Chapter 01
The Goals and Activities of Financial Management
True / False Questions
1. As finance emerged as a new field, much emphasis was placed on mergers and acquisitions.
True False
2. Inflation is assumed to be a temporary problem that does not affect financial decisions.
True False
3. Financial capital is composed of long-term plant and equipment, as well as other tangible
investments.
True False
4. Real capital is composed of long-term plant and equipment.
True False
5. During the 1930s, financial practice revolved around such topics as the preservation of
capital, maintenance of liquidity, the reorganization of financially troubled corporations, and
bankruptcy.
True False
6. In the mid 1950s, finance began to change to a more analytical, decision-oriented approach.
True False
7. Recently, the emphasis of financial management has been on the relationship between risk
and return.
True False
8. The first Nobel Prizes given to finance professors were for their contributions to capital
structure theory and portfolio theories of risk and return.
True False
,9. "Credit default swaps" are one of several tools that Congress and the President of the United
States have jointly developed to ease the financial crisis that began in 2008.
True False
10. The Internet impacts e-commerce by creating a mechanism for improved communications
between a business, its customers, and its suppliers.
True False
11. The Internet has accounted for an acceleration of productivity for "old economy" firms.
True False
12. The Internet is responsible for many new business models.
True False
13. Businesses will increasingly rely on B2B Internet applications to speed up the cash flows
through their firms.
True False
14. The Dodd-Frank Act contains the Volcker Rule, which encourages financial institutions to
allow for more speculative investments for average investors.
True False
15. The Dodd-Frank Act's oversight allowing regulation of banking fees and available products
has been considered as not being in the best interests of a free market.
True False
16. Sole proprietorship means single-person ownership and offers the advantages of simplicity of
decision making and low organizational and operating costs.
True False
17. Profits of sole proprietorships are taxed at corporate tax rates.
True False
18. There is unlimited liability in a general partnership.
True False
19. The most common partnership arrangement carries limited liability to the partners.
True False
,20. A limited partnership limits the profits partners may receive.
True False
21. In terms of revenues and profits, the corporation is by far the most important form of business
organization in the United States.
True False
22. As noted in Finance in Action, initial public offerings have now increased because long-term
results are favored by shareholders and institutional investors.
True False
23. Dividends paid to corporate stockholders have already been taxed once as corporate
income.
True False
24. One advantage of the corporate form of organization is that income received by stockholders
is not taxable since the corporation already paid taxes on the income distributed.
True False
25. A corporation must have more than 75 stockholders to qualify for Subchapter S designation.
True False
26. Profits of a Subchapter S corporation are taxed at corporate tax rates.
True False
27. The formation of a Subchapter S corporation is a way to circumvent the double taxation of a
small corporation.
True False
28. Corporate governance issues have become less important to the financial community during
the first decade of the new millennium.
True False
29. The issues of corporate governance are really agency problems.
True False
30. Agency theory examines the relationship between companies and their customers.
True False
, 31. Institutional investors have had increasing influence over corporations with their ability to vote
with large blocks of stock and replace poorly performing boards of directors.
True False
32. Agency theory assumes that corporate managers act to increase the wealth of corporate
shareholders.
True False
33. The Sarbanes-Oxley Act reduced agency conflicts by giving corporate managers greater
flexibility to select their preferred candidates to the board of directors.
True False
34. 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 False
35. The Sarbanes-Oxley Act is primarily intended to increase public scrutiny of private companies
that had previously been exempt from many public disclosure requirements.
True False
36. Timing is not a particularly important consideration in financial decisions.
True False
37. The higher the profit of a firm, the higher the value the firm is assured of receiving in the
market.
True False
38. There are some serious problems with the financial goal of maximizing the earnings of the
firm.
True False
39. Maximizing the earnings of the firm is the goal of financial management.
True False
40. Because socially desirable goals can impede profitability in many instances, managers should
not try to operate under the assumption of wealth maximization.
