finance quizzes

Capital structure management is managing a company's A. Mix between debt and equity financing B. Current assets and liabilities C. Outstanding market value D. Inventory turnover E. Corporate strategy

A. Mix between debt and equity financing

Market Cap is equal to _________ A. # of Shares * Price per Share B. Earnings per Share * # of Shares C. Shareholder's Equity - Retained Earnings D. Assets - Liabilities E. None of the above

A. # of Shares * Price per Share

Company XYZ pays a $6 per share dividend. One year ago the price of the stock was $83 and today the price is $70, what was the return on the stock A. -8.4% B. -15.6% C. 22.9% D. 27.1%

A. -8.4%

Companies attempt to create shareholder value by A. Diversifying their product portfolio B. Lowering their interest expense C. Increasing employee compensation D. Making decisions aimed at increasing the value of the firm E. Increasing management's compensation

D. Making decisions aimed at increasing the value of the firm

Shared governance in the 1990s occurred when A. Small investors got together to avoid hostile takeovers B. There was economic growth and large stock gains at the same time C. Company elected a board of directors from a group of company and management friends D. Management and board of directors shared governance with large institutional investors E. When large investors and small investors got together to avoid hostile takeovers

D. Management and board of directors shared governance with large institutional investors

Which of the following is an example of the agency problem? A. Management makes an acquisition to increase the growth prospects for the company B. Management advocates increasing share buybacks to the Board of Directors C. Management lays off employees to cut costs in an economic downturn D. Management makes a negative ROI investment in order to increase company revenues and executive compensation E. Management has stock options in the company, potentially providing large payouts if the company does well

D. Management makes a negative ROI investment in order to increase company revenues and executive compensation

What is NOT true about corporate governance? A. It is the system of rules, practices, and processes by which a company is directed and controlled B. Corporate governance battles often result from companies not being managed in the interest of the owners C. Many corporate governance battles result in hostile takeovers and proxy battles D. Management teams are rarely shareholders in their own companies E. None of the above

D. Management teams are rarely shareholders in their own companies

True of False: Inflation decreases your return on investment by reducing the future value of the money you receive on your investment

True

True or False: In addition to overseeing the functions of the Treasurer and Controller, the CFO hedges risks and insures that capital is available to fund strategic plans.

True

True or False: Investors believe that transaction costs, taxes, and inflation are the enemy because when it is all said and done, they reduce the return on your investments.

True

True or False: Small-cap stocks are riskier than corporate bonds

True

True or false: In Gordan Gekko's "Greed is Good" speech, Gekko is arguing that management has made decisions that have been beneficial to shareholder value

True

Which of the following was not a major volatility driver for bitcoin in the past two years? China restrictions Hacks Illegal transactions Exchange failures US dollar weakening

US dollar weakening

True or False: The Sarbanes-Oxley Act of 2002 mandated that audit committees must be composed of internal directors that would be hired directly by senior management.

false

Which is not an advantage of bitcoin as a currency? Accounts cannot be frozen Peer-to-peer Blockchain-based public ledger Government backing Controlled supply

government backing

Which two financial metrics does Warren Buffet use to analyze companies? A. Profit Margin & Return on Assets B. Profit Margin & Return on Equity C. Return on Equity & Return on Assets D. Return on Assets & Return on Investment E. Return on Equity & Return on Investment

B. Profit Margin & Return on Equity

Which of the following is a Long-Term Asset category? A. Inventory B. Property, Plant & Equipment C. Securities D. Cash E. Accounts Receivable

B. Property, Plant & Equipment

The dual challenges of management include: A. Growing company and providing profits B. Providing high-quality product/services and competitive returns to shareholders C. Providing stakeholders and shareholders a great company D. Keeping employees and customers happy E. Maximizing sales and profits

B. Providing high-quality product/services and competitive returns to shareholders

Which of the following companies has the highest market capitalization? A. Share Price: $110, Shares Outstanding: 30 million, P/E Ratio: 7x B. Share Price: $90, Shares Outstanding: 100 million, P/E Ratio: 9x C. Share Price: $70, Shares Outstanding: 50 million, P/E Ratio: 16x D. Share Price: $100, Shares Outstanding: 45 million, P/E Ratio: 11x E. Share Price: $85, Shares Outstanding: 70 million, P/E Ratio: 9x

B. Share Price: $90, Shares Outstanding: 100 million, P/E Ratio: 9x

Which of the following is NOT an element of the new corporate finance environment? A. Institutionalization of markets B. Shrinking equity markets C. Advances in IT and Telecommunication Technologies D. Greater risk E. None of the above

B. Shrinking equity markets

The basic principles of finance dictate that in the short-run, stock prices are driven by A. Corporate earnings B. Supply & Demand C. Interest Rates D. Valuation E. All of the above

B. Supply & Demand

Which of the following determines a stock's price in the short-run: A. The stock's earnings B. Supply and Demand C. Net Interest Margins D. The SEC E. Analysts on Wall Street who cover the stocks

B. Supply and Demand

Which of the following is true? A. The currency markets are the smallest markets in the world B. The DJIA is the best known index of any market in the world C. The NASDAQ index measures performance of commodities D. The price of gold decreases when there is a financial crisis E. The 30-yr Treasury yield is the index that measures inflation

B. The DJIA is the best known index of any market in the world

What does the market capitalization of a company represent? A.The value of a company to its debt holders B.The aggregate stock market value of a company C. The intrinsic value of a firm D. The value of a company's long and short-term assets E. The accumulated profit earned over the lifetime of the company

B. The aggregate stock market value of a company

Which of the following duties do NOT fall under the CFO's role as Treasurer? A. Financial Planning B. Short-Term Capital Requirements C. Audits D. Capital Budgets E. None of the above

C. Audits

Which of the following is a common element of financial crises? A. Difficult to obtain financing B. Natural disasters C. Excessive investment in an asset class D. Stock returns are low leading to a crisis E. Unstable currency

C. Excessive investment in an asset class

Successful liability management means _______ A. Keep liabilities at a minimum B. Keeping debt at a minimum C. Making sure that the company takes on more long-term debt in order to have enough time to pay it off D. Minimizing the cost of capital E. Maximizing the amount of debt that the company takes on

D. Minimizing the cost of capital

Which of the following is true of financial crises? A. Stock returns are low leading to a crisis B. Crises typically only occur once every 75 - 100 years C. Government's rarely get involved D. Crises are a recent phenomenon and did not occur prior to 1900 E Crises usually involve easy financing

E Crises usually involve easy financing

What is the agency problem of corporate governance? A. Cost of capital is often ignored in favor of making large investments B. Management performing in the interest of shareholders rarely translates to a higher stock price C. It ignores expenses and investments that serve management's interests D. Company's spend too much time worrying about regulation and not shareholder value E. A company's assets are owned by the stockholders, but controlled by management

E. A company's assets are owned by the stockholders, but controlled by management

Which of the following concerning the relationship between risk and return is correct? A. A risk taker investor would prefer a stock with an expected 10% return and a standard deviation of 10% to a stock with an expected return of 10% with a standard deviation of 20% B. Investors generally demand higher return for less risky investments C. Riskier investments tend to have lower returns D. Safer investments historically provide the highest returns E. A risk averse investor would prefer a stock with an expected 10% return and a standard deviation of 10% to a stock with an expected return of 10% with a standard deviation of 20%

E. A risk averse investor would prefer a stock with an expected 10% return and a standard deviation of 10% to a stock with an expected return of 10% with a standard deviation of 20%

Pac-Man defense against a hostile takeover occurs when A. A CEO taking his company private with a Private Equity partner B. A Company diluting its shareholders event that 10% of their shares are purchased by a person/group C. Top executives receiving compensation upon a change in control D. A target company selling off its main assets upon a takeover bid E. A target company making a counter-takeover bid for the acquirer

E. A target company making a counter-takeover bid for the acquirer

Which of the following is an example of a Short-Term Asset? A. An iPod Factory B. A patent C. 10-year loan D. A house E. Cash

E. Cash

Which of the following was NOT a contributing factor to the financial crisis in 2008? A. Excessive risk taking on Wall Street B. Low interest rates C. Lax Government regulation and oversight D. An overbought housing market E. Conflicts of interest between the Board of Directors and management

E. Conflicts of interest between the Board of Directors and management

Which of the following is NOT one of the CFO's responsibilities as the company's treasurer? A. Cash management B. Working capital management C. Capital Budgeting D. Long-term financial planning E. Cost Accounting

E. Cost Accounting

Over the past several decades to the 1960's, what is true regarding the financial environment? A. The economy has been up and down but on average there is negative growth B. There has been minimal growth while volatility was high C. Growth has been high with only minor volatility D. Growth and volatility have both been low E. Growth and volatility have both been high

E. Growth and volatility have both been high

Which of the following is one of the three primary areas of finance? A. Global Finance B. Corporate Governance C. Audit & Assurance D. Financial Accounting E. Investments

E. Investments

Which financial ratios are used to determine management's effectiveness at creating shareholder value? A. Net Profit & Interest Expense B. Net Profit & Cost of Capital C. Return on Investment & Interest Expense D. Sales & Cost of Capital E. Return on Investment & Cost of Capital

E. Return on Investment & Cost of Capital

Beta is used in the capital asset model primarily as a measure of A. Profitability B. Trading volume C. Valuation D. Earnings growth E. Risk

E. Risk

Which stakeholder is paid in 'Cost of Goods Sold?' A.Stockholders B. Employees C. Lenders D. Government E. Suppliers

E. Suppliers

What is true of stockholders? A. They are protected by contracts B. They can be anyone who has an economic interest in the corporation C. They are paid before the stakeholders of a corporation D. Management teams are almost never stockholders E. They have a residual claim on the firm's cash flows

E. They have a residual claim on the firm's cash flows

True or False: Beta and expected return are not related at all.

False

True or False: In order to achieve the highest level of return for the amount of risk we can take on, it is very important to not diversify our investments into different asset classes, and to only invest in small-cap bio-tech stocks.

False

True or False: Market Cap is equal to shareholder's equity

False

True or False: Market capitalization is equal to # of shares outstanding times Earnings per Share.

False

True or False: The random walk hypothesis is inconsistent with the efficient market hypothesis

False

Which Country's Corporate Governance model is best described as a dedicated capital model? Brazil China U.S. Germany Canada

GERMANY

Which of these investments would be considered the least risky? A. Large-cap stocks B. Small-cap stocks C. Corporate Bonds D. Government Bonds E. Commodities

D. Government Bonds

Which of the following is true regarding stockholders versus stakeholders? A. In a liquidation, stockholders are paid before stakeholders B. Gordon Gekko believes management should maximize value for all stakeholders C. Employees are considered stockholders but not stakeholders D. In a liquidation, stockholders are only paid if there is cash remaining after stakeholder contracts are fulfilled E. Stockholders are protected by contracts with the corporation

D. In a liquidation, stockholders are only paid if there is cash remaining after stakeholder contracts are fulfilled

Which one of the following is an element of the new corporate finance environment? A. Lower economic volatility B. No advance in Information, Systems, and Telecommunications Technologies C. Increase in indirect investment D. Institutionalization of markets E. Decrease in international trade

D. Institutionalization of markets

In just 45 days, Charles Ponzi promised his investors a return of ________ 10% 25% 50% 80% 100%

50%

Once an investor owns _____ of a company's shares, he/she must fill out a SEC form 13-D. 1% 5% 10% 50% 51%

5%

The time value of money implies that: Investors are indifferent to receiving a dollar today vs. a dollar in the future A dollar today is worth the SAME as a dollar tomorrow A dollar today is worth LESS than a dollar tomorrow The value of money does not change over time A dollar tomorrow is worth LESS than a dollar today

A dollar tomorrow is worth LESS than a dollar today

Apple's stock traded at $260 a year ago. If Apple's stock currently trades at $320 and Apple paid a $10 per share dividend, what was the return on Apple's stock? A. 26.9% B. 23.1% C. 18.8% D. 21.8%

A. 26.9%

The time value of money states that A. A dollar today is worth more than a dollar tomorrow B. A dollar today is worth less than a dollar tomorrow C. A dollar today is worth exactly the same as a dollar tomorrow

A. A dollar today is worth more than a dollar tomorrow

Communication with markets is the responsibility of which role? A. CEO B. CFO C. Treasurer D. Controller E, VP of Communications

A. CFO

Which of the following statements is true regarding strategic financial management? A. Capital structure refers to the issuance of debt and equity to finance growth B. Capital structure decisions affect investment of long term assets C. Buying new machinery is a working capital management decision D. Capital budgeting focuses on the day to day financial activities E. Refinancing long term debt is a working capital decision

A. Capital structure refers to the issuance of debt and equity to finance growth

Which of the following is also known as a "Fear Index" in the markets? A. Gold Price B. DJIA C. NASDAQ D. Price of oil E. 30-year Treasury yield

A. Gold Price

Which one of the following is an element of the new corporate finance environment? A. Greater economic volatility and risk B. Lack of complex financial instruments C. Decrease in international trade D. No advance in Information, Systems, and Telecommunications Technologies E. Higher commodity prices

A. Greater economic volatility and risk

The primary business of Warren Buffet's Berkshire Hathaway is: A. Insurance B. Banking C. Consumer Goods D. Real Estate

A. Insurance

Which of the following is a principle held by Gordon Gekko? A. Management must be accountable to the shareholders B. Management should not have a stake in the company C. Managers that have a stake in the company create a greater potential for the agency problem D. Managerial efficiency is not important E. A company's stakeholders are more important than its stockholders

A. Management must be accountable to the shareholders

Believers of behavioral finance principles do believe that A. Markets are not always efficient B. Rational expectations reflect expected outcomes C. Choices are always based off expected utility maximization D. Prices reflect risk and return E. Arbitrageurs correct mispricings in the market

A. Markets are not always efficient

Which of the following companies recently used the pac-man defense mechanism? A. Men's Wearhouse B. Jos. A Bank C. Heinz D. Pershing Square E. Dell

A. Men's Wearhouse

Which activity is most likely to increase shareholder value? A. Minimizing the company's cost of capital B. Minimizing the amount of projects the company spends money on C. Financing the company's business with expensive debt D. Maximizing the amount of corporate assets E. Investing in projects that are always the least risky

A. Minimizing the company's cost of capital

What is the correlation between the risk of an investment and its expected return? A. Positive B. Negative C. No Correlation

