Question 1

The risk-return tradeoff is seen in many areas of finance.

Accepted Answer

A) True 
 B)False

Question 2

Profits represent money that can be spent,and as such,form the basis for determining the value of financial decisions.

Accepted Answer

A) True 
 B)False  False

Question 3

Which of the following forms of business organization has the greatest ability to attract new capital?

Accepted Answer

A)   sole proprietorship
B)   corporation
C)   general partnership
D)   limited partnership

Question 4

Determining how a firm should raise money to fund its long-term investments is referred to as capital structure decisions.

Accepted Answer

A) True 
 B)False

Question 5

Cash and credit management are typically the responsibility of the

Accepted Answer

A)   Controller.
B)   Vice President of Production and Operations.
C)   Chief Executive Officer, or CEO.
D)   Treasurer.

Question 6

One problem with maximization of shareholder wealth as a goal is that it ignores risk taken by the firm's financial decisions.

Accepted Answer

A) True 
 B)False

Question 7

The principle of risk-return tradeoff means that

Accepted Answer

A)   higher risk investments must earn higher returns.
B)   an investor who takes more risk will earn a higher return.
C)   a rational investor will only take on higher risk if he expects a higher return.
D)   an investor who bought stock in a small corporation five years ago has more money than an investor who bought U.S. Treasury bonds five years ago.

Question 8

Which of the following categories of owners enjoy limited liability?

Accepted Answer

A)   all partners in a limited partnership
B)   common shareholders of a corporation
C)   in a partnership, only the general partners
D)   only B and C above

Question 9

John won the lottery on Monday and can take either $50,000 per year for 20 years,or $500,000 today.Bill won the same lottery on Tuesday and has the same options for receiving the cash.A well respected financial advisor is hired by both John and Bill.The advisor recommends that John take the $50,000 per year for 20 years but advises Bill to take the $500,000 up front payment.How is it possible to give different advice to two clients regarding the exact same cash flows?

Accepted Answer

The time value of money is based on oppo...

Question 10

Project A is expected to generate positive cash flow of $1 million in 10 years while Project B is expected to generate $500,000 in 5 years.Therefore,

Accepted Answer

A)   Project A is preferred because shareholder value is based on cash flow.
B)   Project B is preferred because its cash flow is expected to be received sooner than the cash flow from Project A.
C)   Both projects have equal value because they average $100,000 per year.
D)   Project B may be preferred to Project A if the opportunity cost of money is high enough.

Question 11

Working capital management is concerned with

Accepted Answer

A)   how a firm can best manage its cash flows as they arise in its day-to-day operations.
B)   how a firm should raise money to fund its investments.
C)   what long-term investments a firm should undertake.
D)   managing a firms capital stock.

Question 12

High Tech Corp.cut its research and development budget in 2010 by $4,000,000 in order to improve its cash flow for the year.Which of the following statements is most correct?

Accepted Answer

A)   The stock price will likely increase because the value of stock is based on reported cash flow.
B)   The stock price may decrease because investors may predict that future cash flows will decrease due to the lack of innovation and new products.
C)   The change will have no impact on stock price because the company's profits will not change in 2010.
D)   The stock price will increase only if reported profits in 2010 are also higher than profits reported in 2009.

Question 13

Due to unstable world markets,most large U.S.corporations do almost all of their business in the United States.

Accepted Answer

A) True 
 B)False

Question 14

Advantages of the corporate form of business organization include

Accepted Answer

A)   easier transfer of ownership.
B)   double taxation.
C)   minimal legal requirements.
D)   none of the above

Question 15

Executive compensation in the United States

Accepted Answer

A)   is dominated by performance-based compensation that ensures fair and just pay for corporate executives.
B)   is dominated by performance-based compensation designed to reduce agency problems.
C)   cannot be linked to stock prices as this would create a conflict of interest with existing shareholders.
D)   is well below levels in Europe and Asia. B

Question 16

The CEO of JLI Corp.decided to expand into a new market in 2010.At the end of 2010,JLI's stock price had decreased 5% since the beginning of the year.Which of the following statements is most correct?

Accepted Answer

A)   The CEO made a poor decision to expand because the stock price decreased during the year.
B)   The CEO made a poor decision to expand because the company's profits for the year obviously decreased, causing the drop in stock price.
C)   The CEO's decision may have been optimal, keeping the stock price from falling more than 5% for the year.
D)   CEO decisions are irrelevant because the efficient market determines the value of a company's stock.

Question 17

There is no legal distinction made between the assets of the business and the personal assets of any of the owners in the limited partnership.

Accepted Answer

A) True 
 B)False

Question 18

Only a firm's financial decisions affect its stock prices.

Accepted Answer

A) True 
 B)False

Question 19

It is important to evaluate a corporate manager's financial decision by measuring the effect the decision should have on the corporation's stock price if everything else were held constant.

