chapter 1 and 2 quiz Flashcards
Which of the following represents a financing decison?
A. a decison to borrow $10 million through a bank loan
B. a decision to invest in the common stock of another corporation
C. a decison to buy a new mainframe computer
D. a decison to pay $1 million of account payable
A. a decision yto borrow $10 million through a bank loan
for small firms, shareholders and managment may be one and the same. but for large companies, separation of ownership and management is…
A. a practical necessity
B. not a necessity
C. a liability
D. a fraudulent move
A. a practical necessity
- Which of the following would not be considered a real asset?
A. a corporate bond
B. a machine
C. a patent
D. a factory
A. a corporate bond
which of the following would be considered an advantage of the sole proprietorship from of organization ?
A. wide access to capital markets
B. unlimited liability
C. a pool of expertise
D. profts taxed at only one level
D. profits taxed at only one level
sole proprietorship resolve the issue of agency problems by :
A. avoiding excessive expense accounts
B. discharging those whop violate the rules
C. allowing owners to share the cost of their actions with others
D. forcing owners to bear the full cost of their actions
D. forcing owners to bear the full cost of their actions
when managers’ compensation plans are tied in a meaningful manner to the profits of the firm, agency problems
A. can be reduced
B. will be created
C. are shifted to other stakeholders
D. are eliminated entirely from the firm
A. can be reduced
in a firm having both a treasurer and a controller, which of the following would be most likely be handled by the controller
A. internal auditing
B. credit managment
C. banking relationships
D. insurance
A. internal auditing
which of the following is NOT an advantage to incorporating a business
A. easier access to financial markets
B. limited liability
C. becoming a permanent legal entity
D. profits taxed at the corporate level and the shareholder level
D. profits taxed at the corporate level and the shareholder level
in a partnership form of organization, income tax liability, if any, is insured by:
A. a partnership itself
B. the partners individually
C. both the partnership and the partners
D. neither the partnership nor the partners
B. the partners individually
in the case of a professional corporation, ______ has/have limited liability.
A. only the professionals
B. only the business
C. both the professionals AND the business
D. neither the professionals NOR the business
A. only the professionals
a frim decides to pay for a small investment project through a $1 million increase in short-term bank loans. this is best described as an example of an
A. financing decison
B. investment decision
C. capital budgeting decison
D. capital market decison
A. financing decison
in a large corporation, budget preparation would most likely be conduced by the:
A. treasurer
B. controller
C. chief financial officer
D. financial manger
B. controller
which of the following groups is least likely to be considered a stakeholder of the firm?
A. government
B. bondholders
C. competitors
D. employees
C. competitors
what are the two critical decisions to have to be made by the financial manager?
A. investment and financing
B. short term and long term
C. debt and equity
D. all the choices are correct
A. investment and financing
profit-sharing plans may be beneficial when used to:
A. reduce the impact of corporate income taxes
B. improve managers’ incentives for effective decision making
C. divert financial resources from shareholders
D. reduce the payment of cash dividends
B. improve managers’ incentives for effective decison making
One continuing problem with managerial incentive-compensation plans is that:
A. the plans increase agency problems.
B. managers prefer guaranteed salaries.
C. effectiveness of the plans is difficult to evaluate.
D. the plans do not reward shareholders.
C. effectiveness of the plans is difficult to evaluate
Which of the following is least likely to represent an agency problem?
A. lavish spending on expense accounts.
B. plush remodeling of the executive suite.
C. excessive investment in “safe” projects.
D. executive incentive compensation plans.
C. excessive investment in “safe” projects
Which of the following statements best distinguishes the difference between real and financial assets?
A. real assets have less value than financial assets.
B. real assets are tangible; financial assets are not.
C. financial assets represent claims to income that are generated by real assets.
D. financial assets appreciate in value; real assets depreciate in value.
C. financial assets represent claims to income that are generated by real assets
the short-term decisions of financial managers are comprised of:
A. capital structure decisions
B. investment decisions
C. financing decisions
D. both investment and financing decisions
C. financing decisions
Which of the following would correctly differentiate general partners from limited partners in a limited partnership?
A. general partners have more job experience.
B. general partners have an ownership interest.
C. general partners are subject to double taxation.
D. general partners have unlimited personal liability.
D. general partners have unlimited personal liability
Which one of these is a money market security?
A. commercial paper
B. common stock
C. 2-year bond
D. 20-year bond
A. commercial paper
Which one of these assists in shifting an individual’s consumption forward in time?
A. a bank line of credit
B. a bank savings account
C. a life insurance policy
D. a retirement savings plan
A. a bank line of credit
Which of the following is not typically considered a function of financial intermediaries?
A. providing a payment mechanism
B. investing in real assets
C. accumulating funds from smaller investors
D. spreading, or pooling risk among individuals
B. investing in real assets
Commodity and derivative markets:
A. are additional sources of financing for corporate projects.
B. enable the financial manager to adjust a firm’s exposure to various business risks.
C. are always over-the-counter markets.
D. deal only in foreign currencies.
B. enable the financial manger to adjust a firm’s exposure to various business risks
Which one of these transports income forward in time?
A. retirement savings
B. car loan
C. bank line of credit
D. credit card purchase
A. retirement savings
Who was responsible for the financial crisis of 2007-2009?
A. The U.S. Federal Reserve, for its policy of easy money
B. The U.S. government, for pushing banks to expand credit for low-income housing
C. bankers, who aggressively promoted and resold subprime mortgages
D. The U.S. Federal Reserve, the U.S. government, rating agencies, and bankers
D. the U.S. Federal Reserve, the US government, rating agencies, and bankers
Which one of the following funds not provides a tax advantage to individual investors?
A. balanced funds
B. pension funds
C. bond funds
D. funds that are invested in foreign countries
A. balanced funds
Which of the following financial assets is least likely to have an active secondary market?
A. common stock of a large public firm
B. bank loans made to smaller firms
C. bonds of a major, multinational corporation
D. debt issued by the federal government
B. bank loans made to smaller firms
A company can pay for its expansion in all the following ways except:
A. by using the earnings generated from its sale of obsolete equipment.
B. by persuading a director’s mother to make a personal loan to the company.
C. by purchasing bonds in the secondary market.
D. by selling stock certificates for a new subsidiary.
C. by purchasing bonds in the secondary market
Short-term financing decisions commonly occur in the:
A. primary markets.
B. secondary markets.
C. capital markets.
D. money markets.
D. money markets
. Long-term financing decisions commonly occur in the:
A. option markets.
B. secondary markets.
C. capital markets.
D. money markets.
C. capital markets
Which type of financial institution generally does not accept deposits but does underwrite stock offerings?
A. Insurance company
B. Mutual fund
C. Commercial bank
D. Investment bank
D. investment bank
You can buy silver in the:
A. capital markets.
B. foreign exchange markets.
C. commodities markets.
D. option markets.
C. commodities markets
Which of the following actions does not help reduce risk?
A. extending the service warranty for your notebook
B. converting your money market account to a mutual fund account
C. contracting to sell your farm produce to the neighborhood grocery
D. buying Japanese yen now when you plan to study in Japan next year
B. converting your money market account to a mutual fund account
Financing for public corporations flows through:
A. the financial markets only.
B. financial intermediaries only.
C. derivatives markets.
D. the financial markets, financial intermediaries, or both.
D. the financial markets, financial intermediaries, or both
One reason suggesting that banks may be better than individuals at matching lenders to borrowers is that banks:
A. can shift loan risk to their deposit customers.
B. are motivated by the potential for profit.
C. do not have any income tax liability.
D. have information to evaluate creditworthiness.
D. have information to evaluate creditworthiness
Which of the following factors contributed to the financial crisis of 2007-2009?
A. Greece’s debt
B. Subprime mortgages
C. Drought conditions in the mid-west
D. Both Greece’s debt and subprime mortgages
B. subprime mortgages
Which one of the following financial intermediaries has shown the greatest preference for investing in long-term financial assets?
A. Commercial banks
B. Insurance companies
C. Finance companies
D. Savings banks
B. insurance companies
Financial markets and intermediaries:
A. channel savings to real investment.
B. increase risks for businesses.
C. generally reduce the liquidity of securities.
D. prevent the transportation of cash across time.
A. channel savings to real investment
A bond differs from a share of stock in that a bond:
A. represents a claim on the firm.
B. has more risk.
C. has guaranteed dividend payments.
D. has a maturity date.
D. has a maturity date
