Overview Of Finance
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- 1.If a company practices "good business ethics," then it will treat its customers, employees, and stockholders "fairly," and this will cause it to have a good reputation. Such behavior may increase costs and thus hurt profits in the short run, but this is often offset by long-run benefits in the form of customer loyalty, more dedicated employees, and stockholders who will support management in the event of a downturn in the business. True or false?
- A.
True
- B.
False
- 2.In recent years there has been a decreased emphasis on corporate ethics and governmental oversight. This is because, after the Enron and WorldCom debacles, stockholders are sure that the managers of publicly-owned companies will always be scrupulously honest in their dealings with their stockholders
- A.
True
- B.
False
- 3.Stocks have market prices, and they also have intrinsic values. If the market price is below the intrinsic value as estimated by marginal investors, and if the intrinsic value remains stable in the future, then there will be a tendency for the stock's price to fall over time. True or false?
- A.
True
- B.
False
- 4.Although managers are supposed to try to maximize the prices of their firms' over the long run, some managers are apparently more interested in maximizing the stock price on the date when their options can be exercised. Stockholders, working through firms' boards of directors, should design compensation plans that minimize such behavior. True or false?
- A.
True
- B.
False
- 5.No one can be sure what's going to happen to any firm in the future. Therefore, all publicly-owned companies have about the same degree of risk. True or false?
- A.
True
- B.
False
- 6.For a publicly owned firm like GE, management's primary goal should be to maximize the wealth of its stockholders, which means maximizing the long-run value of the stock. True or false?
- A.
True
- B.
False
- 7.All large, publicly-owned corporations are "C Corporations," and they must pay corporate income taxes. Their after-tax income is taxed again when it is passed on to investors in the form of dividends, and this is called "double taxation." However, double taxation can be avoided provided a firm is small enough and has 75 or fewer stockholders, as it can then qualify as an S Corporation. As a result, most small corporations are S rather than C Corporations. True or false?
- A.
True
- B.
False
- 8.Most large businesses go through "life cycles," beginning as corporations, then converting to partnerships, and finally ending up as sole proprietorships, where one individual owns the entire firm. True or false?
- A.
True
- B.
False
- 9.In the US,______ has been given the power to adopt auditing, quality control, ethics, and disclosure standards for public companies and their auditors as well as investigate and discipline those involved.
- A.
American Institute of Certified Public Accountants (AICPA)
- B.
Financial Accounting Standards Board (FASB)
- C.
Public Company Accounting Oversight Board (PCAOB)
- D.
Securities and Exchange Commission (SEC)
- 10.The decision function of financial management can be broken down into the _____ decisions
- A.
Financing and investment
- B.
Investment, financing, and asset management
- C.
Financing and dividend
- D.
Capital budgeting, cash management, and credit management
- 11.Shareholder wealth" in a firm is represented by
- A.
The number of people employed in the firm
- B.
The book value of the firm's assets less the book value of its liabilities.
- C.
The amount of salary paid to its employees.
- D.
The market price per share of the firm's common stock.
- 12.The long-run objective of financial management is to:
- A.
Maximize earnings per share.
- B.
Maximize the value of the firm's common stock.
- C.
Maximize return on investment.
- D.
Maximize market share.
- 13.What are the earnings per share (EPS) for a company that earned $100,000 last year in after-tax profits, has 200,000 common shares outstanding and $1.2 million in retained earning at the year end?
- A.
$100,000
- B.
$6.00
- C.
$0.50
- D.
$6.50
- 14.A(n) would be an example of a principle a(n) __________ would be exaple of an agent
- A.
Shareholder; manager
- B.
Manager; owner
- C.
Accountant; bondholder
- D.
Shareholder; bondholder
- 15.The market price of a share of common stock is determined by:
- A.
The board of directors of the firm.
- B.
The stock exchange on which the stock is listed.
- C.
The president of the company
- D.
Individuals buying and selling the stock
- 16.The focal point of financial management in a firm is:
- A.
The number and types of products or services provided by the firm
- B.
The minimization of the amount of taxes paid by the firm.
- C.
The creation of value for shareholders.
- D.
The dollars profits earned by the firm
- 17.The decision function of financial management can be broken down into the _____ decisions
- A.
Financing and investment
- B.
Investment, financing, and asset management
- C.
Financing and dividend
- D.
Capital budgeting, cash management, and credit management
- 18.The controller's responsibilities are primarily_____ in nature, while the treasurer's responsibilities are primarily related to
- A.
Operational; financial management
- B.
Financial management; accounting
- C.
Accounting; financial management
- D.
Financial management; operations
- 19.___________ refers to meeting the needs of the present without compromising the ability of future generations to meet their own needs.
- A.
Corporate Social Responsibility (CSR)
- B.
Sustainability
- C.
Convergence
- D.
Green Economics
- 20.A key task of a firm's board of directors is to make sure that managers work for stockholders, not for themselves.
- A.
True
- B.
False
- 21.The board of directors is at the top of a corporation's organization chart, and it is headed by the chairman of the board. The firm's managers report to the board. True or false?
- A.
True
- B.
False
- 22.The primary focus of all executives is their stockholders' well-being, which means trying to maximize the long-run price of the stock. Therefore, top managers never try to get compensation packages that are "too high," and they never seek unnecessary perks such as the use of private jets or vacation homes for personal business. Therefore, stockholders don't need to be concerned about the levels of executives' pay and other benefits. True or false?
- A.
True
- B.
False
- 23.Managerial compensation plans often provide executives with options to buy the firm's stock at a set price. The plan can either allow executives to exercise all of their options on one specific date or else have a fraction of them be exercisable in each of say the next 5 years. Staggering the exercise dates will have a tendency to increase unethical behavior. True or false?
- A.
True
- B.
False
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