FIN 322 EXAM 1

maximize the stock price per share

The primary goal of a publicly owned firm interested in serving its stockholders should be:

maximize shareholder wealth

What is the primary goal of financial management

maximize shareholder wealth

The primary goal of a publicly owned corporation is to

maximize the market value of the firm’s stock

Which of the following should be the primary goal pursued by the financial manager of a firm?

maximize the value of the firm’s stock

The primary goal of a financial manager should be to ___

current market value per share

The goal of financial management is to increase

shareholder wealth maximization

The primary objective of the firm is:

amount, timing and risk of future cash flows

Capital budgeting includes the evaluation of which of the following

all of the above

a. it lacks a time dimension

b. it fails to consider risk

c. the definition of profit is ambiguous

The limitations of the profit maximization goal include:

market value

Shareholder wealth is measured by the ___ of the shareholders common stock holdings

provides a way to consider the risk of the returns being offered

the objective of maximizing shareholder wealth, as measured by the market value of the firm’s stock:

the timing and risk of the expected benefits to be received

A major advantage of using the maximization of shareholder wealth as the primary goal of the firm is that this goal includes

maximize shareholder wealth

The most widely accepted objective of the firm is to

risk of its cash flows and the timing of its cash flows

The major factors that determine the market value of a company’s shares of stock include the ____

In extremely competitive industries, we would expect firms would voluntarily engage in many socially beneficial projects to try to maximize their stock’s values

which of the following statements concerning a firm’s quest to maximize wealth is correct?

capital structure

All of the following are external factors that influence the stock prices of the firm except

Each of the above actions is consistent with social responsibility and none are necessarily inconsistent with stockholder wealth maximization.

Which of the following actions is consistent with social responsibility but is necessarily inconsistent with stockholder wealth maximization?

Golden parachute

Which of the following mechanisms is not used by shareholders to get managers to act in shareholder's best interests?

agency

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

an agency conflict

The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of:

One of the best means to control agency problems is to require the managers and other important decision makers of the firm to also be owners of the firm.

Which of the following statements concerning “agency problems” is most correct?

an agency problem

Paying Payroll Service (PPS) recently declared bankruptcy. The price of PPS's stock has dropped from approximately $10 per share one year ago to $1 today. You can imagine that stockholders are not happy that the value of their stock has dropped so significantly. At the same time the financial position of the firm was deteriorating, PPS executives increased their salaries and perquisites substantially. Nothing they did violated any laws or was considered an unethical act. We would most likely describe this situation as __________.

A U.S. corporation that is publicly traded

All else equal, in which of the following forms of business would the possibility of an agency problem be the greatest?

take on new ventures with much greater risk than was anticipated by creditors

Management may expropriate wealth from bondholders to shareholders through which of the following actions:

**Shareholder agency costs include the opportunity costs associated with constraining managerial freedom but do not include managerial salaries**

which of the following statements is correct

none of the above

Which of the following is an example of an area of business where use of "questionable" ethics is considered a necessity?

limited liability

a major advantage of the corporate form of business over both sole proprietorships and partnerships is the

all of the above

a. community neighbors

b. suppliers

c. employees

the success of a firm is linked to its stakeholders. this group includes:

decrease

agency problems may give rise to costs that ___ the market value of firms

agency problems

___ arise from the divergent objectives between owners and managers

separation of ownership and control

there is often a divergence between the shareholder wealth maximization goal and the actual goals pursued by management. the primary reason for this is

the owner has unlimited personal liability

a major disadvantage ion a sole proprietorship is the fact that:

liability

in a limited partnership, the limited partners may limit their:

sales generated

there are three major factors that determine the market value of a company’s shares of stock

a partnership has more owners than proprietorship

everything else equal, including firm size, dollar sales, type of product sold, and so forth, the primary difference between the proprietorship and partnership business forms is that:

the owners of a partnership - that is, the partners - have unlimited liability when it comes to business obligations whereas the owners of a corporation have limited liability

compared to corporations, what is the primary disadvantage of partnerships as forms of business organizations

Maximizing the income statement item “Net income” might not be the best goal for a corporation if the managers are interested in maximizing the economic welfare of the firm stock holders

Which of the following statements is correct

One of the most important features of the corporate form of business organization is that stockholders have limited liability

Which of the following statements of the corporate form or business organization is incorrect

the corporate bylaws are the set of rules drawn up by the state to enable managers to run the firm in accordance with state laws

