Chapter 01 Introduction to Financial Management Answer Key
Multiple Choice Questions
1.
In the financial crisis that started in 2006, a significant indicator of the U.S. economic
decline was:
A.
a significant drop in interest rates.
a sharp increase in unregulated Ponzi-type security sales.
rising defaults by subprime mortgage borrowers.
a large increase in loan default due to unemployment.
2.
The financial crisis that started in 2006 was magnified by which of the following?
A.
Public concern over the war in Afghanistan
3.
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
Consistently increasing oil and gas prices
Ethical issues affecting high value investment
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
5.
This subarea of finance looks at firm decisions in acquiring and utilizing cash received
from investors or from retained earnings.
A.
Investments
Investments
Financial management
None of these
6.
Financial management involves decisions about which of the following?
A.
Which projects to fund
7.
This subarea of finance helps facilitate the capital flows between investors and
companies.
A.
Investments
How to minimize taxation
What type of capital should be raised
8.
This subarea of finance is important for adapting to the global economy.
A.
Investments
9.
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.
risk.
10.
This is a general term for securities like stocks, bonds, and other assets that represent
ownership in a cash flow.
A.
Investment
11.
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?
12.
The most commonly accepted groups of asset classes include all of the following except:
13.
Which of the following is the firm’s highest-level financial manager?
14.
Which of the following managers would NOT use finance?
15.
Which of the following personal decisions is NOT impacted by finance?
16.
When determining a form of business organization, all of the following are considered
EXCEPT:
17.
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.
18.
This type of business organization is entirely legally independent from its owners.
19.
Which of the following is NOT considered a hybrid organization?
20.
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.
21.
As individual legal entities, corporations assume liability for their own debts, so the
shareholders hold:
B.
unlimited liability.
shared liability.
joint liability.
interest on shareholders’ dividends being taxed as income.
22.
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
23.
For corporations, maximizing the value of owner’s equity can also be stated as:
A.
maximizing retained earnings.
maximizing earnings per share.
maximizing net income.
maximizing the stock price.
The owner must give up some control
The owner must co-sign on all loans
Both A and B
24.
A metaphor used to illustrate how an individual pursuing his own interests also tends to
promote the good of the community.
A.
Agency theory
25.
This should be the primary objective of a firm as it may actually be the most beneficial for
society in the long run.
Angel investor
Invisible hand
26.
Nonwage compensation that might actually enhance owner value, in that such items may
boost managers’ productivity.
27.
Which of these are NOT basic approaches to minimizing the agency problem?
28.
Which of the following is an example of aligning managers’ personal interests with those
of the owners?
29.
This is the set of laws, policies, incentives, and monitors designed to handle the issues
arising from the separation of ownership and control.
30.
This group is elected by stockholders to oversee management in a corporation.
A.
Chief counselors
31.
These individuals examine the firm’s accounting systems and comment on whether
financial statements fairly represent the firm’s financial position.
Chief executives
32.
These individuals follow a firm, conduct their own evaluations of the company’s business
activities, and report to the investment community.
33.
These individuals help firms access capital markets and advise managers about how to
interact with those capital markets.
34.
These individuals examine a firm’s financial strength for its debt holders.
35.
Which of the following is legal duty between two parties where one party must act in the
interest of the other party?
36.
Which of the following can create ethical dilemmas between corporate managers and
stockholders?
37.
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: