Ch. 1

11) Managerial finance ________. A) involves tasks such as budgeting, financial forecasting, cash management, and funds procurement B) involves the design and delivery of advice and financial products C) recognizes funds on an accrual basis D) devotes the majority of its attention to the collection and presentation of financial data

A) involves tasks such as budgeting, financial forecasting, cash management, and funds procurement

12) Which of the following legal forms of organizations is characterized by unlimited liability? A) sole proprietorship B) limited partnership C) corporation D) C-corporation

A) sole proprietorship

7) Which of the following legal forms of organization has the ease of dissolution? A) sole proprietorships B) partnerships C) limited partnerships D) corporations

A) sole proprietorships

9) Which of the following forms of organizations is the easiest to form? A) sole proprietorships B) limited liability corporation C) limited partnership D) S-corporations

A) sole proprietorships

14) Corporate owners receive return ________. A) by realizing gains through increases in share price and interest earnings B) by realizing gains through increases in share price and cash dividends C) through capital appreciation and retained earnings D) through interest earnings and earnings per share

Answer: B

13) The primary goal of a financial manager is ________.A) minimizing risk B) maximizing profit C) maximizing wealth D) minimizing return

Answer: C

15) The wealth of the owners of a corporation is represented by ________. A) profits B) earnings per share C) share value D) cash flow

Answer: C

16) Wealth maximization as the goal of a firm implies enhancing the wealth of ________.A) the auditors B) the creditors C) the federal reserve D) the firm's stockholders

Answer: D

10) An increase in a firm's risk will always result in a higher share price since a stockholder must be compensated for the greater risk.

Answer: FALSE

11) Stockholders expect to earn higher rates of return on investments with lower risk and lower rates of return on investments with higher risk.

Answer: FALSE

4) Dividend payments change directly with changes in earnings per share.

Answer: FALSE

12) The goal of business ethics is to motivate business and market participants to adhere to both the letter and the spirit of laws and regulations in all aspects of business and professional practice.

Answer: TRUE

3) To achieve the goal of profit maximization for each alternative being considered, a financial manager would select the one that is expected to result in the highest return.

Answer: TRUE

5) The wealth of corporate owners is measured by the share price of a stock.

Answer: TRUE

6) Risk, the magnitude and timing of cash flows are the key determinants of share price, which represent the wealth of owners in a firm.

Answer: TRUE

7) A higher earnings per share (EPS) does not necessarily translate into a higher stock price.

Answer: TRUE

8) The profit maximization goal ignores the timing of returns, does not directly consider cash flows, and ignores risk.

Answer: TRUE

9) When considering a firm's financial decision alternative, financial managers should accept only those actions that are expected to maximize shareholder value.

Answer: TRUE

17) The amount earned during the accounting period on each outstanding share of common stock is called ________. A) dividend per share B) earnings per share C) net profits after taxes D) book value per share

B

14) Which of the following is true of a partnership and a corporation? A) In a corporation, income is taxed at the corporate level; whereas, in a partnership, income is taxed twice. B) In a partnership, income is taxed at the corporate level; whereas, in a corporation, income is taxed twice. C) Income from both forms of organizations are double-taxed. D) In a partnership, income is exempted from tax up to $10 million; whereas, in a corporation, income is taxed twice.

B) In a partnership, income is taxed at the corporate level; whereas, in a corporation, income is taxed twice.

11) Which of the following is a strength of a corporation? A) low taxes B) limited liability C) low organization costs D) less government regulation

B) limited liability

13) Which of the following is an area of career opportunities in financial services? A) supply chain management B) personal financial planning C) auditing of financial statements D) production planning

B) personal financial planning

18) Which of the following is the best measure of profit maximization goal? A) retained earnings B) risk of the investment C) earnings per share D) timing of the returns

C

________ is concerned with design and delivery of advice and financial products to individuals, businesses, and governments. A) Managerial finance B) Auditing services C) Financial services D) Cost accounting

C) Financial services

13) Which of the following is the purest and most basic form of corporate ownership? A) bond B) notes C) common stock D) preferred stock

C) common stock

6) Which of the following legal forms of organization is most expensive to organize? A) sole proprietorships B) partnerships C) corporations D) limited partnership

C) corporations

15) Which of the following is a duty of a financial manager in a business firm? A) developing marketing plans B) controlling the stock price C) raising financial resources D) auditing financial records

C) raising financial resources

12) Finance is ________. A) the system of verifying, analyzing, and recording business transactions B) the science of production, distribution, and consumption of goods and services C) the art and science of managing money D) the art of merchandising products and services

C) the art and science of managing money

19) Profit maximization as a goal is ideal because it directly considers ________. A) risk and book value of assets B) timing and cash flow C) timing and risk D) EPS and stock price.

D

15) Which of the following is true of sole proprietorships and corporations? A) It is difficult to transfer ownership of corporations compared to that of sole proprietorships. B) Income from both forms of organizations are taxed only at the corporate level. C) Both sole proprietorships and corporations are equally scrutinized and regulated by government bodies. D) In sole proprietorships, owners have unlimited liability; whereas, in corporations, owners have limited liability.

D) In sole proprietorships, owners have unlimited liability; whereas, in corporations, owners have limited liability.

16) A ________ is responsible for evaluating and recommending proposed long-term investments. A) financial analyst B) credit manager C) pension fund manager D) capital expenditures manager

D) capital expenditures manager

8) Under which of the following legal forms of organization is ownership readily transferable? A) sole proprietorships B) partnerships C) limited partnerships D) corporations

D) corporations

2) When considering a firm's financial decision alternative, financial managers should accept only those actions that are expected to increase the firm's profitability.

False

5) A treasurer is responsible for a firm's accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting.

False

A controller administers a firm's credit policy by analyzing or managing the evaluation of credit applications, extending credit, and monitoring and collecting accounts receivable.

False

A financial analyst is responsible for maintaining and controlling a firm's daily cash balances.

False

A sole proprietor has unlimited liability; his or her total investment in a business, but not his or her personal assets, can be taken to satisfy creditors.

False

In large companies, CEOs are legally responsible for coordinating the assets and liabilities of employees' pension fund.

False

In partnerships, partners can readily transfer their wealth to other partners.

False

Managerial finance is concerned with design and delivery of advice and financial products to individuals, businesses, and governments.

False

In partnerships, owners have unlimited liability and may have to cover debts of other less financially sound partners.

TRUE

) A capital expenditures analyst/manager is responsible for the evaluation and recommendation of proposed asset investments.

True

1) High net cash flow with fixed risk is generally associated with a higher share price.

True

4) In a limited partnership, all partners' liabilities are limited to their investment in the partnership.

True

A controller typically handles the accounting activities, such as tax management, data processing, financial accounting, and cost accounting.

True

Finance is concerned with the process institutions, markets, and instruments involved in the transfer of money among and between individuals, businesses, and government.

True

Financial managers administer the financial affairs of all types of businesses such as private and public, large and small, and profit seeking and not for profit.

True

Financial managers perform different tasks developing a financial plan or budget, extending credit to customers, evaluating proposed large expenditures, and raising money to fund a firm's operations.

True