BCOR 2204 Finance Quiz 1 Actual Exam Correct
Answers | Complete Questions & Rationales |
Business Finance | Pass Guaranteed - A+ Graded
Foundations of Finance & Financial Statements
Q1: Which of the following represents the primary goal of financial management for a
corporation?
A. Maximizing the company's total sales or market share
B. Maximizing the current net income of the firm
C. Maximizing the current stock price per share [CORRECT]
D. Minimizing the volatility of the firm's earnings
Correct Answer: C
Rationale: The correct answer is C. For BCOR 2204, remember that the goal of the
financial manager is to maximize shareholder wealth, which is measured by the current
stock price, not accounting profit or sales which can be manipulated or short-sighted.
Q2: The "agency problem" in corporate finance refers to which of the following
situations?
A. The conflict of interest that can arise between the principal (owners) and the agents
(managers) of the firm [CORRECT]
B. The difficulty corporations face when dealing with government regulatory agencies
C. The legal conflict between a corporation and its customers regarding product liability
D. The inability of a firm to raise capital in the primary market
Correct Answer: A
Rationale: The correct answer is A. The agency problem describes the potential conflict
of interest between management (agents) and shareholders (principals), where
managers might pursue their own interests rather than maximizing shareholder value.
Q3: What is a major disadvantage of the corporate form of business organization
compared to a sole proprietorship?
A. Limited liability for shareholders
B. Ease of transfer of ownership
C. Double taxation of earnings [CORRECT]
D. Ability to raise large amounts of capital
Correct Answer: C
, Rationale: The correct answer is C. While corporations offer limited liability and easier
access to capital, a significant downside is double taxation, where corporate income is
taxed and then dividends paid to shareholders are taxed again.
Q4: Which of the following markets best describes the scenario where a company
issues new shares of stock to the public for the first time?
A. Secondary market
B. Primary market [CORRECT]
C. Dealer market
D. Money market
Correct Answer: B
Rationale: The correct answer is B. The primary market is where new securities are sold
to the public for the first time (like an IPO), whereas the secondary market involves
trading existing securities between investors.
Q5: From a financial manager's perspective, a capital budgeting decision involves:
A. Determining how much inventory to keep on hand
B. Deciding which long-term investments to undertake [CORRECT]
C. Managing short-term credit accounts
D. Issuing long-term debt or equity
Correct Answer: B
Rationale: The correct answer is B. Capital budgeting refers to the process of planning
and managing a firm's long-term investments, such as buying new equipment or
building a new factory.
Q6: On a standard balance sheet, which of the following equations must always hold
true?
A. Assets = Liabilities + Shareholders' Equity [CORRECT]
B. Assets = Liabilities - Shareholders' Equity
C. Liabilities = Assets + Shareholders' Equity
D. Net Income = Assets - Liabilities
Correct Answer: A
Rationale: The correct answer is A. The fundamental accounting identity states that a
firm's assets must equal the sum of its liabilities (debts) and shareholders' equity
(ownership claim).
Q7: Which of the following statements is true regarding non-cash items on the income
statement?
A. Depreciation is a non-cash item that does not affect a firm's taxes.
B. Depreciation is a non-cash expense that affects cash flow by reducing taxable
income. [CORRECT]
Answers | Complete Questions & Rationales |
Business Finance | Pass Guaranteed - A+ Graded
Foundations of Finance & Financial Statements
Q1: Which of the following represents the primary goal of financial management for a
corporation?
A. Maximizing the company's total sales or market share
B. Maximizing the current net income of the firm
C. Maximizing the current stock price per share [CORRECT]
D. Minimizing the volatility of the firm's earnings
Correct Answer: C
Rationale: The correct answer is C. For BCOR 2204, remember that the goal of the
financial manager is to maximize shareholder wealth, which is measured by the current
stock price, not accounting profit or sales which can be manipulated or short-sighted.
Q2: The "agency problem" in corporate finance refers to which of the following
situations?
A. The conflict of interest that can arise between the principal (owners) and the agents
(managers) of the firm [CORRECT]
B. The difficulty corporations face when dealing with government regulatory agencies
C. The legal conflict between a corporation and its customers regarding product liability
D. The inability of a firm to raise capital in the primary market
Correct Answer: A
Rationale: The correct answer is A. The agency problem describes the potential conflict
of interest between management (agents) and shareholders (principals), where
managers might pursue their own interests rather than maximizing shareholder value.
Q3: What is a major disadvantage of the corporate form of business organization
compared to a sole proprietorship?
A. Limited liability for shareholders
B. Ease of transfer of ownership
C. Double taxation of earnings [CORRECT]
D. Ability to raise large amounts of capital
Correct Answer: C
, Rationale: The correct answer is C. While corporations offer limited liability and easier
access to capital, a significant downside is double taxation, where corporate income is
taxed and then dividends paid to shareholders are taxed again.
Q4: Which of the following markets best describes the scenario where a company
issues new shares of stock to the public for the first time?
A. Secondary market
B. Primary market [CORRECT]
C. Dealer market
D. Money market
Correct Answer: B
Rationale: The correct answer is B. The primary market is where new securities are sold
to the public for the first time (like an IPO), whereas the secondary market involves
trading existing securities between investors.
Q5: From a financial manager's perspective, a capital budgeting decision involves:
A. Determining how much inventory to keep on hand
B. Deciding which long-term investments to undertake [CORRECT]
C. Managing short-term credit accounts
D. Issuing long-term debt or equity
Correct Answer: B
Rationale: The correct answer is B. Capital budgeting refers to the process of planning
and managing a firm's long-term investments, such as buying new equipment or
building a new factory.
Q6: On a standard balance sheet, which of the following equations must always hold
true?
A. Assets = Liabilities + Shareholders' Equity [CORRECT]
B. Assets = Liabilities - Shareholders' Equity
C. Liabilities = Assets + Shareholders' Equity
D. Net Income = Assets - Liabilities
Correct Answer: A
Rationale: The correct answer is A. The fundamental accounting identity states that a
firm's assets must equal the sum of its liabilities (debts) and shareholders' equity
(ownership claim).
Q7: Which of the following statements is true regarding non-cash items on the income
statement?
A. Depreciation is a non-cash item that does not affect a firm's taxes.
B. Depreciation is a non-cash expense that affects cash flow by reducing taxable
income. [CORRECT]
