Finance Examination One 300 Questions
COB 300 – FINANCE EXAM ONE (LIU) | EXAM QUESTIONS
AND CORRECT ANSWERS | LATEST 2026/2027
Cob 300 Finance Examination One Liu Actual
FINANCE EXAMINATION ONE
Integrated Business Concepts – Principles of Finance
1. Which of the following is an example of an agency cost borne by
shareholders?
A. Interest paid to bondholders on outstanding debt
B. Sales commissions paid to the sales staff
C. The expense of independent audits used to monitor management
D. Cost of raw materials used in production
ANSWER : C. The expense of independent audits used to monitor
management
Monitoring expenditures such as audits are incurred to limit managers'
self-serving behavior.
Page 1 of 88
,Finance Examination One 300 Questions
2. A stock is in equilibrium when:
A. Its book value equals its par value
B. Its market price equals its intrinsic value as seen by the marginal
investor
C. It pays no dividend
D. Its trading volume is zero
ANSWER : B. Its market price equals its intrinsic value as seen by
the marginal investor
In equilibrium, there is no pressure for the price to change because the
expected return equals the required return.
3. Institutional investors such as pension funds often influence
corporate policy through:
A. Writing GAAP rules
B. Issuing the firm's bonds
C. Setting the federal funds rate
D. Shareholder activism and proxy voting
ANSWER : D. Shareholder activism and proxy voting
Large institutional holders can pressure management to adopt
shareholder-friendly policies.
4. A firm's stock price at any point in time reflects:
A. The firm's historical cost of assets
B. The present value of all cash flows investors expect over the firm's
life
C. Only this year's earnings
D. Only the dividends paid last year
ANSWER : B. The present value of all cash flows investors expect
over the firm's life
Investors value the entire expected stream of future cash flows,
discounted for timing and risk.
Page 2 of 88
,Finance Examination One 300 Questions
5. In valuing a firm, financial managers focus primarily on:
A. Book value of assets
B. Cash flows
C. Accounting net income
D. Number of employees
ANSWER : B. Cash flows
Value depends on the cash that can be distributed to investors, not on
accounting conventions.
6. The capital budgeting decision is primarily concerned with:
A. Which long-term assets or projects the firm should invest in
B. The proportion of debt and equity used to finance the firm
C. How much inventory the firm should hold each month
D. What percentage of earnings should be paid as dividends
ANSWER : A. Which long-term assets or projects the firm should
invest in
Capital budgeting evaluates long-lived investments such as plant,
equipment and new product lines.
7. In a limited partnership:
A. Only the limited partners make management decisions
B. All partners have unlimited liability
C. Limited partners have liability limited to their investment but do not
manage the business
D. The partnership pays corporate income tax
ANSWER : C. Limited partners have liability limited to their
investment but do not manage the business
General partners manage and bear unlimited liability, while limited
partners are passive investors.
Page 3 of 88
, Finance Examination One 300 Questions
8. A stock's intrinsic value is best described as:
A. The price set by the board of directors
B. The price at which it traded yesterday
C. The value based on accurate information about the stock's expected
cash flows and risk
D. Its book value per share
ANSWER : C. The value based on accurate information about the
stock's expected cash flows and risk
Intrinsic value is the 'true' value; the market price may be above or
below it at any point in time.
9. How does the threat of a hostile takeover influence managerial
behavior?
A. It encourages managers to maximize firm value to avoid being
replaced
B. It eliminates the need for a board of directors
C. It forces the firm to stop paying dividends
D. It allows managers to ignore shareholder concerns
ANSWER : A. It encourages managers to maximize firm value to
avoid being replaced
An undervalued, poorly run firm is an attractive target, so managers
who want to keep their jobs have reason to perform well.
10. A benefit corporation differs from a traditional corporation mainly
because it:
A. Is exempt from all taxes
B. Cannot issue common stock
C. Has unlimited liability for its shareholders
D. Is legally permitted to pursue a stated social or environmental
purpose alongside profit
ANSWER : D. Is legally permitted to pursue a stated social or
environmental purpose alongside profit
Benefit corporations explicitly include public benefit goals in their
charters.