Accepted Answer

A) True 
 B)False  True

Question 20

All of the following forms of business organizations provide limited liability to all owners except:

Accepted Answer

A)   Limited Liability Company.
B)   S-Type Corporation.
C)   Corporation.
D)   Limited Partnership.

Exam 1: An Introduction to the Foundations of Financial Management

The risk-return tradeoff is seen in many areas of finance.

Correct Answer
verified

Profits represent money that can be spent,and as such,form the basis for determining the value of financial decisions.

Correct Answer
verified
False

Which of the following forms of business organization has the greatest ability to attract new capital?

Correct Answer
verified

Determining how a firm should raise money to fund its long-term investments is referred to as capital structure decisions.

Correct Answer
verified

Cash and credit management are typically the responsibility of the

Correct Answer
verified

One problem with maximization of shareholder wealth as a goal is that it ignores risk taken by the firm's financial decisions.

Correct Answer
verified

The principle of risk-return tradeoff means that

Correct Answer
verified

Which of the following categories of owners enjoy limited liability?

Correct Answer
verified

Correct Answer
verified
The time value of money is based on oppo...
View Answer

Project A is expected to generate positive cash flow of $1 million in 10 years while Project B is expected to generate $500,000 in 5 years.Therefore,

Correct Answer
verified

Working capital management is concerned with

Correct Answer
verified

High Tech Corp.cut its research and development budget in 2010 by $4,000,000 in order to improve its cash flow for the year.Which of the following statements is most correct?

Correct Answer
verified

Due to unstable world markets,most large U.S.corporations do almost all of their business in the United States.

Correct Answer
verified

Advantages of the corporate form of business organization include

Correct Answer
verified

Executive compensation in the United States

Correct Answer
verified
B

The CEO of JLI Corp.decided to expand into a new market in 2010.At the end of 2010,JLI's stock price had decreased 5% since the beginning of the year.Which of the following statements is most correct?

Correct Answer
verified

There is no legal distinction made between the assets of the business and the personal assets of any of the owners in the limited partnership.

Correct Answer
verified

Only a firm's financial decisions affect its stock prices.

Correct Answer
verified

It is important to evaluate a corporate manager's financial decision by measuring the effect the decision should have on the corporation's stock price if everything else were held constant.

Correct Answer
verified
True

All of the following forms of business organizations provide limited liability to all owners except:

Correct Answer
verified

Exam 1: An Introduction to the Foundations of Financial Management

The risk-return tradeoff is seen in many areas of finance.

Correct AnswerverifiedShow Answer

Profits represent money that can be spent,and as such,form the basis for determining the value of financial decisions.

Correct AnswerverifiedFalse

Which of the following forms of business organization has the greatest ability to attract new capital?

Correct AnswerverifiedShow Answer

Determining how a firm should raise money to fund its long-term investments is referred to as capital structure decisions.

Correct AnswerverifiedShow Answer

Cash and credit management are typically the responsibility of the

Correct AnswerverifiedShow Answer

One problem with maximization of shareholder wealth as a goal is that it ignores risk taken by the firm's financial decisions.

Correct AnswerverifiedShow Answer

The principle of risk-return tradeoff means that

Correct AnswerverifiedShow Answer

Which of the following categories of owners enjoy limited liability?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe time value of money is based on oppo...View AnswerShow Answer

Project A is expected to generate positive cash flow of $1 million in 10 years while Project B is expected to generate $500,000 in 5 years.Therefore,

Correct AnswerverifiedShow Answer

Working capital management is concerned with

Correct AnswerverifiedShow Answer

High Tech Corp.cut its research and development budget in 2010 by $4,000,000 in order to improve its cash flow for the year.Which of the following statements is most correct?

Correct AnswerverifiedShow Answer

Due to unstable world markets,most large U.S.corporations do almost all of their business in the United States.

Correct AnswerverifiedShow Answer

Advantages of the corporate form of business organization include

Correct AnswerverifiedShow Answer

Executive compensation in the United States

Correct AnswerverifiedB

The CEO of JLI Corp.decided to expand into a new market in 2010.At the end of 2010,JLI's stock price had decreased 5% since the beginning of the year.Which of the following statements is most correct?

Correct AnswerverifiedShow Answer

There is no legal distinction made between the assets of the business and the personal assets of any of the owners in the limited partnership.

Correct AnswerverifiedShow Answer

Only a firm's financial decisions affect its stock prices.

Correct AnswerverifiedShow Answer

It is important to evaluate a corporate manager's financial decision by measuring the effect the decision should have on the corporation's stock price if everything else were held constant.

Correct AnswerverifiedTrue

All of the following forms of business organizations provide limited liability to all owners except:

Correct AnswerverifiedShow Answer

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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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The time value of money is based on oppo...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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B

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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True

Correct Answer
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