Which of the following statements is correct

sole proprietorship

margie opened a used bookstore and is both 100 percent owner and the store’s manager. which type of business entity does Margie own if she is personally liable for all the stores

corporation

matt and Alicia created a firm that is a separate legal entity and will share ownership 75/25. which type of entity did they create if they have no personal liability for the firms debts

in part due to limited liability and ease of ownership transfer, corporations have less trouble raising money in financial markets than other organizational firms

which of the following statements is correct

partnerships have difficulty attracting capital in part because of the other disadvantages of the partnership form of business, including importance of the organization

which of the following statements is correct

there are more partnerships and sole proprietorships than corporations in the US, but corporations produce more goods and services than do other forms of business

which of the following statements is correct

any one of the partners can be held solely liable for all the debts of the partnership

which of the following applies to a general partnership

an investment banker

when a corporation wants to raise funds by issuing new stocks or bonds, is generally uses the services of

all of the above are advantages of going public

a. it allows a firms founders to diversify their holdings

b. it increases the liquidity of the stock

c. it establishes value for the firm

d. it makes it easier to raise new equity capital in the future

which of the following is not an advantage of going public

shelf registration

large, well-known public companies can reduce the time required to register and issue securities by using a(n)

closely held

a corporation that is owned by a few individuals who are typically associated with the firms management is a ___ corporation

underwritten arrangement

an agreement for the sale of securities in which the investment bank guarantees the sale by purchasing the securities from the issuer and then sells the securities in the primary is a(n)

best efforts arrangement

an agreement for the sale of securities in which the investment bank handling the transaction gives no guarantee that the securities will be sold is a(n)

if the firm currently has more equity than its optimal capital structure dictates and it issues more equity, then the average cost of capital will most likely rise

which of the following is usually cited as a disadvantage of issuing new common stock as a method of financing?

demutualization

the process of converting an exchange from a mutual ownership structure to a stock owned is known as what?

call/owner/buy

a (blank) option gives the (blank) the right to (blank) a fixed number of shares at a specified price for a certain amount of time

tax-free returns

which of the following is not a benefit of financial intermediation

secondary market

if you wanted to purchase previously issued shares of stock from another investor you would find the shares in the

the initial public offering market

the market for newly issued stock by firms that were private is normally called

stock sold by an insurance company to adjust its portfolio of assets

which of the following transactions takes place in secondary markets

New York stock exchange (NYSE)

which of the following is considered an organized stock exchange

sale of 1,000 shares of a newly issued stock by alt company to Michael

one example of a primary market transaction would be:

primary market

if a corporation that has been in business for many years (for example IBM) wants to raise funds by issuing new common stock, its stock will be sold in the

money market

treasury bills, which represent debt of the US government, have maturities less than one year. as a result, in which type of financial market do outstanding, or already issued, treasury bills trade?

long-term debt securities

capital markets are markets for

short-term debt securities

money markets are markets for

money markets

the ___ is designed for the making of short-term loans where individuals and institutions with temporary surpluses of funds meet borrowers who have temporary cash shortage

money

___ markets deal in short-term securities having maturities of one year or less

capital

___ markets deal in long-term securities having maturities greater than one year

capital market

the ___ is designed to finance long term investments, making possible the construction of factories, office buildings, highways, bridges, schools, homes, and apartments

secondary

a corporate stock that was issued last year would now trade in the ___ market

secondary market

you contracted your stockbroker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. this sale will occur in the

secondary market

trading securities previously issued takes place in the

an investment banker

when a corporation wants to raise funds by issuing new stocks or bonds, it generally uses the services of

primary market

the market for trading newly issued securities is known as the

physical stock exchange to sell and buy stocks

the facilities needed to conduct over-the counter market transactions include all of the following except:

balance sheet

the financial statement that summarizes a firm’s accounting value as of a particular date is called the:

total assets minus total liabilities

networking capital is defined as

income statement

the accounting statement that measures revenues, expenses, and net income of a firm over a period of time is called the:

balace sheet

which of the following financial statements shows a firms financing activities (how funds were generated) and investment activities (how funds were used) over a particular period of time?

statement of retained earnings

which of the following statements shows the portion of the firm’s earnings that has been saved rather than paid out as dividends?

balance sheet

which of the following financial statements includes information about a firm’s assets, equity, and liabilities?

current assets

major components of a firm’s balance sheet include:

accounts payable

which of the following are not part of “current assets”?

property, plant, and equipment

which of the following are not part of a firm’s income statement?

depreciation and amortization

non cash expenses that firms may report in their income statement include:

depreciation

___ is defined as the systematic allocation of the cost of an asset over more than one time period

different depreciation method for taxes and financial reporting

deferred taxes may occur due to the use of

statement of cash flows

the financial statement that shows the effects of a company’s operating, investing, and financing activities on its cash balance is known as the

statement of cash flows; cash flows

the (blank) __shows the effects of a company’s operating, investing, and financing activities on its (blank)__

plant, property, & equipment

all of the following are intangible assets listed on the balance sheet except:

EBIT

the income statement begins with revenue and subtracts various operating expenses until arriving at ___

taxable income

the income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes (EBIT). Next interest expense is subtracted to find the ___

net income

the income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes (EBIT). Next interest expense is subtracted to find the taxable income for the period. then the appropriate taxes are calculated and subtracted. We finally arrive at the ___, then so-called bottom bottom line of the income statement.

not cash flow

net income is ___

assets = liabilities + owners equity

the term balance sheet is used because the following accounting identity must always hold:

assets are listed in descending order of liquidity

which of the following statements concerning the balance sheet is correct?

had to decrease

over the past year, a firm decreased its current assets and increased its current liabilities. as a result , the firms net working capital:

records expenses based on the matching principle

an income statement prepared according to GAAP:

revenue increases

net income increases when:

can still manipulate their earnings to some degree

firms that compile financial statements according to GAAP:

a dividend is paid to current shareholders

net working capital decreases when: