14316257101209100
Student: ___________________________________________________________________________
1. What is the primary goal of financial management?
A. Increased earnings
B. Maximizing cash flow
C. Maximizing shareholder wealth
D. Minimizing risk of the firm
2. Proper risk-return management means that:
A. the firm should take as few risks as possible.
B. consistent with the objectives of the firm, an appropriate trade-off between risk and return should be
determined.
C. the firm should earn the highest return possible.
D. the firm should value future profits more highly than current profits.
3. Which of the following is not a major area of concern and emphasis in modern financial management and
in this text?
A. Inflation and its effect on profits
B. Stable short-term interest rates
C. Changing international environment
D. Increased reliance on debt
4. Which of the following is not a major area of concern and emphasis in modern financial management and
in this text?
A. Marginal analysis
B. Risk-return trade-off
C. Commodity trading
D. Changing financial institutions
5. The effect of the high rates of inflation experienced during the 1970s and early 1980s was to make:
A. the gold standard was eliminated.
B. purchasing power increased.
C. interest rates fell.
D. capital budgeting decisions less reliable.
6. In the past, the study of finance has included:
A. operational efficiency.
B. employee relationships.
C. legal cases.
D. mergers and acquisitions.
7. A financial manager's goal of maximizing current or short-term earnings may not be appropriate
because:
A. it considers the timing of the benefits.
B. increased earnings may be accompanied by acceptably higher levels of risk.
C. share ownership is widely dispersed.
D. earnings are subjective; they can be defined in various ways such as accounting or economic earnings.
8. One of the major disadvantages of a sole proprietorship is:
A. that there is unlimited liability to the owner.
B. the simplicity of decision making.
C. low organizational costs.
D. low operating costs.
,9. The partnership form of organization:
A. avoids the double taxation of earnings and dividends found in the corporate form of organization.
B. usually provides limited liability to the partners.
C. has unlimited life.
D. simplifies decision making.
10. A corporation is not:
A. owned by shareholders who enjoy the privilege of limited liability.
B. easily divisible between owners.
C. a separate legal entity with perpetual life.
D. a separate legal entity with limited life.
11. Inflation:
A. increases corporations' reliance on debt for capital expansion needs.
B. creates larger asset values on the firm's historical balance sheet.
C. makes it cheaper (in terms of interest costs) for firms to borrow money.
D. creates stability for investors.
12. Which of the following securities is not included as part of the capital market?
A. Common stock
B. Commercial paper
C. Government bonds
D. Preferred stock
13. Maximization of shareholder wealth is a concept in which:
A. increased earnings is of primary importance.
B. profits are maximized on a quarterly basis.
C. virtually all earnings are paid as dividends to common shareholders.
D. optimally increasing the long-term value of the firm is emphasized.
14. The largest Canadian corporations are mainly:
A. widely held.
B. family controlled.
C. U.S. controlled.
D. Japanese controlled.
15. Which of the following is not a true statement about the goal of maximizing shareholder wealth?
A. It takes into account the timing of cash-flows.
B. It is a short-run point of view which takes risk into account.
C. It considers risk as a factor.
D. It is a long-run point of view which takes risk into account.
16. Increased international competition can be seen as a motivator to emphasize:
A. asset diversification strategies.
B. the risk side of the risk-return relationship.
C. the return side of the risk-return relationship.
D. invest in a new risky project.
17. Corporations can reduce portfolio risk by:
A. narrowing their focus on one successful product.
B. merging with companies in unrelated industries.
C. repurchasing their own stock.
D. selling their own stock.
18. The shift to the return side of the risk-return relationship has occurred because:
A. narrow focus on production.
B. stock splits.
C. there has been a decrease in the use of advanced technology in the production process.
D. there has been an increase in international competition.
,19. A corporate buy-back, or the repurchasing of shares, is:
