Exam 1

If investors become more optimistic about a firm's prospects and the managers want to expand operations as a result, it would likely cause the stock price to __________. A) increase B) decrease C) remain the same

A) increase

A limited liability company combines the: A) limited liability of a corporation with the ownership of a partnership B) debt liability of a partnership with the ownership of a proprietor C) tax liability of a corporation with the ownership of a proprietor D) limited liability of a partnership with the ownership of a proprietor

A) limited liability of a corporation with the ownership of a partnership

In finance, we often assume that the current price of an asset reflects everything we know about that asset. This theory is known as: A) market efficiency B) segmented markets C) agency theory D) liquidity preference

A) market efficiency

Capital structure refers to the: A) mix of the firm's long-term sources of financing B) the shape of the firm's headquarters C) investment in current assets by the firm D) mix of investments picked by the firm

A) mix of the firm's long-term sources of financing

Financial managers __________ when making decisions because it can have a direct impact on shareholder wealth. A) should always engage in ethical behavior B) weigh criminal penalties against the corporate benefits C) should pay bribes to obtain key contracts D) undertake a cost-benefit analysis of the ethical choice

A) should always engage in ethical behavior

The amount of interest that you can earn in one year that does not factor in the effects of compounding is known as: A) simple interest B) static interest C) effective annual interest D) non-compound interest

A) simple interest

Your friend asks you to join him in the new Internet business he is setting up as a corporation. If you invest $10,000 in the business, what is the limit to your liability? A) 1,000,000 B) 100,000 C) 10,000

C) 10,000

The U.S. Truth-in-Lending Act requires all consumer loan documents to display which of these interest rates? A) Prime Rate B) Discount Rate C) Annual Percentage Rate

C) Annual Percentage Rate

Which of the following is one of the primary functions of the financial manager? A) Preparing financial statements B) Calculating payroll deductions C) Making financing decisions D) Oversight of factory production

C) Making financing decisions

After the large corporate scandals involving Enron and WorldCom publicized the unethical and illegal behavior that could still go largely undetected the U.S. government passed the: A) Bemis Corporate Monitoring Act B) Shareholder Protection Act of 1999 C) Sarbanes-Oxley Act of 2002

C) Sarbanes-Oxley Act of 2002

One of the most fundamental principles in the field of finance is that money has __________ value. A) an intrinsic B) a flat C) a time D) an inherent

C) a time

The primary goal of the financial manager is to: A) maximize stakeholder wealth B) maximize profits C) maximize shareholder wealth D) minimize costs

C) maximize shareholder wealth

A disadvantage of a partnership is: A) ease of raising funds B) double taxation C) unlimited liability D) limited liability

C) unlimited liability

Which of the following is an example of an agency cost? A) Sales commission B) Raw materials cost C) Labor cost D) Executive stock options

D) Executive stock options

The concept that a dollar received today is worth more than a dollar received at some point in the future is known as: A) The miracle of compound interest B) Financial accounting C) A dollar saved is a dollar earned D) The time value of money

D) The time value of money

The present value is equivalent to: A) The future value compounded by some interest rate B) The value of a cash flow in the future C) Some amount you expect to invest next year D) The value of a cash flow today

D) The value of a cash flow today

Which of the following is one of the primary questions addressed by financial managers? A) Which accounting firm should be used to prepare the financial statements? B) What benefit package should the firm offer in order to attract good employees? C) What is the impact of an increase in marketing efforts on production? D) Which projects should the firm invest resources in to increase shareholder wealth?

D) Which projects should the firm invest resources in to increase shareholder wealth?

The process of evaluating long-term investment opportunities for the firm, and then determining which ones the firm should invest in is known as: A) capital structure B) working capital management C) hedging D) capital budgeting

D) capital budgeting

Financial managers are more concerned with a firm's __________ than a firm's earnings per share when evaluating a potential acquisition. A) debt service B) cash on hand C) dividend payment D) cash flows

D) cash flows

A __________ is a form of business organization that is considered an artificial being and has limited liability. A) professional group B) partnership C) sole proprietorship D) corporation

D) corporation

The market price of a share of stock is determined by: A) the Federal Reserve B) the New York Stock Exchange C) the chief financial officer and the CEO D) investors buying and selling the stock

D) investors buying and selling the stock

If the managers of a company are not the owners of the company, they are considered: A) Agents B) Shareholders C) Insiders D) Directors

A) Agents

When the payment of an annuity occurs at the beginning of the period instead of at the end of the period it is known as: A) An annuity due B) A beginning annuity C) An ordinary annuity D) A compound annuity

A) An annuity due

Which of the following positions typically reports to the chief financial officer (CFO)? A) Controller B) VP of Marketing C) Procurement Officer D) VP of Operations

A) Controller

Compounding is the process of: A) Finding the future value of some amount when interest is reinvested B) Finding the present value of some amount using simple interest C) Finding the present value of payments when interest is reinvested D) Finding the future value of some amount using simple interest

A) Finding the future value of some amount when interest is reinvested

The interest rate used to convert any future cash flow to a present value is known as the: A) discount rate B) APR C) real rate

A) discount rate

Cash distributions made by corporations to stockholders are known as; A) dividends B) coupon payments C) stock dividends

A) dividends

Discounting cash flows refers to: A) Reducing the value of financial information that comes from a questionable source B) Calculating the present value of cash flows to be received at some point in the future C) Receiving a reduction in the price of a good or service as an incentive to purchase D) Calculating the future value of some cash flow that you received today

B) Calculating the present value of cash flows to be received at some point in the future

Which of the following types of firms have limited liability? A) Partnerships B) Corporations C) Sole proprietorships

B) Corporations

An increase in a firm's stock price most likely reflects which of the following? A) Concern that the firm will soon go out of business. B) Optimism about the firm's profit prospects. C) A higher cost of new external funds.

B) Optimism about the firm's profit prospects.

What is the impact of a decrease in the interest rate on present value? A) PV will remain the same B) PV will rise C) PV will fall

B) PV will rise

In a limited partnership the __________ partner runs the business and is liable for the firm's debts. A) equity B) general C) limited

B) general

One of the basic premises in finance is that when the risk of an investment is high, the rate of return required by the investor will be: A) low B) high C) equal to short term T-bill rates D) moderate

B) high

As you increase the compounding frequency, holding all else constant, the effective annual rate: A) stays the same B) increases C) approaches zero D) decreases

B) increases

A table that shows the breakdown of interest and principal for each payment over the life of the loan is called a(n); A) legal loan contract. B) loan amortization schedule. C) annuity table.

B) loan amortization schedule.

Titan State Bank offers to pay you 6% interest, compounded quarterly. The 6% interest rate is known as the: A) EAR B) nominal interest rate C) rate of inflation D) real rate of interest

B) nominal interest rate

All amortized loans require __________ payments. A) monthly B) periodic C) annual

B) periodic

One of the primary tasks of the financial manager is to manage short-term cash needs, which is known as: A) investing B) working capital management C) capital structure D) capital budgeting

B) working capital management