Principles of Finance Exam Verified Questions and Answers

Principles of Finance Exam Verified Questions and Answers Principles of Finance Exam Verified Questions and Answers Principles of Finance Exam Verified Questions and Answers 1. 1. The credit manager for a company is responsible for setting the compa ny's credit policy regarding availability and limits for customers. What is one of the additional responsibilities of this credit manager? A. Purchasing insurance B. Collecting past-due accounts C. Monitoring accounts payable D. Investing excess cash ANS B. Collecting past-due accounts 2. 2. Which activity is financial management responsible for? A. Researching different products to bring to market B. Reporting past earnings for shares of stock C. Ensuring sufficient financing is available D. Verifying the balance sheet is properly constructed ANS C. Ensuring sufficient financing is available 3. 3. What is one of the main areas of the financial environment? A. Human resources B. Marketing C. Investments D. Foreign relations ANS C. Investments 4. 4. What is a common challenge in the world of finance? A. It causes investor anxiety due to a volatile stock market B. It generally operates with a high degree of uncertainty C. It is difficult to abide by generally accepted accounting principles. (GAAP) D. It has to comply with banking regulations that are subject to change ANS B. It generally operates with a high degree of uncertainty 5. 5. Which variable must be considered when a corporation's finance depart- ment is determining the best strategy for financing a project? A. The amount of trade credit from suppliers for the project B. Recent changes to the federal funds rate C. The bid-ask spread for the company's stock D. The amount of debt and equity financing currently in use ANS D. The amount of debt and equity financing currently in use 6. 6. An individual is interested in establishing a lawn care business as a sole proprietorship. What will be a disadvantage of choosing this business model? A. Frozen investments B. Unlimited liability C. Government regulations D. Management disagreements ANS B. Unlimited liability 7. 7. What is one benefit of a sole proprietorship? A. The owner has uninterrupted control of the business B. The company can continue to exist with the death of the owner C. The business is taxed separately from the owner's personal taxes D. The personal assets of stockholders are protected ANS A. The owner has unin- terrupted control of the business 8. 8. What is a disadvantage of a general partnership? A. Owner's personal assets are not protected against claims of creditors B. Annual reports must be filed to shareholders C. Losses from the business are deductible on an individual's tax return D. Complex business filing paperwork is required ANS A. Owner's personal assets are not protected against claims of creditors 9. 9. What is one advantage of an LLC? A. Limited personal liability B. Flexibility in obtaining funding from venture capitalists C. Membership interest not easily transferable D. Number of members fixed at 100 ANS A. Limited personal liability 10. 10. What is an example of potential principal-agent problem? A. Changing the company's dividend policy to bolster stock values B. Corporate executives buying other companies to expand their influence C. Disagreement among managers on the direction of their firm D. Missing revenue estimates during a recession ANS B. Corporate executives buying other companies to expand their influence 11. 11. An individual decides to sell corporate bonds to another investor. Which type of financial market or institution would be involved in this trans- action? A. Retail securities firm B. Mortgage lender C. Insurance company D. United States Treasury ANS A. Retail securities firm 12. 12. A firm wants to sell new shares of stock. Which other institution is involved in this type of transaction? A. Insurance company B. Investment banking firm C. Savings and loan D. Hedge fund ANS B. Investment banking firm 13. 13. A partnership needs funds to purchase technology equipment. It will be able to repay those funds in under a year's time. Which organization should the partnership contact to obtain the needed funds? A. Retail bank B. Insurance company C. Checking-cashing institution D. Hedge fund ANS A. Retail bank 14. 14. Which type of transactions do financial institutions deal with? A. Hiring bonuses B. Deposits C. Vehicle registrations D. Tax returns and deductibles ANS B. Deposits 15. 15. What is considered a financial institution? A. Accounting firm B. Auction C. Commercial bank D. Lottery system ANS C. Commercial bank 16. 16. Which situation is unethical? A. A corporate executive asks her aunt to review her most recent tax return B. The hiring manager of a company suggests that his uncle should buy the company stock after the company financial information is made public C. The investment manager publishes false investment performance reports in hopes of convincing new investors to invest money D. A high-ranking director sells shares of his own company stock to fund a family medical expense ANS C. The investment manager publishes false investment performance reports in hopes of convincing new investors to invest money 17. 17. Which type of financial statement is used to determine the short-term viability of a company? A. Statement of changes in equity B. Balance sheet C. Statement of cash flows D. Income statement ANS C. Statement of cash flows 18. 18. Which are components of an income statement? A. Short-term and accrued liabilities B. Retained earnings and dividends C. Revenue and expenses D. Current and non-current assets ANS C. Revenue and expenses 19. 19. Which statement describes the historical cost principle? A. The accounts receivable balance is modified after determining collectibil- ity B. Most assets are valued at their fair market value when acquired by a company C. Most assets are valued at their original cost when acquired by a company D. An asset's value changes annually depending on the general accepted market cost ANS C. Most assets are valued at their original cost when acquired by a company 20. 20. When do business owners and managers use financial statements? A. When deciding to make or purchase certain materials B. When setting the current market price of company common stock C. When deciding to use retained earnings as a cash account D. When deciding whether to sell uncollectable short-term liabilities ANS A. When deciding to make or purchase certain materials