A. an example of balance sheet restructuring.
B. an excellent source of profits when the firm's stock is over-priced.
C. a method of reducing the debt-to-equity ratio.
D. shown as revenue on the income statement.
20. Which of the following is (are) a result of high inflation?
A. Loss from disposal of assets
B. Over-valued liabilities
C. Lower stock price
D. Under-valued assets
21. A corporate restructuring can result in:
A. increased revenue.
B. buying of low-profit margin divisions.
C. selling of high-profit margin divisions.
D. reductions in the work force.
22. Which of the following is not an example of restructuring as discussed in the text?
A. Repurchase of common stock
B. Creating a new organizational chart
C. Merging with companies in related industries
D. Divesting of an unprofitable division
23. Agency theory deals with the issue of:
A. when to hire an agent to represent the firm in negotiations.
B. the legal liabilities of a firm if an employee, acting as the firm's agent, injures someone.
C. the limitations placed on an employee acting as the firm's agent to obligate or bind the firm.
D. the conflicts that can arise between the viewpoints and motivations of a firm's owners and managers.
24. As mergers, acquisitions, and restructurings have increased in importance, agency theory has become
more important in assessing whether:
A. a stock repurchase should be undertaken.
B. shareholder goals are truly being achieved by managers in the long run.
C. managers are actually agents or only employees of the firm.
D. managers and owners are actually the same people with the same interests.
25. Insider trading occurs when:
A. someone has information not available to the public, which they use to profit from trading in stocks.
B. corporate officers buy stock in their company.
C. lawyers, investment dealers, and others buy common stock in companies represented by their firms
D. stock transactions occur with reduced brokerage fees.
26. The major difficulty in most insider-trading cases has been:
A. that lenient judges have simply released the guilty individuals.
B. that insider trading, even though illegal, actually serves a beneficial economic and financial purpose.
C. that inside trades have not been legally well defined.
D. inside trades actually have a beneficial effect on the wealth of all shareholders.
27. The 1990 Nobel Prize in economics was given to three finance professors. They are:
A. Harry Markowitz, Merton Miller, William Sharpe
B. Harry Markowitz, Franco Modigilani, Paul Samuelson
C. Merton Miller, Franco Modigliani, Robert Merton
D. William Sharpe, Richard Roll, Steve Ross
, 28. Future financial managers will need to understand:
A. employment standards.
B. production engineering.
C. actuarial calculations.
D. international currency hedging strategies.
29. Professors Harry Markowitz and William Sharpe received their Nobel prize in economics for their
contributions to the:
A. options pricing model.
B. theories of working capital management.
C. theories of risk-return and portfolio theory.
D. theories of international capital budgeting.
30. In the 1930s, financial practices didn't focus on:
A. maintenance of liquidity.
B. reorganization of financially distressed companies.
C. the bankruptcy process.
D. international exchange costs.
31. The increasing percentage ownership of public corporations by institutional investors has:
A. had no effect on corporate management.
B. created higher returns for the stock market in general.
C. created more pressure on public companies to manage their firms more efficiently.
D. taken away the voice of the individual investor.
32. Money markets would include which of the following securities?
A. Common stock and corporate bonds
B. Treasury bills and commercial paper
C. Certificates of deposit and preferred stock
D. Government bonds.
33. When a corporation uses the financial markets to raise new funds, the sale of securities is made in
the:
A. primary market.
B. secondary market.
C. on-line market.
D. third market.
34. Companies that have higher risk than a competitor in the same industry will generally have:
A. to pay a lower interest rate than its competitors.
B. a higher relative stock price than its competitors.
C. a lower cost of funds than its competitors.
D. to pay a higher interest rate than its competitors.
35. The financial markets allocate capital to corporations by:
A. reflecting expectations of the market participants in the corporation's share price.
B. requiring higher returns from companies with lower risk than their competitors.
C. rewarding companies with expected high returns with lower relative stock prices.
D. relying on the opinion of investment dealers.
36. Corporate restructuring has been one result of more institutional ownership. Restructuring can cause:
A. stability in the asset and liabilities of the firm.
B. the purchase of low-profit margin divisions.
C. the promotion of current management and/or large increases in the workforce.
D. changes in the asset and liabilities of the firm.
Student: ___________________________________________________________________________
1. What is the primary goal of financial management?
A. Increased earnings
B. Maximizing cash flow
C. Maximizing shareholder wealth
D. Minimizing risk of the firm
2. Proper risk-return management means that:
A. the firm should take as few risks as possible.
B. consistent with the objectives of the firm, an appropriate trade-off between risk and return should be
determined.
