Corporate Finance 1
These are the homework questions for Chapter 1 in Corporate Finance.
- 1.
Stadford, Inc. is financed with 40 percent debt and 60 percent equity. This mixture of debt and equity is referred to as the firm's:
- A.
Capital structure.
- B.
Capital budget.
- C.
Asset allocation.
- D.
Working capital.
- E.
Risk structure.
Correct Answer
A. Capital structure. -
- 2.
The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?
- A.
Agency
- B.
Structure
- C.
Territorial
- D.
Organizational
- E.
Formation
Correct Answer
A. Agency -
- 3.
The "Say on Pay" bill requires corporations to do which one of the following?
- A.
Give the firm's creditors a binding say on executive pay
- B.
Give shareholders a nonbinding vote on executive pay
- C.
Give shareholders a binding vote on executive pay
- D.
Give the chairman of the board the final say on executive pay
- E.
Give the firm's creditors a nonbinding say on executive pay
Correct Answer
B. Give shareholders a nonbinding vote on executive pay -
- 4.
Which one of the following functions should be assigned to the treasurer rather than the controller?
- A.
Cash management
- B.
Data processing
- C.
Cost accounting
- D.
Financial accounting
- E.
Tax management
Correct Answer
A. Cash management -
- 5.
Which one of the following is a working capital decision?
- A.
What is the cost of debt financing?
- B.
What debt-equity ratio is best suited to our firm?
- C.
How should the firm raise additional capital to fund its expansion?
- D.
Which type of debt is best suited to finance our inventory?
- E.
How much cash should the firm keep in reserve?
Correct Answer
E. How much cash should the firm keep in reserve? -
- 6.
Which one of the following is a capital structure decision?
- A.
Selecting new equipment to purchase
- B.
Determining the optimal inventory level
- C.
Establishing the preferred debt-equity level
- D.
Setting the terms of sale for credit sales
- E.
Determining when suppliers should be paid
Correct Answer
C. Establishing the preferred debt-equity level -
- 7.
The daily financial operations of a firm are primarily controlled by managing the:
- A.
Working capital.
- B.
Total debt level.
- C.
Long-term liabilities.
- D.
Capital budget.
- E.
Capital structure.
Correct Answer
A. Working capital. -
- 8.
Limited liability companies are primarily designed to:
- A.
Provide the benefits of the corporate structure to foreign-based entities.
- B.
Allow companies to reorganize themselves through the bankruptcy process.
- C.
Provide limited liability while avoiding double taxation.
- D.
Allow a portion of its owners to enjoy limited liability while granting the other portion of its owners control over the entity.
- E.
Spin-off a wholly-owned subsidiary.
Correct Answer
C. Provide limited liability while avoiding double taxation. -
- 9.
The primary goal of financial management is to maximize which one of the following for a corporation?
- A.
Revenue growth
- B.
Market value of existing stock
- C.
Number of shares outstanding
- D.
Current profits
- E.
Market share
Correct Answer
B. Market value of existing stock -
- 10.
The Sarbanes-Oxley Act of 2002 has:
- A.
Decreased senior management's involvement in the corporate annual report.
- B.
Decreased the number of U.S. firms going public on foreign exchanges.
- C.
Made officers of publicly traded firms personally responsible for the firm's financial statements.
- D.
Reduced the annual compliance costs of all publicly traded firms in the U.S.
- E.
Greatly increased the number of U.S. firms that are going public for the first time.
Correct Answer
C. Made officers of publicly traded firms personally responsible for the firm's financial statements. -
- 11.
Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?
- A.
Increase the number of firms that "go dark"
- B.
Decrease the number of publicly traded firms
- C.
Increase protection against corporate fraud
- D.
Limit secondary issues of corporate securities
- E.
Increase the costs of going public
Correct Answer
C. Increase protection against corporate fraud -
- 12.
Which one of the following situations is most apt to create an agency conflict?
- A.
Giving all employees a bonus if a certain level of efficiency is maintained
- B.
Selling an underproducing segment of the firm
- C.
Compensating a manager based on his or her division's net income
- D.
Rejecting a profitable project to protect employee jobs
- E.
Hiring an independent consultant to study the operating efficiency of the firm
Correct Answer
D. Rejecting a profitable project to protect employee jobs -
- 13.
Which one of the following is most apt to create a situation where an agency conflict could arise?
- A.
Downsizing a firm
- B.
Reducing both management and non-management salaries
- C.
Increasing the size of a firm's operations
- D.
Separating management from ownership
- E.
Decreasing employee turnover
Correct Answer
D. Separating management from ownership -
- 14.
Which one of the following transactions occurred in the primary market?
- A.
Maria gave 100 shares of Alto stock to her best friend.
- B.
Gene purchased 300 shares of Alto stock from Ted.
- C.
South Wind Products sold 1,000 shares of newly issued stock to Mike.
- D.
The president of Trecco, Inc. sold 500 shares of Trecco stock to his son.
- E.
Terry sold 3,000 shares of Uno stock to his brother.
Correct Answer
C. South Wind Products sold 1,000 shares of newly issued stock to Mike. -
- 15.
Valerie bought 200 shares of Able stock today. Able stock has been trading for some time on the NYSE. Valerie's purchase occurred in which market?
- A.
Over-the-counter market
- B.
Tertiary market
- C.
Primary market
- D.
Dealer market
- E.
Secondary market
Correct Answer
E. Secondary market -
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Feb 23, 2012Quiz Edited by
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Feb 23, 2012Quiz Created by
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