A. Positive

Which statement is most accurate about the dual challenges of management? A. They must balance providing high quality products and services while creating shareholder value B. They often must aggressively invest to grow revenue while limiting the amount of liabilities they take on in doing so C. They must balance out the compensation for themselves and the employees of the organization D. They need to make and execute plans for the long-term while posting consistent short-term results E. None of the above

A. They must balance providing high quality products and services while creating shareholder value

Which of the following CFO roles pertain to the Finance department? A. Treasurer B. Tax Manager C. Vice President Marketing D. Credit Manager E. None of the above

A. Treasurer

If biotechnology stocks and utility stocks both provide the same expected return, then which would you invest in? (Hint: biotechnology companies are much riskier than utility companies because most of the time the entire company revolves around a single drug that has not yet been approved) A. Utility Stock B. Biotechnology Stock

A. Utility Stock

An individual or group that purchases large numbers of a public company's shares and seeks to make changes to management and structure is known as _________ Institutional investors Investment bankers Activist investors Hedge fund managers Shareholders

Activist investors

Which of the following is true regarding the U.S. model of Corporate Governance? A. Shareholders are represented by a Board of Directors B.Shareholder returns are not a major concern C. The majority owner manages the company D. It is a dedicated capital model E. Companies in business together own each other's stock

A. Shareholders are represented by a Board of Directors

Which of the following stocks is the safest? Stock A: Mean Return - 10%, Std. Deviation - 10% | Stock B: Mean Return - 10%, Std. Deviation - 20% A. Stock A B. Stock B

A. Stock A

Corporate raiders showed that: A. The best defense against a takeover is a high stock price B. The role of the CFO must be expanded C.Management compensation is fair and management need not worry about stock price D. Managers should never be compensated with equity in the company E. Sales growth is the most important measure of management effectiveness

A. The best defense against a takeover is a high stock price

What changed in the 1980s that allowed for hostile takeovers to take place? A. The rise of corporate raiders B. Pac-Man defense mechanism became popular C. Bernie Madoff bought all troubled companies D. SEC intervened E. There was a government bailout

A. The rise of corporate raiders

Orren Hari was an advocate of what approach to managing a company? A. The stakeholder approach B. The efficiency approach C. The value approach D. The cash control approach E. The shareholder value approach

A. The stakeholder approach

What is a reason that a start-up may organize as a Corporation? Minimized Taxes Ability to raise capital Ease of formation Minimize labor negotiations Limit transfer of ownership

Ability to raise capital

Making sales to a customer on credit is an example of a ________ decision, and would be the responsibility of the __________. A. Working Capital; Treasurer B. Working Capital; Controller C. Capital Budgeting; Treasurer D. Capital Structure; Controller E. Capital Structure; Treasurer

A. Working Capital; Treasurer

Which of the following is not a corporate stakeholder? A.Government B. Community C. Stockholders D. Customers E. Lenders

A.Government

Which of the following is an example of asset allocation? A. Choosing how much to invest in energy companies vs. utility companies B. Choosing how much to invest in stocks vs. bonds C. Choosing how much to invest in Apple vs. Microsoft D. None of the above

B. Choosing how much to invest in stocks vs. bonds

The __________ is considered one of the CFO's traditional responsibilities as financial engineer. A. Corporate Strategist B. Controller functions C. Risk Management D. Growth & Acquisitions E. Financing & Capitalization

B. Controller functions

What is the world's largest market? A. Commodities B. Currencies C. Stocks D. Bonds E. Gold

B. Currencies

Working capital management requires monitoring the difference between Current Assets and ___________ A. Shareholder's Equity B. Current Liabilities C. Capital Expenditures D. Inventory E. Total Debt

B. Current Liabilities

Working capital management requires monitoring the difference between Current Assets and ___________ A.Shareholder's Equity B. Current Liabilities C. Capital Expenditures D. Inventory E. Total Debt

B. Current Liabilities

According to the principles of finance, diversification does what to the risk of an investment portfolio? A. Increases B. Decreases C. No effect

B. Decreases

Which of the following is NOT a balance sheet account associated with working capital? A. Cash B. Equipment C. Short-term loan D. Accounts payable E. Inventory

B. Equipment

Out of the following, who believes the MOST in behavioral finance? A. Investment Bankers B. Equity Traders C. Finance Professors D. Mutual Fund Managers E. CFOs

B. Equity Traders

According to frank Russell's model of investor emotion through market cycles, investor emotion in 2007 before the financial crisis would be best described as: A. Thrill B. Euphoria C. Excitement D. Anxiety E. Optimism

B. Euphoria

Which of the following is NOT an example of an internal control mechanism? A. Board of Directors B. Human Resources C. Stock-based compensation D. Audited financial statements E. Stock ownership interest

