FIN 310 (Ch. 1)

D. The market price per share of the firm's common stock.

"Shareholder wealth" in a firm is represented by: A. The number of people employed in the firm. B. The book value of the firm's assets less the book value of its liabilities. C. The amount of salary paid to its employees. D. The market price per share of the firm's common stock.

B. board of directors

A company's _______________ is (are) potentially the most effective instrument of good corporate governance. A. common stock shareholders B. board of directors C. top executive officers

D. Corporate social responsibility

A concept that implies that the firm should consider issues such as protecting the consumer, paying fair wages, maintaining fair hiring practices, supporting education, and considering environmental issues. A. Financial management B. Profit maximization C. Agency theory D. Corporate social responsibility

A. shareholder; manager

A(n) _______________ would be an example of a principal, while a(n) _______________ would be an example of an agent. A. shareholder; manager B. manager; owner C. accountant; bondholder D. shareholder; bondholder

C. Investment decision.

According to the text's authors, what is the most important of the three financial management decisions? A. Asset management decision. B. Financing decision. C. Investment decision. D. Accounting decision.

B. stakeholders

All constituencies with a stake in the fortunes of the company are known as __________. A. shareholders B. stakeholders C. creditors D. customers

B. Board of Directors, executive officers, and common shareholders

Corporate governance success includes three key groups. Which of the following represents these three groups? A. Suppliers, managers, and customers. B. Board of Directors, executive officers, and common shareholders. C. Suppliers, employees, and customers. D. Common shareholders, managers, and employees.

B. Use the income statement to determine earnings after taxes (net income) and divide by the number of common shares outstanding.

How are earnings per share calculated? A. Use the income statement to determine earnings after taxes (net income) and divide by the previous period's earnings after taxes. Then subtract 1 from the previously calculated value. B. Use the income statement to determine earnings after taxes (net income) and divide by the number of common shares outstanding. C. Use the income statement to determine earnings after taxes (net income) and divide by the number of common and preferred shares outstanding. D. Use the income statement to determine earnings after taxes (net income) and divide by the forecasted period's earnings after taxes. Then subtract 1 from the previously calculated value.

C. Public Company Accounting Oversight Board (PCAOB)

In the US, the _______________________________ has been given the power to adopt auditing, quality control, ethics, and disclosure standards for public companies and their auditors as well as investigate and discipline those involved. A. American Institute of Certified Public Accountants (AICPA) B. Financial Accounting Standards Board (FASB) C. Public Company Accounting Oversight Board (PCAOB) D. Securities and Exchange Commission (SEC)

A. principals; agents; agents

Jensen and Meckling showed that __________ can assure themselves that the __________ will make optimal decisions only if appropriate incentives are given and only if the __________ are monitored. A. principals; agents; agents B agents; principals; principals C. principals; agents; principals D. agents; principals; agents

A. a series of corporate scandals involving Enron, WorldCom, Global Crossing, Tyco and numerous others.

The Sarbanes-Oxley Act of 2002 (SOX) was largely a response to: A. a series of corporate scandals involving Enron, WorldCom, Global Crossing, Tyco and numerous others. B. a dramatic rise in the US trade deficit. C. charges of excessive compensation to top corporate executives. D. rising complaints by investors and security analysts over the financial accounting for stock options.

C. investment

The __________ decision involves a determination of the total amount of assets needed, the composition of the assets, and whether any assets need to be reduced, eliminated, or replaced. A. asset management B. financing C. investment D. accounting

B. financing

The __________ decision involves determining the appropriate make-up of the right-hand side of the balance sheet. A. asset management B. financing C. investment D. capital budgeting

A. asset management

The __________ decision involves efficiently managing the assets on the balance sheet on a day-to-day basis, especially current assets. A. asset management B. financing C. investment D. accounting

D. team player; cross-functional capabilities

The authors of your textbook suggest that you need to understand financial management even if you have no intention of becoming a financial manager. One reason is that the successful manager of the not-too-distant future will need to be much more of a __________ who has the knowledge and ability to move not just vertically within an organization but horizontally as well. Developing __________ will be the rule, not the exception. A. specialist; specialties B. generalist; general business skills C. technician; quantitative skills D. team player; cross-functional capabilities

