Deck 1: Introduction to Financial Management

Question 1

This subarea of finance helps facilitate the capital flows between investors and companies.

A)investments
B)financial management
C)treasury management
D)financial institutions and markets

Answer 1

financial institutions and markets

Question 2

Which of the following personal decisions is NOT impacted by finance?

A)borrowing money to purchase cars or homes
B)making credit card payments
C)making retirement decisions
D)all of these choices are correct.

Answer 2

all of these choices are correct.

Question 3

When determining a form of business organization, all of the following are considered EXCEPT

A)who owns the firm.
B)the owners' risks.
C)the tax ramifications.
D)the physical location of the business.

Answer 3

the physical location of the business.

Question 4

This subarea of finance involves methods and techniques to make appropriate decisions about what kinds of securities to own, which firms' securities to buy, and how to be paid back in the form that the investor wishes.

A)real markets
B)investments
C)financial management

Question 5

This type of business organization is entirely legally independent from its owners.

A)sole proprietorship
B)partnership
C)public corporations
D)hybrid organizations

Question 6

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?

A)retained earnings
B)taxes
C)dividends

Question 7

The increase in oil production in the United States characterizes which of the following key financial concepts presented in this book?

A)the Rule of 72
B)time value of money
C)risk and return
D)capital budgeting

Question 8

The practice generally known as double taxation is due to

A)shareholders' dividends being taxed at both the federal and state levels.
B)corporate income being taxed at both the federal and state levels.
C)interest on shareholders' dividends being taxed as income.
D)corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends.

Question 9

The most commonly accepted groups of asset classes include all of the following except

A)stocks.
B)bonds.
C)machinery and equipment.
D)real estate.

Question 10

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

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

Question 11

Which of the following managers would NOT use finance?

A)operational managers
B)marketing managers
C)human resource managers
D)all of these choices are correct.

Question 12

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

A)investments
B)financial management
C)treasury management

Question 13

Financial management involves decisions about which of the following?

A)which projects to fund
B)how to minimize taxation
C)what type of capital should be raised
D)all of these choices are correct.

Question 14

Which of the following is NOT considered a hybrid organization?

A)S corporation
B)limited liability partnership
C)limited liability company
D)limited partnership
E)all of these choices are correct.

Question 15

This type of business organization is relatively easy to start, and it is subject to much lighter regulatory and paperwork burden than other business forms.

A)sole proprietorship
B)partnership
C)corporation
D)hybrid organization

Question 16

Which of the following is not an impact of the slowdown occurring in China's economy?

A)lower demand in materials such as steel, iron ore, and copper
B)real estate market declining in Sydney, Australia
C)money going out of Manhattan, New York
D)falling community prices

Question 17

This is a general term for securities like stocks, bonds, and other assets that represent ownership in a cash flow.

A)investment
B)financial asset
C)real asset
D)financial markets

Question 18

This subarea of finance is important for adapting to the global economy.

A)investments
B)financial management
C)international finance
D)financial institutions and markets

Question 19

Which of the following is defined as a group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations?

A)investments
B)asset classes
C)market instruments
D)financial markets

Question 20

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

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

Question 21

Which of these are NOT basic approaches to minimizing the agency problem?

A)ignore the conflict of interest
B)monitor managers' actions
C)align managers' personal interest with those of the owners by making the managers owners
D)all of these choices are correct.

Question 22

These individuals follow a firm, conduct their own evaluations of the company's business activities, and report to the investment community.

A)auditors
B)investment analysts
C)investment bankers
D)credit analysts

Question 23

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

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

Question 24

Individuals who provide small amounts of capital and expert business advice to small firms in exchange for an ownership stake in the firm are referred to as

A)institutional investors.
B)corporate investors.
C)angel investors.
D)capital investors.

Question 25

An employee stock option plan is

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 26

In order for an angel investor or venture capitalist to exchange capital for ownership in a business that is a sole proprietorship, which of these must happen?

A)The business must be re-formed as a partnership.
B)The owner must give up some control.
C)The owner must co sign on all loans.
D)Both the business must be re-formed as a partnership and the owner must give up some control.

Question 27

This is the set of laws, policies, incentives, and monitors designed to handle the issues arising from the separation of ownership and control.

A)agency theory
B)corporate governance
C)defined benefit plan
D)invisible hand

Question 28

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

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

Question 29

These individuals examine a firm's financial strength for its debt holders.

A)auditors
B)investment analysts
C)investment bankers
D)credit analysts

Question 30

Which of the following is an example of aligning managers' personal interests with those of the owners?

A)allow the managers to have as many perks as they request
B)pay the managers high salaries
C)offer the managers an equity stake in the firm
D)trust the managers' actions as they will always act in the owners' best interest

Question 31

This group is elected by stockholders to oversee management in a corporation.

A)chief counselors
B)chief executives
C)board of directors
D)auditors

Question 32

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

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

Question 33

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

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

Question 34

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

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

Question 35

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

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

Question 36

As individual legal entities, corporations assume liability for their own debts, so the shareholders hold

A)only limited liability.
B)unlimited liability.
C)shared liability.
D)joint liability.