B. Human Resources

Alcoa announced in a press release that it will acquire Kaiser Aluminum for $90 per share. If the theory of efficient capital markets is correct, what happens to Kaiser Aluminum's stock? A. Gradually increases to $90 per share until the day the transaction closes' B. Immediately trades up to $90 C. Gradually increases to $90 until market close on the day of the announcement D. None of the above

B. Immediately trades up to $90

Which of the following would reduce returns of your investment portfolio? A. Deflation B. Increase in brokerage commissions C. Lower capital gains tax rate D. Lower sales tax

B. Increase in brokerage commissions

According to Traditional Finance, which of the following statements is true? A. Markets are never efficient B. Investor behavior is rational and decisions maximize expected utility C. Arbitrageurs will not correct the market D. Decisions are based on emotions and biases of investors E. There are flaws in utility functions

B. Investor behavior is rational and decisions maximize expected utility

According to the Principles of Finance, risk aversion means: A. An investor avoids risk at all cost B. Investors takes small risks, but do not avoid risk at all cost C. An investor prefers more risk to less risk in some investments D. None of the Above

B. Investors takes small risks, but do not avoid risk at all cost

What is one of the challenges of the shareholder value standard? A. It often puts stakeholders before stockholders B. It puts too much focus on markets and expectations C. It forces management to maintain an extremely long-term time horizon D. It puts little emphasis on efficiency ratios, such as return on equity E. It leads to company's ignoring their profit margins and focusing on revenue growth instead

B. It puts too much focus on markets and expectations

If SmallCo's stock currently trades at $100 per share and BigCo announces that they will acquire SmallCo for $120 per share, what will happen to SmallCo's stock price according to the efficient market hypothesis? A. It will increase gradually to $120 over several weeks B. It will increase to $120 as soon as the announcement is made C. It will remain at $100 because the transaction may not close E. Nothing, this is not public information

B. It will increase to $120 as soon as the announcement is made

Which of the following is an example of the agency problem? A. Management invests in a project that has a return greater than the cost of capital B. Management invests in private jets for all executives C. Management receives compensation based on the company's performance D. Management owns stock in the corporation and supports an increase to the dividend E. Management has stock options in the company, potentially providing large payouts if the company does well

B. Management invests in private jets for all executives

Which of the following is NOT a management tenet according to Gordon Gekko? A. Management must be accountable to stock holders B. Management must grow the company C. Management must have a stake in the company D. Management must be efficient E. All of the above are true

B. Management must grow the company

Which of the following is NOT an external or internal control mechanism used to insure management acts in the interest of shareholders? A. Board of directors B. Management perks C. Stock-based compensation D. The threat of hostile takeover E. Proxy contests

B. Management perks

Which of the following is not a type of business organization? A. Corporation B. Monopoly C. Partnership D. Sole proprietorship E. None of the above

B. Monopoly

What is one of the ways in which institutional investors became more involved in corporate governance issues? A. They threatened to press charges against management B. They gained more voting and governance rights as shareholders C. They refused to invest in the company D. They alerted regulators E. None of the above

B. They gained more voting and governance rights as shareholders

When Professor X started investing with a mutual fund, he had to pay a front-end load of 5% of the money he was investing. What is this front-end load of 5% an example of? A. Taxes B. Transaction Costs C. Bid-Ask Spread E. None of the above

B. Transaction costs

A management team that creates shareholder value: A.Grows EPS over time B. Generates return on investment greater than the cost of capital C. Ensures cost of capital exceeds return on investment D. Generates positive net income E. Maximizes executive compensatio

B.Generates return on investment greater than the cost of capital

__________ is an activist investors who Runs Pershing Square Capital Management and recently purchased a 9.7% stake in Allergan Pharmaceuticals. Carl Icahn Bill Ackman Dean Fenton Victor Posner Robert Pearlman

Bill Ackman

Company XYZ currently has a stock price of $25.00, 500 million shares outstanding, and earnings per share of $1.50. What is its market cap? A. $37 million B. $750 million C. $12.5 billion D. $25 billion E. $100 billion

C. $12.5 billion

Given the following information, what is Macy's market capitalization? Annual Sales $27.5B Annual Net Income $1.5B Earnings Per Share $3.93 Number of Shares 360 million Price Per Share $60 A, $27.5B B.$50.0B C. $21.6B D. $10.5B E. $5.3B

C. $21.6B

Calculate the stock return from the following information: Beginning Price: $22.00 Price 1 Year Later: $19.50 Annual dividend: $1.00 A. -11.36% B. 10.26% C. -6.82% D. -12.82% E. 2.27%

C. -6.82%

If Nissan invests in a new plant to manufacture a new car model, it is an example of which corporate financial decision? A. Risk Management B. Capital Structure C. Capital Budgeting D. Growth and Acquisition Strategy E. Working Capital Management

