FIN 300 – Exam 1 Multiple Choice Questions
and Review Guide
Profit maximization as a goal of the firm:
a. is an economic principle and not an accounting one
b. is superior to other goals that could be pursued
c. maximizes the wealth of the owners
d. does not consider cash flow or risk - correct answer ✔✔ d. does not consider cash flow or risk
Wealth maximization as a goal of the firm:
a. is usually discounted by bondholders
b. takes a long-run perspective and focuses on the owners of the firm
c. is a long-run perspective used by financial managers for internal use only
d. is an accounting number - correct answer ✔✔ b. take a long-run perspective and focuses on
the owners of the firm
An important advantage a general partner usually has is:
a. limited liability
b. usually a larger share of profit distribution when the firm is successful
c. unlimited liability
d. profits received are tax-free - correct answer ✔✔ b. usually a larger share of profit
distribution when the firm is successful
A Subchapter S corporation:
a. is a large corporation
b. has limited liability for its owners
,c. is double taxed
d. has unlimited liability for its owners - correct answer ✔✔ b. has limited liability for for its
owners
One of the most important disadvantages of the corporate form of business is:
a. shares that can be sold
b. professional managers
c. double taxation
d. unlimited owner liability - correct answer ✔✔ c. double taxation
A manager has responsibilities to stockholders:
a. for legal and ethical issues
b. only at firms that are public corporations
c. never
d. only where legal issues apply - correct answer ✔✔ a. for legal and ethical issues
Problems with seeking profit as a goal of the firm would include each of the following except:
a. profit is completely unrelated to cash flow
b. profit goals involve timing issues
c. accountants have different ways of measuring profit
d. profit is only a proxy for cash flow - correct answer ✔✔ b. accountants have different ways of
measuring profit
Which statement is correct about limited partners?
a. they have management control equal to their percent of investment
b. they have no tax liability
c. they can lose only one half of their initial investment
, d. there is no limit to the number of limited partners that may participate - correct answer ✔✔
d. there is no limit to the number of limited partners that may participate
Which of the following would least affect the value of a firm's stock?
a. cashflows
b. market share
c. timing on cash flows
d. risk associated with receiving cash flows - correct answer ✔✔ b. market share
Which of the following areas of finance is concerned with internal decision-making of a
business?
a. Financial markets and institutions
b. Financial Management
c. Investments
d. Agency Issues - correct answer ✔✔ b. financial managment
The term "financial management" refers to:
a. The variety of job titles often given to financial managers.
b. The duties of the one person who makes most of the financial decisions.
c. The process of decision-making that produces value.
d. The chief financial officer (CFO). - correct answer ✔✔ c. the process of decision-making that
produces value
"The primary financial goal of the business firm is to maximize the wealth of the firm's owners."
For a corporation, this statement means that managers should focus on maximizing the wealth
of its shareholders or its:
a. market value
b. sales revenue
and Review Guide
Profit maximization as a goal of the firm:
a. is an economic principle and not an accounting one
b. is superior to other goals that could be pursued
c. maximizes the wealth of the owners
d. does not consider cash flow or risk - correct answer ✔✔ d. does not consider cash flow or risk
Wealth maximization as a goal of the firm:
a. is usually discounted by bondholders
b. takes a long-run perspective and focuses on the owners of the firm
c. is a long-run perspective used by financial managers for internal use only
d. is an accounting number - correct answer ✔✔ b. take a long-run perspective and focuses on
the owners of the firm
An important advantage a general partner usually has is:
a. limited liability
b. usually a larger share of profit distribution when the firm is successful
c. unlimited liability
d. profits received are tax-free - correct answer ✔✔ b. usually a larger share of profit
distribution when the firm is successful
A Subchapter S corporation:
a. is a large corporation
b. has limited liability for its owners
,c. is double taxed
d. has unlimited liability for its owners - correct answer ✔✔ b. has limited liability for for its
owners
One of the most important disadvantages of the corporate form of business is:
a. shares that can be sold
b. professional managers
c. double taxation
d. unlimited owner liability - correct answer ✔✔ c. double taxation
A manager has responsibilities to stockholders:
a. for legal and ethical issues
b. only at firms that are public corporations
c. never
d. only where legal issues apply - correct answer ✔✔ a. for legal and ethical issues
Problems with seeking profit as a goal of the firm would include each of the following except:
a. profit is completely unrelated to cash flow
b. profit goals involve timing issues
c. accountants have different ways of measuring profit
d. profit is only a proxy for cash flow - correct answer ✔✔ b. accountants have different ways of
measuring profit
Which statement is correct about limited partners?
a. they have management control equal to their percent of investment
b. they have no tax liability
c. they can lose only one half of their initial investment
, d. there is no limit to the number of limited partners that may participate - correct answer ✔✔
d. there is no limit to the number of limited partners that may participate
Which of the following would least affect the value of a firm's stock?
a. cashflows
b. market share
c. timing on cash flows
d. risk associated with receiving cash flows - correct answer ✔✔ b. market share
Which of the following areas of finance is concerned with internal decision-making of a
business?
a. Financial markets and institutions
b. Financial Management
c. Investments
d. Agency Issues - correct answer ✔✔ b. financial managment
The term "financial management" refers to:
a. The variety of job titles often given to financial managers.
b. The duties of the one person who makes most of the financial decisions.
c. The process of decision-making that produces value.
d. The chief financial officer (CFO). - correct answer ✔✔ c. the process of decision-making that
produces value
"The primary financial goal of the business firm is to maximize the wealth of the firm's owners."
For a corporation, this statement means that managers should focus on maximizing the wealth
of its shareholders or its:
a. market value
b. sales revenue
