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Homework answers / question archive / FPT University FIN 202 Test Bank, Fundamentals of Corporate Finance, 2e 1)To start a business, the owners need A) a market where there is demand for their product
FPT University
FIN 202
Test Bank, Fundamentals of Corporate Finance, 2e
1)To start a business, the owners need
A) a market where there is demand for their product.
B) a clear vision of what products or services they want to produce.
C) the know-how to successfully market their product.
D) all of the above.
2. A stakeholder is
A) anyone geographically close to the firm’s headuaters. B) anyone with a claim on the cash flows of the firm.
C) any government agency.
D) all of the above.
3. If you have loaned capital to a firm, then you could be
A) a shareholder.
B) a stakeholder.
C) a partner.
D) all of the above.
4. Which of the following are stakeholders?
A) a shareholder
B) a lender
C) the IRS (Interal revenue service)
D) all of the above
5. A trademark (name or design belonging to a particular company) is an
example of
A) a productive asset.
B) an intangible asset.
C) a nebulous asset.
D) none of the above.
6. Which of the following is a basic source of funds for the firm?
A) debt
B) equity
C) asset liquidations
D) a and b above
7. The cash remaining after the firm has met its operating expenses, payments
to creditors, and taxes is called
A) earnings per share.
B) capital contributed in excess of par.
C) residual cash.
D) assets.
8. Cash dividends are paid out of
A) residual cash.
B) liquidated assets.
C) long-term debt.
D) all of the above.
9. Current liabilities are liabilities that
A) will be converted to cash within a year.
B) must be paid within a year.
C) will be converted to equity within a year.
D) none of the above
10. Capital budgeting involves
A) how a firm's day-to-day financial matters should be managed.
B) how the firm should finance its assets.
C) which productive assets the firm should employ.
D) all of the above.
11. Working capital management decisions involve
A) how a firm's day-to-day financial matters should be managed.
B) how the firm should finance its assets.
C) which productive assets the firm should employ.
D) all of the above.
12. Capital budgeting decisions generally involve
A) the fixed asset portion of the balance sheet.
B) the short-term portion of the balance sheet.
C) the current liability portion of the balance sheet
.
D) all of the above.
13. A good capital budgeting decision is
A) one in which the benefits of the project are equal to the cost of the
asset.
B) one in which the benefits of the project are less than the cost of the
asset.
C) one in which the benefits of the project are more than the cost of the
asset.
D) all of the above.
14. Financial markets in which equity and debt instruments with maturities
greater than one year are traded are called
A) money markets.
B) capital markets.
C) stock markets.
D) none of the above.
15. Profitability of a firm can be negatively affected by
A) too much inventory.
B) too little inventory.
C) either a or b.
D) neither a nor b.
16. About 75 percent of all businesses in the United States are
A) sole proprietorships.
B) partnerships.
C) corporations.
D) limited liability partnerships.
17. Which of the following business organizational forms subjects the
owner(s) to unlimited liability?
A) sole proprietorship
B) partnership
C) corporation
D) a and b
18. Which of the following business organizational forms creates a tax liability
on income at the personal income tax rate?
A) sole proprietorship
B) partnership
C) corporation
D) a and b
19. Which of the following business organizational forms is easiest to raise
capital?
A) sole proprietorship
B) partnership
C) corporation
D) a and b
20. Which of the following owners is protected by limited liability?
A) a sole proprietor
B) a general partner
C) a limited partner
D) none of the above
21. Which of the following cannot be engaged in managing the business?
A) a sole proprietor
B) a general partner
C) a limited partner
D) none of the above
22. Which organizational form accounts for 90 percent of the revenues of all
firms in the United States?
A) sole proprietorship
B) partnership
C) corporation
D) a and b
23. Which organizational form best enables a firm to sell its securities to the
market?
A) sole proprietorship
B) partnership
C) private corporation
D) public corporation
24. Which of the following organizational forms is subject to the most SEC
regulations?
A) sole proprietorship
B) partnership
C) private corporation
D) public corporation
25. Which organizational form best enables the owners of the firm to monitor
the actions of other owners of the same firm?
A) sole proprietorship
B) partnership
C) private corporation
D) public corporation
26. Which of the following is considered a hybrid organizational form?
A) sole proprietorship
B) partnership
C) corporation
D) limited liability partnership
27. Which of the following reports directly to the owners of the firm (assume
the firm is a public corporation)
A) CFO
B) CEO
C) board of directors
D) audit committee
28. Which of the following is responsible for seeing that the best possible
financial analysis is presented?
A) CFO
B) CEO
C) board of directors
D) audit committee
29. Which of the following is responsible for performing an independent audit
of the firm's financial statements?
A) CFO
B) CEO
C) CPA firm
D) audit committee
30. How is the CPA firm insulated from being pressured by management?
A) The audit committee approves hiring, firing and fees paid to external
auditors.
B) The chairman of the board approves the external auditor's fees as well
as the engagement letter.
C) The IRS approves the external auditor's fees as well as the
engagement letter.
D) The CPA firm is not insulated from management.
