FUNDAMENTALS OF FINANCIAL MANAGEMENT FINAL EXAM PART 1 QUESTIONS AND CORRECT ANSWERS

FUNDAMENTALS OF FINANCIAL
MANAGEMENT FINAL EXAM PART 1
QUESTIONS AND CORRECT
ANSWERS
InA2mostA2corporations,A2theA2CFOA2ranksA2underA2theA2CEO.
a.A2True
b.A2FalseA2-A2Ans--ANSWER:A2True

OneA2advantageA2ofA2theA2corporateA2formA2ofA2organizationA2isA2thatA2itA2avoidsA2double
A2taxation.
a.A2True
b.A2FalseA2-A2Ans--ANSWER:A2False

ForA2aA2stockA2toA2beA2inA2equilibriumA2asA2theA2bookA2definesA2it,A2itsA2marketA2priceA2sh
ouldA2exceedA2itsA2intrinsicA2value.
a.A2True
b.A2FalseA2-A2Ans--ANSWER:A2False

InA2orderA2toA2maximizeA2itsA2shareholders'A2value,A2aA2firm'sA2managementA2mustA2atte
mptA2toA2maximizeA2theA2stockA2priceA2inA2theA2longA2run,A2orA2theA2stock'sA2"intrinsicA2val
ue."
a.A2True
b.A2FalseA2-A2Ans--ANSWER:A2True

OneA2dangerA2ofA2startingA2aA2proprietorshipA2isA2thatA2youA2mayA2beA2exposedA2toA2pers
onalA2liabilityA2ifA2theA2businessA2goesA2bankrupt.A2ThisA2problemA2wouldA2beA2avoidedA2if
A2youA2formedA2aA2corporationA2toA2operateA2theA2business.
a.A2True
b.A2FalseA2-A2Ans--ANSWER:A2True

WhichA2ofA2theA2followingA2statementsA2isA2CORRECT?
a.A2OneA2advantageA2ofA2formingA2aA2corporationA2isA2thatA2equityA2investorsA2areA2usuall
yA2exposedA2toA2lessA2liabilityA2thanA2theyA2wouldA2beA2inA2aA2partnership.
b.A2CorporationsA2faceA2fewerA2regulationsA2thanA2proprietorships.
c.A2OneA2disadvantageA2ofA2operatingA2aA2businessA2asA2aA2proprietorA2isA2thatA2theA2firm
A2isA2subjectA2toA2doubleA2taxation,A2becauseA2taxesA2areA2leviedA2atA2bothA2theA2firmA2lev
elA2andA2theA2ownerA2level.
d.A2ItA2isA2generallyA2lessA2expensiveA2toA2formA2aA2corporationA2thanA2aA2proprietorshipA2
because,A2withA2aA2proprietorship,A2extensiveA2legalA2documentsA2areA2required.

, e.A2IfA2aA2partnershipA2goesA2bankrupt,A2eachA2partnerA2isA2exposedA2toA2liabilitiesA2onlyA2
upA2toA2theA2amountA2ofA2hisA2orA2herA2investmentA2inA2theA2business.A2-A2Ans--
a.A2OneA2advantageA2ofA2formingA2aA2corporationA2isA2thatA2equityA2investorsA2areA2usuall
yA2exposedA2toA2lessA2liabilityA2thanA2theyA2wouldA2beA2inA2aA2partnership.

WhichA2ofA2theA2followingA2statementsA2isA2CORRECT?
a.A2InA2mostA2corporations,A2theA2CFOA2ranksA2aboveA2theA2CEO.
b.A2ByA2lawA2inA2mostA2states,A2theA2chairmanA2ofA2theA2boardA2mustA2alsoA2beA2theA2CE
O.
c.A2TheA2boardA2ofA2directorsA2isA2theA2highestA2rankingA2bodyA2inA2aA2corporation,A2andA2
theA2chairmanA2ofA2theA2boardA2isA2theA2highestA2rankingA2individual.A2TheA2CEOA2genera
llyA2worksA2underA2theA2boardA2andA2itsA2chairman,A2andA2theA2boardA2generallyA2hasA2th
eA2authorityA2toA2removeA2theA2CEOA2underA2certainA2conditions.A2TheA2CEO,A2however,A
2cannotA2removeA2theA2board,A2butA2heA2orA2sheA2canA2endeavorA2toA2haveA2theA2boardA2
votedA2outA2andA2aA2newA2boardA2votedA2inA2shouldA2aA2conflictA2arise.A2ItA2isA2possibleA2f
orA2aA2personA2toA2simultaneouslyA2serveA2asA2CEOA2andA2chairmanA2ofA2theA2board,A2th
oughA2manyA2corporateA2controlA2expertsA2believeA2itA2isA2badA2toA2vestA2bothA2officesA2in
A2theA2sameA2person.
d.A2TheA2CFOA2generallyA2reportsA2toA2theA2firm'sA2chiefA2accountingA2officer,A2whoA2isA2n
ormallyA2theA2controller.
e.A2TheA2CFOA2isA2responsibleA2forA2raisingA2capitA2-A2Ans--
c.A2TheA2boardA2ofA2directorsA2isA2theA2highestA2rankingA2bodyA2inA2aA2corporation,A2andA2
theA2chairmanA2ofA2theA2boardA2isA2theA2highestA2rankingA2individual.A2TheA2CEOA2genera
llyA2worksA2underA2theA2boardA2andA2itsA2chairman,A2andA2theA2boardA2generallyA2hasA2th
eA2authorityA2toA2removeA2theA2CEOA2underA2certainA2conditions.A2TheA2CEO,A2however,A
2cannotA2removeA2theA2board,A2butA2heA2orA2sheA2canA2endeavorA2toA2haveA2theA2boardA2
votedA2outA2andA2aA2newA2boardA2votedA2inA2shouldA2aA2conflictA2arise.A2ItA2isA2possibleA2f
orA2aA2personA2toA2simultaneouslyA2serveA2asA2CEOA2andA2chairmanA2ofA2theA2board,A2th
oughA2manyA2corporateA2controlA2expertsA2believeA2itA2isA2badA2toA2vestA2bothA2officesA2in
A2theA2sameA2person.


ItA2isA2generallyA2harderA2toA2transferA2one'sA2ownershipA2interestA2inA2aA2partnershipA2tha
nA2inA2aA2corporation.
a.A2True
b.A2FalseA2-A2Ans--ANSWER:A2True

ItA2isA2generallyA2lessA2expensiveA2toA2formA2aA2corporationA2thanA2aA2proprietorshipA2bec
ause,A2withA2aA2proprietorship,A2extensiveA2legalA2documentsA2areA2required.A2-A2Ans--
ANSWER:A2False

AA2stock'sA2marketA2priceA2wouldA2equalA2itsA2intrinsicA2valueA2ifA2allA2investorsA2hadA2allA2
theA2informationA2thatA2isA2availableA2aboutA2theA2stock.A2InA2thisA2caseA2theA2stock'sA2ma
rketA2priceA2wouldA2equalA2itsA2intrinsicA2value.
a.A2True
b.A2FalseA2-A2Ans--ANSWER:A2True