C. Capital Budgeting

Which of the following is an example of an external control mechanism? A. The Department of Justice banning a potential merger between Spring and T-Mobile B. The Federal Reserve imposing tougher standards on major banks after the financial crisis of 2008 C. Carl Icahn attempting a hostile takeover for 89% control of U.S. Steel for $7 Billion after finally being rebuffed by CEO David Roderick D. Shareholders can vote in approval or disapproval of executive compensation and, given a majority, can change the Board of Directors if they are dissatisfied E. Consumers decide to boycott McDonald's due to the bad quality of their food

C. Carl Icahn attempting a hostile takeover for 89% control of U.S. Steel for $7 Billion after finally being rebuffed by CEO David Roderick

Which of the following is true regarding The Rest of the World Model of Corporate Governance? A. Government influence over companies never occurs B. Companies in business together own each other's stock C. Companies are managed according to the interests of the majority owner D. Capital flows to companies with the best prospect of creating shareholder value E. A Board of Directors represents the shareholders

C. Companies are managed according to the interests of the majority owner

What was the primary reason for the crisis of corporate governance in the early 2000s? A. Low earnings B. Poor stock market performance C. Companies attempt to keep up with Wall Street's expectations D. Falling stock prices E. Corporate takeovers

C. Companies attempt to keep up with Wall Street's expectations

As an investor, Warren Buffet prefers companies with which of the following characteristics: A. Industry with few and insignificant barriers to entry B. High Tech Companies C. Companies that generate free cash flow D. Companies with low ROE E. High risk, high return potential

C. Companies that generate free cash flow

Which of the following is an example of an agency cost? A. Paying a higher quarterly dividend in order to satisfy shareholders B. Issuing debt in order to buy back shares and boost the stock price C. Company issues $100 Billion of debt in order to acquire its largest competitor and become a market leader, despite potential bankruptcy risks D. Firm has to pay a higher tax rate due to inefficient capital structure E. All of the above

C. Company issues $100 Billion of debt in order to acquire its largest competitor and become a market leader, despite potential bankruptcy risks

Which of the following equations represents successful shareholder value creation? A. Return on Investment = Cost of Capital B. Cost of Capital > Return on Investment C. Cost of Capital < Return on Investment D. Current Assets > Current Liabilities E. Shareholders' Equity > Total Deb

C. Cost of Capital < Return on Investment

The random walk hypothesis states that A. Day-to-day stock prices are driven by corporate earnings B.Day-to-day stock prices are driven by the Fed C. Day-to-day stock prices move randomly and independently of each other D. Day-to-day stock prices move closely with each other E. None of the above

C. Day-to-day stock prices move randomly and independently of each other

Which of the following drives stock price in the long run? A. Supply and Demand B. Treasurer Predictions C. Earnings & Fundamentals D. Rationality E. Insider Trading

C. Earnings & Fundamentals

Which of the following is NOT one of the elements of the new corporate finance environment? A. Market Institutionalization B.Advances in IT and Telecommunications C. Emphasis on executive bonuses D. Greater economic volatility E. None of the above

C. Emphasis on executive bonuses

What was the primary reason Herbalife has been in the news recently? A. Goldcorp recently made a hostile takeover bid for the company B. It adopted the poison pill to ward off potential suitors C. Hedge fund managers Carl Icahn and Bill Ackman have been publicly fighting over their investment positions in the company D. It was recently pressured by institutional investors for holding too much cash E. It was recently bought out by ICE for $8.2 billion

C. Hedge fund managers Carl Icahn and Bill Ackman have been publicly fighting over their investment positions in the company

Why is investing in long-term assets important? A. It directly increases the company's market value B. It will increase the efficiency of a firm in the short run C. It allows companies to grow their revenue in the long run D. It decreases a company's long-term liabilities E. It increases a firm's free cash flow

C. It allows companies to grow their revenue in the long run

Which of the following is NOT a reason a company aims to grow their market cap? A.Firms can utilize equity financing to make investments B. Companies can utilize their stock to make acquisitions C. It allows them to pay off owed liabilities to debt-holders D. They can compensate management with shares of the company E. It increases shareholder value

C. It allows them to pay off owed liabilities to debt-holders

If the theory of efficient capital markets is correct, which of the following statements is true? A. Analysts who have beaten market returns in the past are more likely to beat the market in the future B. Only Wall Street's top bucket analysts are able to beat the market C. It is useless to attempt to beat the market D. All of the above

C. It is useless to attempt to beat the market

Why is the price of oil important? A. It reflects fear in the market B. It is considered a value store C. It reflects economic demand D. It is considered a measure of inflation E. It is correlated with stock prices

C. It reflects economic demand

Why is the yield on 30-year Treasury bonds important? A. It indicates how much the Treasury has borrowed B. It indicates whether the US government has a balanced budget C. It represents the base-level cost of capital in the US D. It reflects Federal Reserve fiscal policy E, It is the fear index for the US markets

C. It represents the base-level cost of capital in the US

The model of governance in which there are usually very few takeovers and oversight is provided by large equity holders is A. Anglo-American Model B. Rest of World Majority Owner Model C. Japan-Germany Dedicated Capital Model D. Fluid Capital Model E. Minority Owner Model

