Corporate Finance Test 1 UPDATED
ACTUAL Exam Questions and CORRECT
Answers
Financial management - CORRECT ANSWER - focuses on decisions about acquiring
assets, raising capital, and running the firm so as to maximize its value
Capital markets - CORRECT ANSWER - relate to the markets where interest rates and
stock and bond prices are determined
Investments - CORRECT ANSWER - involve decisions concerning stock and bonds and
include security analysis, portfolio theory, and market analysis.
The primary financial goal of a corporation is ____ which involves ___ - CORRECT
ANSWER - 1. shareholder wealth maximization
2. maximizing the long-run value of the firm's stock and requires taking a long-run view of a
firm's operations
To achieve their financial goals, firms must develop products that consumers want, produce the
products efficiently, sell them at _____ prices and observe laws relating to corporate behavior -
CORRECT ANSWER - competitive
Most managers recognize that being socially responsible is - CORRECT ANSWER -
important and generally (but not always consistent) with achieving their financial goals
Most managers recognize that being ethical is ____ with the corporation's primary goal -
CORRECT ANSWER - consistent
When a stock's actual market price is equal to its intrinsic value the stock is in ____ - CORRECT
ANSWER - equilibrium
, The _____ investor's views determine a firm's actual stock price - CORRECT ANSWER -
marginal
conflicts exist between managers and stockholders and between stockholders (represented by
managers) and ____ - CORRECT ANSWER - debtholders
managers can be motivated to act in their stockholders' best interests through (3) - CORRECT
ANSWER - 1. reasonable compensation packages
2. firing managers
3. the threat of hostile takeovers
If a firm's stock is undervalued, _____ will see it as a bargain and will attempt to capture the firm
in a _____ - CORRECT ANSWER - 1. corporate raiders
2. hostile takeover
_____ generally receive fixed payments regardless of how the firm does, while ______ earn
higher returns when the firm's earnings are higher - CORRECT ANSWER - 1.
bondholders
2. stockholders
Investments in _____ ventures, that have great payoffs to stockholders if successful but threaten
bankruptcy if they fail, create conflicts - CORRECT ANSWER - risky
In addition, the use of additional ____ increases stock- holder/ debt-holder conflicts - CORRECT
ANSWER - debt
bondholders attempt to protect themselves by including ____ in bond agreements that limit firms'
uses of additional ____ and constrain _____ actions - CORRECT ANSWER - 1. covenants
2. debt
3. managers'
ACTUAL Exam Questions and CORRECT
Answers
Financial management - CORRECT ANSWER - focuses on decisions about acquiring
assets, raising capital, and running the firm so as to maximize its value
Capital markets - CORRECT ANSWER - relate to the markets where interest rates and
stock and bond prices are determined
Investments - CORRECT ANSWER - involve decisions concerning stock and bonds and
include security analysis, portfolio theory, and market analysis.
The primary financial goal of a corporation is ____ which involves ___ - CORRECT
ANSWER - 1. shareholder wealth maximization
2. maximizing the long-run value of the firm's stock and requires taking a long-run view of a
firm's operations
To achieve their financial goals, firms must develop products that consumers want, produce the
products efficiently, sell them at _____ prices and observe laws relating to corporate behavior -
CORRECT ANSWER - competitive
Most managers recognize that being socially responsible is - CORRECT ANSWER -
important and generally (but not always consistent) with achieving their financial goals
Most managers recognize that being ethical is ____ with the corporation's primary goal -
CORRECT ANSWER - consistent
When a stock's actual market price is equal to its intrinsic value the stock is in ____ - CORRECT
ANSWER - equilibrium
, The _____ investor's views determine a firm's actual stock price - CORRECT ANSWER -
marginal
conflicts exist between managers and stockholders and between stockholders (represented by
managers) and ____ - CORRECT ANSWER - debtholders
managers can be motivated to act in their stockholders' best interests through (3) - CORRECT
ANSWER - 1. reasonable compensation packages
2. firing managers
3. the threat of hostile takeovers
If a firm's stock is undervalued, _____ will see it as a bargain and will attempt to capture the firm
in a _____ - CORRECT ANSWER - 1. corporate raiders
2. hostile takeover
_____ generally receive fixed payments regardless of how the firm does, while ______ earn
higher returns when the firm's earnings are higher - CORRECT ANSWER - 1.
bondholders
2. stockholders
Investments in _____ ventures, that have great payoffs to stockholders if successful but threaten
bankruptcy if they fail, create conflicts - CORRECT ANSWER - risky
In addition, the use of additional ____ increases stock- holder/ debt-holder conflicts - CORRECT
ANSWER - debt
bondholders attempt to protect themselves by including ____ in bond agreements that limit firms'
uses of additional ____ and constrain _____ actions - CORRECT ANSWER - 1. covenants
2. debt
3. managers'