Page 4 of 88
COB 300 – FINANCE EXAM ONE (LIU) | EXAM QUESTIONS
AND CORRECT ANSWERS | LATEST 2026/2027
Cob 300 Finance Examination One Liu Actual
FINANCE EXAMINATION ONE
Integrated Business Concepts – Principles of Finance
1. Which of the following is an example of an agency cost borne by
shareholders?
A. Interest paid to bondholders on outstanding debt
B. Sales commissions paid to the sales staff
C. The expense of independent audits used to monitor management
D. Cost of raw materials used in production
ANSWER : C. The expense of independent audits used to monitor
management
Monitoring expenditures such as audits are incurred to limit managers'
self-serving behavior.
Page 1 of 88
,Finance Examination One 300 Questions
2. A stock is in equilibrium when:
A. Its book value equals its par value
B. Its market price equals its intrinsic value as seen by the marginal
investor
C. It pays no dividend
D. Its trading volume is zero
ANSWER : B. Its market price equals its intrinsic value as seen by
the marginal investor
In equilibrium, there is no pressure for the price to change because the
expected return equals the required return.
3. Institutional investors such as pension funds often influence
corporate policy through:
A. Writing GAAP rules
B. Issuing the firm's bonds
C. Setting the federal funds rate
D. Shareholder activism and proxy voting
ANSWER : D. Shareholder activism and proxy voting
Large institutional holders can pressure management to adopt
shareholder-friendly policies.
4. A firm's stock price at any point in time reflects:
A. The firm's historical cost of assets
B. The present value of all cash flows investors expect over the firm's
life
C. Only this year's earnings
D. Only the dividends paid last year
ANSWER : B. The present value of all cash flows investors expect
over the firm's life
Investors value the entire expected stream of future cash flows,
discounted for timing and risk.
Page 2 of 88
,Finance Examination One 300 Questions
5. In valuing a firm, financial managers focus primarily on:
A. Book value of assets
B. Cash flows
C. Accounting net income
D. Number of employees
ANSWER : B. Cash flows
Value depends on the cash that can be distributed to investors, not on
accounting conventions.
6. The capital budgeting decision is primarily concerned with:
A. Which long-term assets or projects the firm should invest in
B. The proportion of debt and equity used to finance the firm
C. How much inventory the firm should hold each month
D. What percentage of earnings should be paid as dividends
ANSWER : A. Which long-term assets or projects the firm should
invest in
Capital budgeting evaluates long-lived investments such as plant,
equipment and new product lines.
7. In a limited partnership:
A. Only the limited partners make management decisions
B. All partners have unlimited liability
C. Limited partners have liability limited to their investment but do not
manage the business
D. The partnership pays corporate income tax
ANSWER : C. Limited partners have liability limited to their
investment but do not manage the business
General partners manage and bear unlimited liability, while limited
partners are passive investors.
Page 3 of 88
, Finance Examination One 300 Questions
8. A stock's intrinsic value is best described as:
A. The price set by the board of directors
B. The price at which it traded yesterday
C. The value based on accurate information about the stock's expected
cash flows and risk
D. Its book value per share
ANSWER : C. The value based on accurate information about the
stock's expected cash flows and risk
Intrinsic value is the 'true' value; the market price may be above or
below it at any point in time.
9. How does the threat of a hostile takeover influence managerial
behavior?
A. It encourages managers to maximize firm value to avoid being
replaced
B. It eliminates the need for a board of directors
C. It forces the firm to stop paying dividends
D. It allows managers to ignore shareholder concerns
ANSWER : A. It encourages managers to maximize firm value to
avoid being replaced
An undervalued, poorly run firm is an attractive target, so managers
who want to keep their jobs have reason to perform well.
10. A benefit corporation differs from a traditional corporation mainly
because it:
A. Is exempt from all taxes
B. Cannot issue common stock
C. Has unlimited liability for its shareholders
D. Is legally permitted to pursue a stated social or environmental
purpose alongside profit
ANSWER : D. Is legally permitted to pursue a stated social or
environmental purpose alongside profit
Benefit corporations explicitly include public benefit goals in their
charters.
Page 4 of 88