C. Japan-Germany Dedicated Capital Model

According to the principles of finance, what should be management's goal when making corporate decisions? A. Maximizing the CEO's Christmas Bonus B. Growth C. Maximizing Shareholder Value D. None of the above

C. Maximizing Shareholder Value

If a natural disaster hits a major oil producing region and inhibits global supply, what is most likely to happen? A. Oil prices will rise gradually since there is sufficient inventory to cover losses B. There will likely be no observable impact in markets C. Oil prices will reflect the lower supply immediately D. Markets will react only after the impact on supply is determined, likely months later E. There will be minimal impact on oil markets, but equity markets will react immediately

C. Oil prices will reflect the lower supply immediately

The defense mechanism to protect against a hostile takeover where a company being targeted tries to make its stock less attractive to the buyer is called ____________. A. Golden Parachutes B. Pac-Man defense C. Poison Pills D. Crown Jewels E. The White Knight

C. Poison Pills

The 5th principle of finance states that management has fiduciary responsibility to act in ___________ interests A. Suppliers' B. Stakeholders' C. Shareholders' D. Customers' E. Employee's

C. Shareholders'

Which of the following organizational forms is easy to form but difficult to raise capital for? A. Corporation B. Partnership C. Sole Proprietorship D. Multinational corporation E. None of the above

C. Sole Proprietorship

According to the Theory of Efficient Capital Markets: A. Stock prices do not reflect all publicly available information B. Stock prices take a long time to capture new information C. Stock prices react instantaneously to new information D. Stock prices react positively to all new information E. Investors can easily predict exact stock prices

C. Stock prices react instantaneously to new information

Which of the following contributed to failure of internal control mechanisms in the 1980s? A. Managers had too many company stocks B. Investors were allowed to talk to each other C. There were too many small stockholders D. Outside investors had too much information E. Managers saw themselves as investors

C. There were too many small stockholders

Which of the following is NOT a characteristic of a corporation A. Ownership is easily transferable B. They carry limited liability C. They are easily formed D. They can raise capital with relative ease E. They are double taxed

C. They are easily formed

According to Danny Devito talking in Other People's Money, why do people invest? A. To do good B. To provide for employees C. To make money D. To help a company E. To support management

C. To make money

What was the issue with Saturn's business that contributed to GM's bankruptcy? A. Product quality B. Warranty claims C. Unprofitable operations D. Competition E. Poor customer service

C. Unprofitable operations

According to the efficient market hypothesis, using technical analysis to forecast future stock prices is A. Extremely useful B. Slightly useful C. Useless

C. Useless

Which of the following is true about the crisis in corporate governance in the late 1990's and early 2000's? A. Management had little incentive to meet Wall Street expectations B, Corporate raiders were more prevalent in this time period than in the 1980's C. Wall Street Analysts were making biased stock recommendations D. Large companies raised capital from one large bank partner E. It was primarily caused by leveraged investments in housing

C. Wall Street Analysts were making biased stock recommendations

Which of the following is an example of a long-term asset? A. Cash B. 1-year Treasury Bonds C. Inventory D. An iPod factory E. Accounts receivable

D. An iPod factory

An example of capital budgeting is: A. A retailer selling obsolete inventory B. A consumer goods company increasing marketing expenditures C. A phone manufacturer making phones before the holiday season D. A pharma company building a new research facility E. A University refinancing debt

D. A pharma company building a new research facility

Which of the following is a Current Asset category? A. Property, Plant & Equipment B. Equity C. Accounts Payable D. Accounts Receivable E. Retained Earnings

D. Accounts Receivable

Academic advancements over the past several decades, such as the CAPM and Black-Scholes model: A. Are used by managers but have little impact on markets B. Brought on the popularity of behavioral finance C. Have had little impact outside of the academic community D. Are widely used by markets E. Led to an M&A wave with their introduction

D. Are widely used by markets

Capital structure decisions are concerned with: A. Short term assets & liabilities B. Long term assets C. Communication with the markets D. Debt & Equity E. Debt only

D. Debt & Equity

Which of the following was NOT part of Sarbanes-Oxley? A. CEOs must sign off on financial statements B. Management is accountable for accuracy of financial statements C. Audit committees must be composed of outside directors D. Deregulation of financial systems E. Companies cannot make loans to outside directors

D. Deregulation of financial systems

Which of the following is NOT true in regards to behavioral finance A. It involves studying the effects of various factors on economic decision-making B.It examines the consequences of human decision making on market prices and returns C. It asserts that prices reflect emotions and biases D. Economic decision makers make rational decisions that maximize expected utility E. Behavioral models integrate insights from psychology, neuroscience, and microeconomic theory