True False
The Goals and Activities of Financial Management
True / False Questions
1. As finance emerged as a new field, much emphasis was placed on mergers and acquisitions.
True False
2. Inflation is assumed to be a temporary problem that does not affect financial decisions.
True False
3. Financial capital is composed of long-term plant and equipment, as well as other tangible
investments.
True False
4. Real capital is composed of long-term plant and equipment.
True False
5. During the 1930s, financial practice revolved around such topics as the preservation of
capital, maintenance of liquidity, the reorganization of financially troubled corporations, and
bankruptcy.
True False
6. In the mid 1950s, finance began to change to a more analytical, decision-oriented approach.
True False
7. Recently, the emphasis of financial management has been on the relationship between risk
and return.
True False
8. The first Nobel Prizes given to finance professors were for their contributions to capital
structure theory and portfolio theories of risk and return.
True False
,9. "Credit default swaps" are one of several tools that Congress and the President of the United
States have jointly developed to ease the financial crisis that began in 2008.
True False
10. The Internet impacts e-commerce by creating a mechanism for improved communications
between a business, its customers, and its suppliers.
True False
11. The Internet has accounted for an acceleration of productivity for "old economy" firms.
True False
12. The Internet is responsible for many new business models.
True False
13. Businesses will increasingly rely on B2B Internet applications to speed up the cash flows
through their firms.
True False
14. The Dodd-Frank Act contains the Volcker Rule, which encourages financial institutions to
allow for more speculative investments for average investors.
True False
15. The Dodd-Frank Act's oversight allowing regulation of banking fees and available products
has been considered as not being in the best interests of a free market.
True False
16. Sole proprietorship means single-person ownership and offers the advantages of simplicity of
decision making and low organizational and operating costs.
True False
17. Profits of sole proprietorships are taxed at corporate tax rates.
True False
18. There is unlimited liability in a general partnership.
True False
19. The most common partnership arrangement carries limited liability to the partners.
True False
,20. A limited partnership limits the profits partners may receive.
True False
21. In terms of revenues and profits, the corporation is by far the most important form of business
organization in the United States.
True False
22. As noted in Finance in Action, initial public offerings have now increased because long-term
results are favored by shareholders and institutional investors.
True False
23. Dividends paid to corporate stockholders have already been taxed once as corporate
income.
True False
24. One advantage of the corporate form of organization is that income received by stockholders
is not taxable since the corporation already paid taxes on the income distributed.
True False
25. A corporation must have more than 75 stockholders to qualify for Subchapter S designation.
True False
26. Profits of a Subchapter S corporation are taxed at corporate tax rates.
True False
27. The formation of a Subchapter S corporation is a way to circumvent the double taxation of a
small corporation.
True False
28. Corporate governance issues have become less important to the financial community during
the first decade of the new millennium.
True False
29. The issues of corporate governance are really agency problems.
True False
30. Agency theory examines the relationship between companies and their customers.
True False
, 31. Institutional investors have had increasing influence over corporations with their ability to vote
with large blocks of stock and replace poorly performing boards of directors.
True False
32. Agency theory assumes that corporate managers act to increase the wealth of corporate
shareholders.
True False
33. The Sarbanes-Oxley Act reduced agency conflicts by giving corporate managers greater
flexibility to select their preferred candidates to the board of directors.
True False
34. 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 False
35. The Sarbanes-Oxley Act is primarily intended to increase public scrutiny of private companies
that had previously been exempt from many public disclosure requirements.
True False
36. Timing is not a particularly important consideration in financial decisions.
True False
37. The higher the profit of a firm, the higher the value the firm is assured of receiving in the
market.
True False
38. There are some serious problems with the financial goal of maximizing the earnings of the
firm.
True False
39. Maximizing the earnings of the firm is the goal of financial management.
True False
40. Because socially desirable goals can impede profitability in many instances, managers should
not try to operate under the assumption of wealth maximization.
True False