Question 37

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

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

Question 38

These individuals help firms access capital markets and advise managers about how to interact with those capital markets.

A)auditors
B)investment analysts
C)investment bankers
D)credit analysts

Question 39

Which of the following is legal duty between two parties where one party must act in the interest of the other party?

A)agency theory
B)angel investor
C)fiduciary
D)investment banker

Question 40

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

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

Question 41

From the perspective of ownership risk, the best form of business organization is the

A)sole proprietorship.
B)corporation.
C)partnership.
D)S corporation.

Question 42

Which of the following statements is incorrect?

A)Sole proprietorships are subject to less regulation.
B)Both angel investors and venture capitalists exchange capital for ownership.
C)Shareholders are responsible for paying off the corporate bonds in the event of a bankruptcy.
D)All of these choices are correct.

Question 43

From a taxation perspective, the form of business organization with the highest business level taxes is the

A)sole proprietorship.
B)corporation.
C)partnership.
D)S corporation.

Question 44

Restricted stock is

A)a special type of stock that is not transferable from the current holder to others until specific conditions are satisfied.
B)a special type of stock that can be converted into corporate bonds after a specific amount of time has elapsed.
C)a special type of stock that is a result of offering an employee stock ownership plan.

Question 45

All of the following are an example of a fiduciary relationship EXCEPT

A)a bank employee manages deposits.
B)a financial advisor advises her clients.
C)a CEO manages the firm.
D)the shareholder elects a board member.

Question 46

Outside parties that monitor the firm include all of the following EXCEPT

A)credit agencies.
B)the New York Stock Exchange.
C)analysts.
D)bankers.

Question 47

The most common type of business in the United States is the

A)corporation.
B)partnership.
C)sole proprietorship.
D)hybrid organization such as a limited liability company.

Question 48

Which statement is incorrect regarding hybrid organizations?

A)They offer single taxation.
B)They offer limited risk to the owners.
C)They offer the same type of control as a sole proprietorship.
D)All of these choices are correct.

Question 49

From the perspective of control, the best form of business organization is the

A)sole proprietorship.
B)corporation.
C)partnership.
D)S corporation.

Question 50

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

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

Question 51

Which of the following statements is incorrect?

A)Partnerships have unlimited liability.
B)Most sole proprietors raise money by borrowing from banks.
C)An advantage of sole proprietorships is that the owner has complete control.
D)S corporations are considered a hybrid organization.

Question 52

The agency relationship in corporate finance occurs

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 53

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

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 54

From the perspective of access to capital, the best form of business organization is the

A)sole proprietorship.
B)corporation.
C)partnership.
D)S corporation.

Question 55

Which of the following is NOT a function of the board of directors?

A)hire the CEO
B)evaluate the CEO
C)design compensation contracts for the CEO
D)provide reports to the auditors

Question 56

The biggest disadvantage of the sole proprietorship is

A)unlimited liability.
B)double taxation.
C)limited access to capital.
D)total control.

Question 57

Methods to minimize agency problem include all EXCEPT

A)offer the managers an equity stake in the firm.
B)award the CEO stock options.
C)allow the CEO to purchase stock via an employee stock option plan.
D)allow the CEO to purchase bonds via an employee bond option plan.

Question 58

Agency problems exist in which forms of business ownership?

A)sole proprietorship
B)S corporation
C)partnership
D)corporation

Question 59

The overall goal of the financial manager is to

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

Question 60

Which of the following statements is correct?

A)Sole proprietorships are easy to start.
B)If the sole proprietorship gets sued, the owner is not liable.
C)It is relatively easy for sole proprietorships to raise money.
D)Profits from the sole proprietorship are subject to double taxation.

Question 61

The board of directors

A)are hired by the CEO.
B)are elected by shareholders.
C)have unlimited liability since they oversee the day-to-day operations of the firm.
D)are employed by the Securities Exchange Commission to ensure its rules and regulations have been met.

Question 62

Which of the following will help you make better personal financial decisions?

A)knowing finance theory
B)applying financial tools
C)auditors
D)knowing finance theory and applying financial tools.

Question 63

Corporate stakeholders include all of the following EXCEPT

A)employees.
B)shareholders.
C)suppliers.
D)auditors.

Question 64

Which of these must effectively distribute capital between investors and companies?

A)individuals
B)international investors
C)companies
D)financial institutions

Question 65

Which of the following statements is correct?

A)Accountants are focused on what happened in the past.
B)Financial managers are focused on what happened in the past.
C)Both accountants and financial managers use total quality management systems to standardize data.
D)Financial managers double-check the accountant's statements.

Question 66

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

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

Question 67

Which of the following can use financial concepts to improve their decisions?

A)financial professionals only
B)financial and nonfinance professionals
C)day-to-day operations managers only
D)long-term operations managers only

Question 68

An angel investor differs from a venture capitalist because of the

A)type of investment.
B)investment time frame.
C)size of investment.
D)voting rights.

Question 69

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

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

Question 70

What is the difference in perspective between finance and accounting?

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

Question 71

Which of these does NOT act as a monitor of how the firm is being run outside the firm?

A)auditors
B)analysts
C)credit rating agencies
D)members of the board of directors