D. Economic decision makers make rational decisions that maximize expected utility

According to Behavioral Finance, which of the following statements is true? A. The price of a stock always reflects its value B. Markets are always efficient C. Decisions are based on rational expectations D. Prices reflect emotions and biases E. Arbitrageurs will correct mispricings in the market

D. Prices reflect emotions and biases

The corporate governance contest Other People's Money is a A. Hostile takeover B. Golden Parachute C. Poison pill D. Proxy fight E. Merger

D. Proxy fight

What piece of legislation was the solution to the corporate governance issues in the 2000s? A. TARP B. Basel II C. Dodd-Frank D. Sarbanes Oxley E. None of the above

D. Sarbanes Oxley

The NASDAQ reflects the performance of what stocks? A. Energy B. Financials C. Consumer D. Technology E. Materials

D. Technology

A healthcare company announces it has developed a new drug that will increase its annual revenue by 5-10% over the next three years. According to the efficient market hypothesis, the stock price will reflect this news A. one year after the announcement B. One month after the announcement C. One week after the announcement D. The day of the announcement E. Never

D. The day of the announcement

The term shareholder refers to which of the following stakeholders in a company? A. The suppliers B. The employees C. The government D. The investors E. The lenders

D. The investors

Which of the following is part of the controller's function? A. Determining the feasibility of various projects B. Financial planning C. Managing short and long term capital requirements D. Working capital management E. Preparing financial statements and reports

E.Preparing financial statements and reports

A management team that generates 12% return on investment with a 15% cost of capital is creating shareholder value.

FALSE

True or False: Companies can maximize their value by maximizing customer satisfaction.

FALSE

True or False: Due to the fact that managers are agent of stockholders, they are not allowed to act in their own self-interest and must only proceed as the stockholders direct them to.

FALSE

True or False: Stakeholders and Stockholders mean the same thing.

FALSE

True or False: The major Corporate Governance issue in the late 1990's and early 2000's was that companies were not concerned with Wall Street's expectations of them.

FALSE

True or false: Partnerships carry limited liability

FALSE

True or false: stockholders are NOT corporate stakeholders

FALSE

True or False: CEO Compensation is not a challenge to the shareholder value standard because they CEOs deserve to be compensated as much as they do for running the company and that does not affect the creating of shareholder value.

FASLE

What investment vehicle did Charles Ponzi use in the original Ponzi scheme? International Reply Coupons Junk Bonds Tulips Mortgage Backed Securities Stocks and Options

International Reply Coupons

In a Ponzi scheme, investors are paid out of proceeds from ________ Junk bonds Investing in the S&P 500 New investors Treasury bonds Capital gains

New investors

Which example signifies that bitcoin may not be a function of money? Widely accepted Recipients often convert to USD Reserve currency Government backing Resistance to counterfeiting

Recipients often convert to USD

Given the following information, which stock has the highest return? Stock A: Current Price: $100 - Purchase Price: $85 - Dividends Paid: $3 Stock B: Current Price: $630 - Purchase Price: $545 - Dividends Paid: $20

Stock A

Given the following information, a rational investor would most likely invest in which stock? Stock A: Mean Return - 5%; Standard Deviation - 9% Stock B: Mean Return - 5%; Standard Deviation - 12% Stock A because it is riskier than Stock B Stock A because it is not as risky as Stock B Stock B because it is riskier than Stock A Stock B because it is not as risky as Stock A No difference because they have the same rate of return

Stock A because it is not as risky as Stock B

All else equal, which of the following stocks should have the highest expected return? Stock A: Standard Deviation - 15% Stock B: Standard Deviation - 30% Stock C: Standard Deviation- 5%

Stock B

One of the ways management can improve shareholder value is by managing working and fixed capital to enhance a company's performance

TRUE

Sarbanes-Oxley was an early 2000's solution for corporate governance that increased investor confidence in financial statements following several high profile, accounting scandals. TRUE OR FALSE

TRUE

The Anglo-American model of corporate governance is historically the best model to easily raise capital. TRUE or FALSE

TRUE

True or False: Capital budgeting is when companies manage their investments in long-term assets:

TRUE

True or False: Corporations are exposed to higher potential agency costs due to the possibility of managers not acting in the interest of shareholders and instead paying themselves higher bonuses and making large and potentially detrimental acquisitions.

TRUE

True or False: In his statement on corporate purpose, University of San Francisco Professor Oren Harari believes that it is wrong for management to operate under the premise that its primary purpose is to enhance shareholder value.

TRUE

Which of the following was not a failure of internal control mechanisms in the 1980s? a. Unfair corporate voting procedures b. Reduced stockholder influence in corporate governance issues c. Lower returns for investors d. High costs of monitoring management performance e. Non-confidential voting procedures

c. Lower returns for investors

The Hostile Takeovers in the 1980's were made possible by: a. Large management stakes in companies b. Institutional ownership of stocks c.The Sarbanes-Oxley Act d. Easy Financing with Junk Bonds e. A Government Bailout

d. Easy Financing with Junk Bonds