Question 1

An agency issue is most apt to develop when:

Accepted Answer

A)  a firm encounters a period of stagnant growth.
B)  a firm downsizes.
C)  the control of a firm is separated from the firm's ownership.
D)  the firm's owner is also its key manager.
E)  a firm is structured as a general partnership.F) D) and E)
G) C) and E)

Question 2

In a general partnership, each partner is personally liable for:

Accepted Answer

A)  only the partnership debts that he or she personally created.
B)  his or her proportionate share of all partnership debts regardless of which partner incurred that debt.
C)  the total debts of the partnership, even if he or she was unaware of those debts.
D)  the debts of the partnership up to the amount he or she invested in the firm.
E)  all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts.F) A) and E)
G) B) and E)

Question 3

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities.Decisions related to these accounts are referred to as:

Accepted Answer

A)  capital structure decisions.
B)  capital budgeting decisions.
C)  working capital management.
D)  operating management.
E)  fixed account structure.F) B) and D)
G) C) and E)

Question 4

Which one of the following statements correctly applies to a sole proprietorship?

Accepted Answer

A)  The business entity has an unlimited life.
B)  The ownership can easily be transferred to another individual.
C)  The owner enjoys limited liability for the firm's debts.
D)  Debt financing is easy to arrange in the firm's name.
E)  Obtaining additional equity is dependent on the owner's personal finances.F) C) and E)
G) A) and E)

Question 5

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

Accepted Answer

A)  Sole proprietorship
B)  General partnership
C)  Limited partnership
D)  Limited liability company
E)  CorporationF) C) and D)
G) B) and C)

Question 6

Which one of the following statements about a limited partnership is correct?

Accepted Answer

A)  All partners have their losses limited to their capital investment in the partnership.
B)  All partners are treated equally.
C)  There must be at least one general partner.
D)  Equity financing is easy to obtain and unlimited.
E)  Any partner can transfer his or her ownership interest without ending the partnership.F) A) and B)
G) A) and C)

Question 7

The Sarbanes-Oxley Act of 2002 has:

Accepted Answer

A)  reduced the annual compliance costs of all publicly traded firms in the U.S.
B)  decreased senior management's involvement in the corporate annual report.
C)  greatly increased the number of U.S.firms that are going public for the first time.
D)  decreased the number of U.S.firms going public on foreign exchanges.
E)  essentially made officers of publicly traded firms personally responsible for the firm's financial statements.F) B) and D)
G) A) and D)

Question 8

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?

Accepted Answer

A)  Increased stock market volatility
B)  Corporate accounting and financial fraud
C)  Increased executive compensation
D)  Increased foreign investment in U.S.stock markets
E)  Increased use of tax loopholesF) B) and D)
G) B) and C)

Question 9

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:

Accepted Answer

A)  a corporate takeover.
B)  a capital structure issue.
C)  a working capital decision.
D)  an agency conflict.
E)  a compensation issue.F) All of the above
G) A) and B)

Question 10

Which one of the following is a working capital decision?

Accepted Answer

A)  How should the firm raise additional capital to fund its expansion?
B)  What debt-equity ratio is best suited to the firm?
C)  What is the cost of debt financing?
D)  Should the firm borrow money for five or for ten years?
E)  How much cash should the firm keep in reserve?F) B) and D)
G) C) and D)

Question 11

An employee has a claim on the cash flows of Martin's Machines.This claim is defined as a claim by one of the firm's:

Accepted Answer

A)  residual owners.
B)  shareholders.
C)  financiers.
D)  provisional partners.
E)  stakeholders.F) A) and E)
G) A) and D)

Question 12

An auction market:

Accepted Answer

A)  is an electronic means of exchanging securities.
B)  has a physical trading floor.
C)  handles primary market transactions exclusively.
D)  is also referred to as an OTC market.
E)  is dealer-based.F) A) and E)
G) All of the above

Question 13

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

Accepted Answer

A)  Organizational
B)  Structural
C)  Formative
D)  Agency
E)  TerritorialF) A) and E)
G) B) and E)

Question 14

The primary goal of financial management is to maximize:

Accepted Answer

A)  current profits.
B)  market share.
C)  current dividends.
D)  the market value of existing stock.
E)  revenue growth.F) B) and E)
G) B) and C)

Question 15

Which one of the following is a capital structure decision?

Accepted Answer

A)  Determining the optimal inventory level
B)  Establishing the preferred debt-equity level
C)  Selecting new equipment to purchase
D)  Setting the terms of sale for credit sales
E)  Determining when suppliers should be paidF) A) and E)
G) A) and B)

Question 16

Jenna has been promoted and is now in charge of all external financing.In other words, she is in charge of:

Accepted Answer

A)  capital structure management.
B)  asset allocation.
C)  risk management.
D)  capital budgeting.
E)  working capital management.F) B) and E)
G) D) and E)

Question 17

One example of a primary market transaction would be the:

Accepted Answer

A)  sale of 100 shares of stock by Maria to her best friend.
B)  purchase by Theo of 5,000 shares of stock from his father.
C)  sale of 1,000 shares of newly issued stock by Alt Company to Miquel.
D)  sale by Terry of 50,000 shares of stock to his brother.
E)  sale of 5,000 shares of stock owned by a corporate CEO to his son.F) A) and E)
G) A) and D)

Question 18

Which one of the following correctly defines a common chain of command within a corporation?

Accepted Answer

A)  The controller reports directly to the corporate treasurer.
B)  The treasurer reports directly to the board of directors.
C)  The chief financial officer reports directly to the board of directors.
D)  The credit manager reports directly to the controller.
E)  The controller reports directly to the chief financial officer.F) B) and D)
G) A) and B)

Question 19

The goal of financial management is to increase the:

Accepted Answer

A)  future value of the firm's total equity.
B)  book value of equity.
C)  dividends paid per share.
D)  current market value per share.
E)  number of shares outstanding.F) None of the above
G) A) and E)

Question 20

Which one of the following occupations best fits into the corporate area of finance?

Accepted Answer

A)  Mortgage broker
B)  Treasury bill analyst
C)  Chief financial officer
D)  Insurance risk manager
E)  Local bank managerF) B) and C)
G) A) and E)

Exam 1: Introduction to Financial Management

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?

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Which one of the following is a capital structure decision?

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Jenna has been promoted and is now in charge of all external financing.In other words, she is in charge of:

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Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities.Decisions related to these accounts are referred to as:

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In a general partnership, each partner is personally liable for:

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Which one of the following occupations best fits into the corporate area of finance?

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The primary goal of financial management is to maximize:

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Which one of the following is a working capital decision?

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The Sarbanes-Oxley Act of 2002 has:

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An auction market:

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An employee has a claim on the cash flows of Martin's Machines.This claim is defined as a claim by one of the firm's:

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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:

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

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Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

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The goal of financial management is to increase the:

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Which one of the following correctly defines a common chain of command within a corporation?

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Which one of the following statements about a limited partnership is correct?

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Which one of the following statements correctly applies to a sole proprietorship?

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An agency issue is most apt to develop when:

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One example of a primary market transaction would be the:

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