ADM 2350 (financial management) Exam Questions With
Complete Answers
There is an agency problem when there is a conflict of interest between:
a) different shareholders
b) shareholders and firm's management
c) firm's management and the board of directors
d) firm's management and suppliers
e) shareholders and stakeholders - ANSWER b) shareholders and firm's management
The planning and management of the long term investments of a firm are considered
_________________ activities
a) agency cost analysis
b) financial depreciation
c) working capital management
d) capital structure
e) capital budgeting - ANSWER e) capital budgeting
Which of the following statements is TRUE:
a) a firm's capital structure relates to how a firm is financed through different proportions of
debt and equity
b) the board of directors has the power to act on behalf of the shareholders to hire and fire
,the operating management of the firm. In a legal sense, the directors are "principals" and the
shareholders are "agents"
c) when owners are managers (such as a sole proprietorship) a firm will have agency costs
d) ROBBAZ Inc spends approximately $2 million annually to hire auditors to go over the firm's
financial statements. This is an example of an indirect agency cost
e) determining when a supplier should be paid is a capital structure decision - ANSWER a) a
firm's capital structure...
Which of the following statements is the best example of a decision that can lead to an
agency problem?
a) Requiring stockholders approval of all management compensation decisions
b) Paying management bonuses based on the current market value of the firm's stock
c) Paying management bonuses based on the number of store locations opened in the year
d) Accepting a project that enhances both management salaries and the market value of the
firm's stock
e) Basing management bonuses on the attainment of specific financial goals - ANSWER c)
Paying management bonuses based on the number of store locations opened in the year
Which of the following statements is FALSE?
a) The present value will increase the higher the rate of interest
b) Present values are always smaller than future value when r and t are positive
c) Bankruptcy costs are different than agency costs
d) The future value of a single sum will increase more rapidly when the interest rate increases
,e) Paying more than the actual market value to purchase a competitor is an example of an
agency cost - ANSWER a) The present value will increase the higher the rate of interest
Who is the person that is generally responsible for overseeing financial planning and capital
expenditures?
a) Controller
b) Chief operating officer
c) Chairman of the board
d) Director
e) Treasurer - ANSWER e) Treasurer
You opened a bank account 10 years ago with $1000. Your current account balance is $1500.
How much interest on interest did you earn is the interest paid is compounded annually?
a) 126.60
b) 500
c) 105.40
d) 135.20
e) 86.20 - ANSWER e) 86.20
FV = PV * (1+r)^t
solve for r
calculate simple interest: PV*r*t
, FV-PV-simple interest = interest on interest
Sam wants to give his daughter $70,000 to pay for her university education. The amount will
be needed in 15 years when she is expected to start her university program. if he can earn 7%
interest by depositing his money into a bank account, how much money should he deposit
today in order to get $70,000 in 15 years?
a) 22,624.32
b) 35,627.15
c) 25,371.22
d) 28,213.11
e) 32,456.17 - ANSWER c) 25,371.22
PV = FV / (1+r)^t
One of your friends is offering you the opportunity to invest $15,000 in his business, and he
will pay you back $25,000 in 2 years. What rate of return would you be making on this
investment?
a) 26.17%
b) 17.32%
c) 16.50%
d) 29.10%
e) 31.75% - ANSWER d) 29.10%
Complete Answers
There is an agency problem when there is a conflict of interest between:
a) different shareholders
b) shareholders and firm's management
c) firm's management and the board of directors
d) firm's management and suppliers
e) shareholders and stakeholders - ANSWER b) shareholders and firm's management
The planning and management of the long term investments of a firm are considered
_________________ activities
a) agency cost analysis
b) financial depreciation
c) working capital management
d) capital structure
e) capital budgeting - ANSWER e) capital budgeting
Which of the following statements is TRUE:
a) a firm's capital structure relates to how a firm is financed through different proportions of
debt and equity
b) the board of directors has the power to act on behalf of the shareholders to hire and fire
,the operating management of the firm. In a legal sense, the directors are "principals" and the
shareholders are "agents"
c) when owners are managers (such as a sole proprietorship) a firm will have agency costs
d) ROBBAZ Inc spends approximately $2 million annually to hire auditors to go over the firm's
financial statements. This is an example of an indirect agency cost
e) determining when a supplier should be paid is a capital structure decision - ANSWER a) a
firm's capital structure...
Which of the following statements is the best example of a decision that can lead to an
agency problem?
a) Requiring stockholders approval of all management compensation decisions
b) Paying management bonuses based on the current market value of the firm's stock
c) Paying management bonuses based on the number of store locations opened in the year
d) Accepting a project that enhances both management salaries and the market value of the
firm's stock
e) Basing management bonuses on the attainment of specific financial goals - ANSWER c)
Paying management bonuses based on the number of store locations opened in the year
Which of the following statements is FALSE?
a) The present value will increase the higher the rate of interest
b) Present values are always smaller than future value when r and t are positive
c) Bankruptcy costs are different than agency costs
d) The future value of a single sum will increase more rapidly when the interest rate increases
,e) Paying more than the actual market value to purchase a competitor is an example of an
agency cost - ANSWER a) The present value will increase the higher the rate of interest
Who is the person that is generally responsible for overseeing financial planning and capital
expenditures?
a) Controller
b) Chief operating officer
c) Chairman of the board
d) Director
e) Treasurer - ANSWER e) Treasurer
You opened a bank account 10 years ago with $1000. Your current account balance is $1500.
How much interest on interest did you earn is the interest paid is compounded annually?
a) 126.60
b) 500
c) 105.40
d) 135.20
e) 86.20 - ANSWER e) 86.20
FV = PV * (1+r)^t
solve for r
calculate simple interest: PV*r*t
, FV-PV-simple interest = interest on interest
Sam wants to give his daughter $70,000 to pay for her university education. The amount will
be needed in 15 years when she is expected to start her university program. if he can earn 7%
interest by depositing his money into a bank account, how much money should he deposit
today in order to get $70,000 in 15 years?
a) 22,624.32
b) 35,627.15
c) 25,371.22
d) 28,213.11
e) 32,456.17 - ANSWER c) 25,371.22
PV = FV / (1+r)^t
One of your friends is offering you the opportunity to invest $15,000 in his business, and he
will pay you back $25,000 in 2 years. What rate of return would you be making on this
investment?
a) 26.17%
b) 17.32%
c) 16.50%
d) 29.10%
e) 31.75% - ANSWER d) 29.10%