31. Which of the following is an appropriate goal for the firm?
A) profit maximization
B) revenue maximization
C) shareholder wealth maximization
D) tax minimization
32. When analysts and investors determine the value of a firm's stock, they
should consider
A) the size of the expected cash flows associated with owning the stock.
B) the timing of the cash flows.
C) the riskiness of the cash flows.
D) all of the above.
33. One reason for the existence of agency problems between managers and shareholders is that
A) there is a separation of ownership and control of the firm.
B) managers know how to manage the firm better than shareholders.
C) shareholders have unreasonable expectations about managerial
performance.
D) none of the above
34. Which of the following is a principal within the agency relationship?
A) a company engineer
B) the CEO of the firm
C) a shareholder
D) the board of directors
35. Shareholders elect to represent their interest in the firm.
A) a chairman
B) CEO
C) a board of directors
D) all of the above
36. An example of a direct agency cost is
A) a manager turning down a value-contributing project because of its
risks.
B) a manager expensing a large dinner on the company expense report.
C) a manager using too little debt within the firm's capital structure
because of the additional risk associated with debt.
D) all of the above
37. Which of the following can help align the behavior of managers with the
goals of shareholders?
A) management compensation
B) managerial labor markets
C) an independent board of directors
D) all of the above
38. If a firm has had an agency problem that is reflected in a poor performing stock for a long period of time, then the firm may become a target of
.
A) an SEC investigation.
B) a corporate raider.
C) an IRS investigation.
D) a bankruptcy lawyer.
39. Executives that repeatedly put their own interests before that of the firm
may find that they have difficulty finding another job after their current
one. This is an example of
A) the managerial labor market disciplining managers.
B) the market for corporate control.
C) the board of directors affecting the prospects of a manager.
D) none of the above.
40. Who or what is responsible for setting the agenda at meetings of the board
of directors?
A) chairman of the board of directors
B) president
C) nominating committee
D) audit committee
41. A director who is not an employee of the firm is called
A) an executive director.
B) an inside director.
C) an independent director.
D) an official director.
42. Which of the following is NOT one of the strategies incorporated in the
Sarbanes-Oxley Act of 2002?
A) attain greater board independence
B) establish compliance programs
C) establish ethics programs
D) dictate maximum compensation levels
43. Which of the following powers does the audit committee have the
authority to do?
A) audit the personal bank account of the CEO
B) question any person employed by the firm
C) audit the compensation files of firms in the same industry
D) none of the above
44. What is the major complaint concerning the Sarbanes-Oxley Act of 2002
by firms?
A) the legislative maximum allowable compensation for a CEO
B) the legal requirement to disclose project information
C) the cost of compliance
D) the cost of maintaining an SEC-employed officer at the firm's
premises
45. A society's ideas about what actions are right and wrong are
A) morals.
B) ethics.
C) laws.
D) unwritten laws.
46. The golden rule is an example of
A) a current law.
B) an historical law.
C) an unworkable rule in financial markets.
D) an ethical norm.
47. An example of an economy that had trouble establishing a stock market
and attracting foreign investment is
A) Russia.
B) China.
C) the Czech Republic.
D) Japan.
48. Corruption in business
A) creates inefficiencies in an economy.
B) inhibits growth in an economy.
C) slows the rate of economic growth in a country.
D) all of the above
49. Which corporate officer, when he or she is guilty of serious misconduct,
can subject the firm to the most serious losses in financial wealth?
A) CEO
B) CFO
C) Chief Technology Officer
D) Chief Risk Officer
50. An officer of a firm that is a majority owner in a competing firm will
probably be subject to
A) an IRS audit.
B) a conflict of interest with his shareholders.
C) arbitrage profit returns to the SEC.
D) an FBI investigation.
51. occur(s) when one party in a business transaction has
information that is unavailable to the other parties in the transaction.
A) Profits
B) Information asymmetry
C) Information efficiency
D) None of the above
52. With regard to information, a central idea of fairness suggests that
A) decisions should be made on an even playing field.
B) insiders should be able to trade whenever they want.
C) insiders should never be able to trade.
D) outsiders should not be allowed to trade since, by definition, they are
at a disadvantage.
53. Which of the following individuals is typically most responsible for
managing a large corporation’s financial function?
A) The CEO.
B) The Chairman of the board.
C) The CBO.
D) The CFO.
54. If a firm establishes maximizing profits at the most important goal of the
firm, which of the following would not be given proper consideration?
A) Sales revenues
B) Expenses
C) Risk
D) Cost of goods sold
55. Which of the following does maximizing shareholder wealth not usually
account for?
A) Risk.
B) Government regulation.
C) The timing of cash flows.
D) Amount of cash flows.
56. Which of the following factors or activities can be controlled by the
management of a firm?
A) Capital budgeting.
B) The level of economic activity.
C) The level of interest rates.
D) Stock market conditions.
57. The legal system and market forces impose substantial costs on individuals and institutions that engage in unethical behavior. Which of the following
would not be an example of the above?
A) Financial losses.
B) Legal fines.
C) Agency conflicts.
D) Jail time.
