Fin 3000 Chp1

Which one of these is a capital budgeting decision?

Multiple Choice

• Deciding between issuing stock or debt securities

• Deciding whether or not the firm should go public

• Deciding if the firm should repurchase some of its outstanding shares

• Deciding whether to buy a new machine or repair the old machine

• Deciding whether to buy a new machine or repair the old machine

The overall goal of capital budgeting projects should be to:

Multiple Choice

• decrease the firm's reliance on debt.

• increase the firm's sales.

• increase the firm's outstanding shares of stock.

• increase the wealth of the firm's shareholders.

• increase the wealth of the firm's shareholders.

Which of the following statements best distinguishes the difference between real and financial assets?

Multiple Choice

• Real assets have less value than financial assets.

• Real assets are tangible; financial assets are not

• Financial assets represent claims to income that are generated by real assets.

• Financial assets appreciate in value; real assets depreciate in value.

• Financial assets represent claims to income that are generated by real assets.

Which one of the following is a financial asset?

Multiple Choice

A corporate bond

A machine

A patent

A factory

A corporate bond

Corporations are referred to as public companies when their:

Multiple Choice:

shareholders have no tax liability.

shares are held by the federal or state government.

stock is publicly traded.

products or services are available to the public

stock is publicly traded.

A board of directors is elected as a representative of the corporation's:

Multiple Choice

• top management.

• stakeholders.

• shareholders.

• customers.

shareholders

Which one of the following would correctly differentiate general partners from limited partners in a limited partnership?

Multiple Choice

• General partners have more job experience.

• General partners have an ownership interest.

• General partners are subject to double taxation.

• General partners have unlimited personal liability.

General partners have unlimited personal liability.

Which one of the following gives a corporation its permanence?

Multiple Choice

• Multiple owners

• Limited liability

• Corporation taxation

• Separation of ownership and control

Separation of ownership and control

When a corporation fails, the maximum that can be lost by an individual shareholder is:

Multiple Choice

• the amount of their initial investment.

• the amount of their share of the profits.

• their proportionate share required to pay the corporation's debts.

• the amount of their personal wealth.

• the amount of their initial investment.

In a firm having both a treasurer and a controller, which of the following would most likely be handled by the controller?

Multiple Choice

• Internal auditing

• Credit management

• Banking relationships

• Insurance

Internal auditing

Which of the firm's financial managers is most likely to be involved with obtaining financing for the firm?

Multiple Choice

• Treasurer

• Controller

• Chief operating officer

• Board of directors

Treasurer

A chief financial officer would typically:

Multiple Choice

• report to the treasurer, but supervise the controller.

• report to the controller, but supervise the treasurer.

• report to both the treasurer and controller.

• supervise both the treasurer and controller.

• supervise both the treasurer and controller.

A firm with spare cash:

Multiple Choice

• should always reinvest it in new equipment.

• should pay it out to shareholders unless the firm can earn a higher rate of return on the cash than the shareholders can earn by investing in the capital market.

• should invest it in the safest projects available.

• should always invest it in U.S. equities since these securities have a higher rate of return than Treasury bills.

should pay it out to shareholders unless the firm can earn a higher rate of return on the cash than the shareholders can earn by investing in the capital market.

Which of the following appears to be the most appropriate goal for corporate management?

Multiple Choice

• Maximizing market value of the company's shares

• Maximizing the company's market share

• Maximizing the current profits of the company

• Minimizing the company's liabilities

Maximizing market value of the company's shares

Which one of these statements is correct?

Multiple Choice

• A dollar received next year has the same value as a dollar received today.

• Risky cash flows are more valuable than certain cash flows.

• Smart investment decisions create more value than smart financing decisions.

• Corporate governance is irrelevant.

Smart investment decisions create more value than smart financing decisions.

Which of the following groups is least likely to be considered a stakeholder of the firm?

Multiple Choice

• Government

• Customers

• Competitors

• Employees

Competitors

Agency problems can least be controlled by:

Multiple Choice

• establishing good internal controls and procedures.

• designing compensation packages that align manager's goals with those of the shareholders.

• good systems of corporate governance.

• electing senior managers to the board of directors.

electing senior managers to the board of directors.

One continuing problem with managerial incentive compensation plans is that:

Multiple Choice

• the plans increase agency problems.

• managers prefer guaranteed salaries.

• their effectiveness is difficult to evaluate.

• the plans do not reward shareholders.

their effectiveness is difficult to evaluate.

When managers' compensation plans are tied in a meaningful manner to the value of the firm, agency problems:

Multiple Choice

• can be reduced.

• will be created.

• are shifted to other stakeholders.

• are eliminated entirely from the firm.

can be reduced.

Ethical decision making in business:

Multiple Choice

• reduces the firm's profits.

• requires adherence to implied rules as well as written rules.

• is not in the best interests of shareholders.

• is less important than good capital budgeting decisions.

requires adherence to implied rules as well as written rules.