FIN 300 Midterm 1 Practice Questions Solved
100% Correct | Verified Answers
What best represents the "Agency Problem"? - ANSWER The agency problem results
from the separation of management and the ownership of the firm, The agency problem
may interfere with the implementation of maximizing shareholder wealth, and
Managers might attempt to benefit themselves in terms of salary and perquisites at the
expense of shareholders
The financial manager most directly responsible for producing the company's financial
statements and directing its cost accounting functions is the_____. - ANSWER controller.
Which owners have unlimited liability? - ANSWER general partners in a limited
partnership and sole proprietors
A limited liability company (LLC) is taxed like a partnership but provides limited liability
for its owners, similar to a corporation. - ANSWER True.
There is no legal distinction made between the assets of the business and the personal
assets of any of the owners in the limited partnership. - ANSWER False.
Profits represent money that can be spent, and as such, form the basis for determining
the value of financial decisions. - ANSWER False.
All of these contributed to the recent financial crisis... - ANSWER Excessive risk taking
due to underestimation of risk, focusing on earnings instead of cash flow, and focusing
on the short run
A corporate treasurer is typically responsible for cash management, credit management,
and raising capital. - ANSWER True.
,Each financial decision made by a corporate manager can be evaluated by its direct
impact on the corporation's stock price. - ANSWER False.
In a sole proprietorship, the owner is personally responsible without limitation for the
liabilities incurred. - ANSWER True.
Which of the following goals of the firm are synonymous to the maximization of
shareholder wealth? - ANSWER
Joe, a risk-averse investor, is trying to choose between investment A and investment B.
If investment A is riskier than investment B and Joe selects investment A anyway, then...
- ANSWER the expected return for investment A will be higher than the expected return
for investment B.
These forms of business organizations provide limited liability to all owners... - ANSWER
limited liability company, corporation, and S-type corporation
It is important to evaluate a corporate manager's financial decision by measuring the
effect the decision should have on the corporation's stock price if everything else were
held constant. - ANSWER True.
Capital budgeting is concerned with... - ANSWER what long-term investments a firm
should undertake.
Consider the after-tax cash flows for Project S and Project L:
Year 1: Project S=$3000 and Project L=$0
, Year 2: Project S=$0 and Project L=$3000
A rational person would prefer.... - ANSWER Project S because the money can be
reinvested sooner.
Cash and credit management are typically the responsibility of the.... - ANSWER
treasurer.
Which of the following categories of owners enjoy limited liability? - ANSWER common
shareholders of a corporation
Financial management deals with the maintenance and creation of economic value or
wealth. - ANSWER True.
The true owners of the corporation are the... - ANSWER common stockholders.
Which form of business organization provides limited liability to all of its owners? -
ANSWER corporation
Corporate managers should accept investment projects that maximize profits in the
short run because of the time value of money. - ANSWER False.
The three basic types of issues addressed by the study of finance are.. - ANSWER capital
budgeting, capital structure decisions, and working capital management
Assume that you went to Las Vegas and hit the jackpot for $5 million. Further assume
that you were offered a choice to receive the $5 million today, or receive it in two years.
According to one of the principles of finance, which would you take? - ANSWER the $5
million today because it would be worth more than if you would receive it in two years.
100% Correct | Verified Answers
What best represents the "Agency Problem"? - ANSWER The agency problem results
from the separation of management and the ownership of the firm, The agency problem
may interfere with the implementation of maximizing shareholder wealth, and
Managers might attempt to benefit themselves in terms of salary and perquisites at the
expense of shareholders
The financial manager most directly responsible for producing the company's financial
statements and directing its cost accounting functions is the_____. - ANSWER controller.
Which owners have unlimited liability? - ANSWER general partners in a limited
partnership and sole proprietors
A limited liability company (LLC) is taxed like a partnership but provides limited liability
for its owners, similar to a corporation. - ANSWER True.
There is no legal distinction made between the assets of the business and the personal
assets of any of the owners in the limited partnership. - ANSWER False.
Profits represent money that can be spent, and as such, form the basis for determining
the value of financial decisions. - ANSWER False.
All of these contributed to the recent financial crisis... - ANSWER Excessive risk taking
due to underestimation of risk, focusing on earnings instead of cash flow, and focusing
on the short run
A corporate treasurer is typically responsible for cash management, credit management,
and raising capital. - ANSWER True.
,Each financial decision made by a corporate manager can be evaluated by its direct
impact on the corporation's stock price. - ANSWER False.
In a sole proprietorship, the owner is personally responsible without limitation for the
liabilities incurred. - ANSWER True.
Which of the following goals of the firm are synonymous to the maximization of
shareholder wealth? - ANSWER
Joe, a risk-averse investor, is trying to choose between investment A and investment B.
If investment A is riskier than investment B and Joe selects investment A anyway, then...
- ANSWER the expected return for investment A will be higher than the expected return
for investment B.
These forms of business organizations provide limited liability to all owners... - ANSWER
limited liability company, corporation, and S-type corporation
It is important to evaluate a corporate manager's financial decision by measuring the
effect the decision should have on the corporation's stock price if everything else were
held constant. - ANSWER True.
Capital budgeting is concerned with... - ANSWER what long-term investments a firm
should undertake.
Consider the after-tax cash flows for Project S and Project L:
Year 1: Project S=$3000 and Project L=$0
, Year 2: Project S=$0 and Project L=$3000
A rational person would prefer.... - ANSWER Project S because the money can be
reinvested sooner.
Cash and credit management are typically the responsibility of the.... - ANSWER
treasurer.
Which of the following categories of owners enjoy limited liability? - ANSWER common
shareholders of a corporation
Financial management deals with the maintenance and creation of economic value or
wealth. - ANSWER True.
The true owners of the corporation are the... - ANSWER common stockholders.
Which form of business organization provides limited liability to all of its owners? -
ANSWER corporation
Corporate managers should accept investment projects that maximize profits in the
short run because of the time value of money. - ANSWER False.
The three basic types of issues addressed by the study of finance are.. - ANSWER capital
budgeting, capital structure decisions, and working capital management
Assume that you went to Las Vegas and hit the jackpot for $5 million. Further assume
that you were offered a choice to receive the $5 million today, or receive it in two years.
According to one of the principles of finance, which would you take? - ANSWER the $5
million today because it would be worth more than if you would receive it in two years.