C. the firm should earn the highest return possible.
D. the firm should value future profits more highly than current profits.
3. Which of the following is not a major area of concern and emphasis in modern financial management and
in this text?
A. Inflation and its effect on profits
B. Stable short-term interest rates
C. Changing international environment
D. Increased reliance on debt
4. Which of the following is not a major area of concern and emphasis in modern financial management and
in this text?
A. Marginal analysis
B. Risk-return trade-off
C. Commodity trading
D. Changing financial institutions
5. The effect of the high rates of inflation experienced during the 1970s and early 1980s was to make:
A. the gold standard was eliminated.
B. purchasing power increased.
C. interest rates fell.
D. capital budgeting decisions less reliable.
6. In the past, the study of finance has included:
A. operational efficiency.
B. employee relationships.
C. legal cases.
D. mergers and acquisitions.
7. A financial manager's goal of maximizing current or short-term earnings may not be appropriate
because:
A. it considers the timing of the benefits.
B. increased earnings may be accompanied by acceptably higher levels of risk.
C. share ownership is widely dispersed.
D. earnings are subjective; they can be defined in various ways such as accounting or economic earnings.
8. One of the major disadvantages of a sole proprietorship is:
A. that there is unlimited liability to the owner.
B. the simplicity of decision making.
C. low organizational costs.
D. low operating costs.
,9. The partnership form of organization:
A. avoids the double taxation of earnings and dividends found in the corporate form of organization.
B. usually provides limited liability to the partners.
C. has unlimited life.
D. simplifies decision making.
10. A corporation is not:
A. owned by shareholders who enjoy the privilege of limited liability.
B. easily divisible between owners.
C. a separate legal entity with perpetual life.
D. a separate legal entity with limited life.
11. Inflation:
A. increases corporations' reliance on debt for capital expansion needs.
B. creates larger asset values on the firm's historical balance sheet.
C. makes it cheaper (in terms of interest costs) for firms to borrow money.
D. creates stability for investors.
12. Which of the following securities is not included as part of the capital market?
A. Common stock
B. Commercial paper
C. Government bonds
D. Preferred stock
13. Maximization of shareholder wealth is a concept in which:
A. increased earnings is of primary importance.
B. profits are maximized on a quarterly basis.
C. virtually all earnings are paid as dividends to common shareholders.
D. optimally increasing the long-term value of the firm is emphasized.
14. The largest Canadian corporations are mainly:
A. widely held.
B. family controlled.
C. U.S. controlled.
D. Japanese controlled.
15. Which of the following is not a true statement about the goal of maximizing shareholder wealth?
A. It takes into account the timing of cash-flows.
B. It is a short-run point of view which takes risk into account.
C. It considers risk as a factor.
D. It is a long-run point of view which takes risk into account.
16. Increased international competition can be seen as a motivator to emphasize:
A. asset diversification strategies.
B. the risk side of the risk-return relationship.
C. the return side of the risk-return relationship.
D. invest in a new risky project.
17. Corporations can reduce portfolio risk by:
A. narrowing their focus on one successful product.
B. merging with companies in unrelated industries.
C. repurchasing their own stock.
D. selling their own stock.
18. The shift to the return side of the risk-return relationship has occurred because:
A. narrow focus on production.
B. stock splits.
C. there has been a decrease in the use of advanced technology in the production process.
D. there has been an increase in international competition.
,19. A corporate buy-back, or the repurchasing of shares, is:
A. an example of balance sheet restructuring.
B. an excellent source of profits when the firm's stock is over-priced.
C. a method of reducing the debt-to-equity ratio.
D. shown as revenue on the income statement.
20. Which of the following is (are) a result of high inflation?
A. Loss from disposal of assets
B. Over-valued liabilities
C. Lower stock price
D. Under-valued assets
21. A corporate restructuring can result in:
A. increased revenue.
B. buying of low-profit margin divisions.
C. selling of high-profit margin divisions.
D. reductions in the work force.
22. Which of the following is not an example of restructuring as discussed in the text?
A. Repurchase of common stock
B. Creating a new organizational chart
C. Merging with companies in related industries
D. Divesting of an unprofitable division
23. Agency theory deals with the issue of:
A. when to hire an agent to represent the firm in negotiations.
B. the legal liabilities of a firm if an employee, acting as the firm's agent, injures someone.
C. the limitations placed on an employee acting as the firm's agent to obligate or bind the firm.
D. the conflicts that can arise between the viewpoints and motivations of a firm's owners and managers.
24. As mergers, acquisitions, and restructurings have increased in importance, agency theory has become
more important in assessing whether:
A. a stock repurchase should be undertaken.
B. shareholder goals are truly being achieved by managers in the long run.
C. managers are actually agents or only employees of the firm.
D. managers and owners are actually the same people with the same interests.
25. Insider trading occurs when:
A. someone has information not available to the public, which they use to profit from trading in stocks.
B. corporate officers buy stock in their company.
C. lawyers, investment dealers, and others buy common stock in companies represented by their firms
D. stock transactions occur with reduced brokerage fees.
26. The major difficulty in most insider-trading cases has been:
A. that lenient judges have simply released the guilty individuals.
B. that insider trading, even though illegal, actually serves a beneficial economic and financial purpose.
C. that inside trades have not been legally well defined.
D. inside trades actually have a beneficial effect on the wealth of all shareholders.
27. The 1990 Nobel Prize in economics was given to three finance professors. They are:
A. Harry Markowitz, Merton Miller, William Sharpe
B. Harry Markowitz, Franco Modigilani, Paul Samuelson
C. Merton Miller, Franco Modigliani, Robert Merton
D. William Sharpe, Richard Roll, Steve Ross
, 28. Future financial managers will need to understand:
A. employment standards.
B. production engineering.
C. actuarial calculations.
D. international currency hedging strategies.
29. Professors Harry Markowitz and William Sharpe received their Nobel prize in economics for their
contributions to the:
A. options pricing model.
B. theories of working capital management.
C. theories of risk-return and portfolio theory.
D. theories of international capital budgeting.
30. In the 1930s, financial practices didn't focus on:
A. maintenance of liquidity.
B. reorganization of financially distressed companies.
C. the bankruptcy process.
D. international exchange costs.
31. The increasing percentage ownership of public corporations by institutional investors has:
A. had no effect on corporate management.
B. created higher returns for the stock market in general.
C. created more pressure on public companies to manage their firms more efficiently.
D. taken away the voice of the individual investor.
32. Money markets would include which of the following securities?
A. Common stock and corporate bonds
B. Treasury bills and commercial paper
C. Certificates of deposit and preferred stock
D. Government bonds.
33. When a corporation uses the financial markets to raise new funds, the sale of securities is made in
the:
A. primary market.
B. secondary market.
C. on-line market.
D. third market.
34. Companies that have higher risk than a competitor in the same industry will generally have:
A. to pay a lower interest rate than its competitors.
B. a higher relative stock price than its competitors.
C. a lower cost of funds than its competitors.
D. to pay a higher interest rate than its competitors.
35. The financial markets allocate capital to corporations by:
A. reflecting expectations of the market participants in the corporation's share price.
B. requiring higher returns from companies with lower risk than their competitors.
C. rewarding companies with expected high returns with lower relative stock prices.
D. relying on the opinion of investment dealers.
36. Corporate restructuring has been one result of more institutional ownership. Restructuring can cause:
A. stability in the asset and liabilities of the firm.
B. the purchase of low-profit margin divisions.
C. the promotion of current management and/or large increases in the workforce.
D. changes in the asset and liabilities of the firm.