C. accounting; financial management

The controller's responsibilities are primarily _________________ in nature, while the treasurer's responsibilities are primarily related to ____________. A. operational; financial management B. financial management; accounting C. accounting; financial management D. financial management; operations

B. investment, financing, and asset management

The decision function of financial management can be broken down into the _______________ decisions. A. financing and investment B. investment, financing, and asset management C. financing and dividend D. capital budgeting, cash management, and credit management

C. The creation of value for shareholders.

The focal point of financial management in a firm is: A. The number and types of products or services provided by the firm. B. The minimization of the amount of taxes paid by the firm. C. The creation of value for shareholders. D. The dollars profits earned by the firm.

B. Maximize the value of the firm's common stock.

The long-run objective of financial management is to: A. Maximize earnings per share. B. Maximize the value of the firm's common stock. C. Maximize return on investment. D. Maximize market share.

D. Individuals buying and selling the stock.

The market price of a share of common stock is determined by: A. The board of directors of the firm. B. The stock exchange on which the stock is listed. C. The president of the company. D. Individuals buying and selling the stock.

A. Chief Financial Officer.

To whom does the Treasurer most likely report? A. Chief Financial Officer. B. Vice President of Operations. C. Chief Executive Officer. D. Board of Directors.

C. $0.50 ($100,000/200,000)

What are the earnings per share (EPS) for a company that earned $100,000 last year in after-tax profits, has 200,000 common shares outstanding and $1.2 million in retained earning at the year end? A. $100,000 B. $6.00 C. $0.50 D. $6.50

A. Shareholder wealth maximization

What is the most appropriate goal of the firm? A. Shareholder wealth maximization B. Profit maximization C. Stakeholder maximization D. EPS maximization

C. Salary.

Which of the following is not a perquisite (perk)? A. Company-provided automobile. B. Expensive office. C. Salary. D. Country club membership.

B. Asset management.

Which of the following is not normally a responsibility of the controller of the modern corporation? A. Budgets and forecasts. B. Asset management. C. Financial reporting to the IRS. D. Cost accounting.

A. Budgets and forecasts

Which of the following is not normally a responsibility of the treasurer of the modern corporation but rather the controller? A. Budgets and forecasts B. Asset management C. Investment management D. Financing management

D. Profit maximization is concerned more with maximizing net income than the stock price.

Which of the following statements is correct regarding profit maximization as the primary goal of the firm? A. Profit maximization considers the firm's risk level. B. Profit maximization will not lead to increasing short-term profits at the expense of lowering expected future profits. C. Profit maximization does consider the impact on individual shareholder's EPS. D. Profit maximization is concerned more with maximizing net income than the stock price.

D. EPS maximization is concerned with maximizing net income

Which of the following statements is not correct regarding earnings per share (EPS) maximization as the primary goal of the firm? A. EPS maximization ignores the firm's risk level. B. EPS maximization does not specify the timing or duration of expected EPS. C. EPS maximization naturally requires all earnings to be retained. D. EPS maximization is concerned with maximizing net income.

A. Financial management

__________ is concerned with the acquisition, financing, and management of assets with some overall goal in mind. A. Financial management B. Profit maximization C. Agency theory D. Social responsibility

C. Agency theory

__________ is concerned with the branch of economics relating the behavior of principals and their agents. A. Financial management B. Profit maximization C. Agency theory D. Corporate social responsibility

B. Profit maximization

__________ is concerned with the maximization of a firm's earnings after taxes. A. Shareholder wealth maximization B. Profit maximization C. Stakeholder maximization D. EPS maximization

A. Shareholder wealth maximization

__________ is concerned with the maximization of a firm's stock price. A. Shareholder wealth maximization B. Profit maximization C. Stakeholder welfare maximization D. EPS maximization

B. Sustainability

___________ refers to meeting the needs of the present without compromising the ability of future generations to meet their own needs. A. Corporate Social Responsibility (CSR) B. Sustainability C. Convergence D. Green Economics