Financial Management 2023 with complete solution questions and answers

True or False: . The formation of a Subchapter S corporation is a way to circumvent the double taxation of a small corporation. True True or False: Corporate governance issues have become less important to the financial community during the first decade of the new millennium. False True or False: . The issues of corporate governance are really agency problems. True True or False: A major focus of the Sarbanes Oxley Act is to make sure that publicly traded companies accurately present their assets, liabilities and income in their financial statements. True True or False: The Sarbanes Oxley Act is primarily intended to increase public scrutiny of private companies that had previously been exempt from many public disclosure requirements. False True or False: The higher the profit of a firm, the higher the value the firm is assured of receiving in the market. False True or False: Maximizing the earnings of the firm is the goal of financial management. False True or False: Insider trading involves the use of information not available to the general public to make profits from trading in a company's stock. True True or False: Social responsibility and profit maximization are synonymous. False True or False: Money markets refer to markets where excess corporate cash is exchanged for foreign currencies that can earn a higher return than domestic money. False True or False: Capital markets refer to those markets dealing with short-term securities having a life of one year or less. False True or False: The primary market includes the sale of securities by way of initial public offerings. True True or False: High quality initial public offerings are usually sold in a primary market, such as the New York Stock Exchange. However, low-quality stocks must usually be sold in secondary markets, such as NASDAQ. False True or False: Many companies have cross-listed their stock on multiple international stock exchanges and more than several hundred foreign companies have listed their shares on the New York Stock Exchange. True True or False: Higher return always induces stockholders to invest in a company. False True or False: Financial management requires both short-term activities as well as long-term planning such as raising funds. True What is the primary goal of financial management? Maximizing shareholder wealth In the past, the study of finance has included mergers and acquisitions, raising capital, and bankruptcy Proper risk-return management means that the firm must determine an appropriate trade-off between risk and return. Agency theory examines the relationship between the owners of the firm and the managers of the firm. The increasing percentage ownership of public corporations by institutional investors has created more pressure on public companies to manage their firms more efficiently. The Sarbanes-Oxley Act set up the Public Company Accounting Oversight Board with the responsibility for all of the following except Certifying the competence of financial executives. A financial manager's goal of maximizing current or short-term earnings may not be appropriate because - it fails to consider the timing of the benefits. - increased earnings may be accompanied by unacceptably higher levels of risk. - earnings are subjective; they can be defined in various ways such as accounting or economic earnings. Maximization of shareholder wealth is a concept in which optimally increasing the long-term value of the firm is emphasized. Which of the following is not a true statement about the goal of maximizing shareholder wealth? It is a short-run point of view which takes risk into account. Money markets would include which of the following securities? treasury bills and commercial paper Capital markets do not include which of the following securities: commercial paper When a corporation uses the financial markets to raise new funds, the sale of securities is made in the primary market. Companies that have higher risk than a competitor in the same industry will generally have - to pay a higher interest rate than its competitors. - a lower relative stock price than its competitors. - a higher cost of funds than its competitors. Corporate restructuring has been one result of more institutional ownership. Restructuring can cause - changes in the assets and liabilities of the firm. - the sale of low-profit margin divisions. - the removal of current management and/or large reductions in the workforce. The internationalization of the financial markets has allowed firms such as McDonalds to raise capital around the world. The Internet has affected the financial markets by - creating more competition between markets. - pushing the cost of trading down. - forcing brokerage companies to consolidate. Increased productivity due to technology has helped to keep corporate costs in check. Regarding risk levels, financial managers should evaluate investor's desire for risk Future Value (FV) the amount to which a cash flow or series of cash flows will grow over a given period of time when compounded at a given interest rate FV= PV(1+i)^n PV= FV/(1+i)^n Present Value (PV) the current value of future cash flows discounted at the appropriate discount rate functions of financial management: - allocates funds to current and fixed assets - Obtain the best mix of financing alternatives - develop an appropriate dividend policy within context of the firm's objectives limited partnership partnership in which only one partner is required to be a general partner Corporation - a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law. - owned by shareholders who enjoy the privilege of limited liability shareholders/stockholders those having title to one or more shares of stock in a corporation; combined, they represent ownership of the corporation board of directors a group of persons elected by the stockholders to manage a corporation Subchapter S Corporation a corporation that is taxed like a partnership Agency Theory examines the relationship between the owners and the managers of the firm institutional investors Large organizations - such as pension funds, mutual funds, and insurance companies - that invest their own funds or the funds of others Public Company Accounting Oversight Board (PCAOB) The group charged with determining auditing standards and reviewing the performance of auditing firms. Valuation The practice of assigning monetary value to seemingly intangible benefits and natural capital. Management and Stockholder Wealth retention of position of power in long run is by becoming sensitized to shareholder concerns insider trading an unethical activity in which insiders use private company information to further their own fortunes or those of their family and friends Securities and Exchange Commission (SEC) monitors the stock market and enforces laws regulating the sale of stocks and bonds money market market in which money is lent for periods of less than a year electronic markets Organized markets in which potential buyers and sellers communicate by electronic means, such as telephone auctions rather than face-to-face The Euro is the only official currency in the Euro-zone; it has liquidity and size second only to the U.S. dollar. true The NASDAQ National Market is composed of large nation-wide companies that are traded in the over-the-counter market. false The strong form of the efficient market hypothesis states that prices reflect all public information. false The weak form of the efficient market hypothesis states that an investor can profit by using past price data. false The market for U.S. government securities is the most efficient in the world. true The Sarbanes-Oxley Act of 2002 holds the CFO legally accountable for the accuracy of their firm's financial statements. true The Sarbanes-Oxley Act of 2002 holds a firm's internal auditors legally accountable for the accuracy of their firm's financial false The Gramm-Leach-Bliley Act repeals the Bretton Woods Agreement. false not a service provided by investment bankers Raising capital via mutual fund offerings not a key role of an investment banker Acting as transfer agent Short-term markets that are composed of securities with maturities of less than one month are referred to as money markets false Brokers on an organized stock exchange act as an agent for the person buying or selling securities. true Brokers actually own the securities they buy and sell on the floor of the exchange false The efficient market hypothesis is generally concerned with the impact of information on the behavior of stock prices. true Markets are efficient when prices adjust rapidly to new information, continuous markets exist and large dollar trades can be absorbed without large price movements. true