and return.

Accepted Answer

A) True 
 B)False

Question 10

Existing securities are traded in the secondary market.

Accepted Answer

A) True 
 B)False

Question 11

Risk management will be an important factor over the next decade.

Accepted Answer

A) True 
 B)False

Question 12

Professors Harry Markowitz and William Sharpe received their Nobel prize in economics for their contributions to the

Accepted Answer

A)   options pricing model.
B)   theories of working capital management.
C)   theories of risk-return and portfolio theory.
D)   theories of international capital budgeting.E) A) and D)
F) B) and C)

Question 13

There is unlimited liability in a general partnership.

Accepted Answer

A) True 
 B)False

Question 14

Businesses will increasingly rely on B2B Internet applications to speed up the cash flows through their firms.

Accepted Answer

A) True 
 B)False

Question 15

Institutional investors have had increasing influence over corporations with their ability to vote large blocks of stock and replace poor performing boards of directors.

Accepted Answer

A) True 
 B)False

Question 16

Dividends paid to corporate stockholders have already been taxed once as corporate income.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following did not contribute to the financial crisis?

Accepted Answer

A)   The change from mark-to-market accounting to
B)   Solid credit ratings from the ratings agencies
C)   The extension of credit to high-risk borrowers
D)   The takeover of JPMorgan Chase by Bear Sterns
E)   Mark this response if all of the above contributed to the financial crisisF) None of the above
G) B) and D)

Question 18

With a Subchapter S corporation

Accepted Answer

A)   income is taxed as direct income to stockholders.
B)   stockholders have the same liability as members of a partnership.
C)   the number of stockholders is unlimited.
D)   life of the corporation is limited.E) B) and C)
F) All of the above

Question 19

Proper risk-return management means that

Accepted Answer

A)   the firm should take as few risks as possible.
B)   the firm must determine an appropriate trade-off between risk and return.
C)   the firm should earn the highest return possible.
D)   the firm should value future profits more highly than current profits.E) B) and C)
F) A) and B)

Question 20

Social responsibility and profit maximization are synonymous.

Accepted Answer

A) True 
 B)False

Exam 1: The Goals and Functions of Financial Management

Proper risk-return management means that

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Risk management will be an important factor over the next decade.

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There is unlimited liability in a general partnership.

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A corporate restructuring can result in

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Which of the following did not contribute to the financial crisis?

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Existing securities are traded in the secondary market.

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One of the primary disadvantages of maximizing shareholder value is that it only provides a short-term perspective.

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The financial markets allocate capital to corporations by

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Dividends paid to corporate stockholders have already been taxed once as corporate income.

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Recently, the emphasis of financial management has been on the relationship between risk and return.

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Professors Harry Markowitz and William Sharpe received their Nobel prize in economics for their contributions to the

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During the 1930s, financial practice revolved around such topics as the preservation of capital, maintenance of liquidity, reorganization of financially troubled corporations and bankruptcy.

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Regarding risk levels, financial managers should

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With a Subchapter S corporation

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Social responsibility and profit maximization are synonymous.

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One of the major advantages of a sole proprietorship is

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Institutional investors are important in today's business world because

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Businesses will increasingly rely on B2B Internet applications to speed up the cash flows through their firms.

Correct AnswerverifiedShow Answer

Corporate governance is the

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Institutional investors have had increasing influence over corporations with their ability to vote large blocks of stock and replace poor performing boards of directors.

Correct AnswerverifiedShow Answer

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