Exam
Name___________________________________

TRUE/FALSE.  Write 'T' if the statement is true and 'F' if the statement is false. 

1) 

Today's financial manager is a part of the total company effort to create value. 

1) 

_______ 

2) 

The goal of the firm should be to maximize earnings per share. 

2) 

_______ 

3) 

The investment decision includes determining the appropriate levels of assets that the firm should hold. 

3) 

_______ 

4) 

Shareholder wealth is best measured in terms of the market price of the firm's common stock. 

4) 

_______ 

5) 

Financial management revolves around three basic decision areas recording, reporting, and reorganizing. 

5) 

_______ 

6) 

Discouraging managers from buying stock in the company for which they work helps to promote shareholder interests. 

6) 

_______ 

7) 

The success of a business decision should be judged by the effect that is ultimately has on the price of the firm's common stock. 

7) 

_______ 

8) 

Management typically has the same objectives as the firm's stockholders. 

8) 

_______ 

9) 

Maximizing the price of a share of the firm's stock is the equivalent of maximizing the wealth of the firm's present owners. 

9) 

_______ 

10) 

Social responsibility by the firm should not be considered given the objective of wealth maximization. 

10) 

______ 

11) 

A company's board of directors is potentially the most effective instrument of good corporate governance. 

11) 

______ 

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question. 

12) 

According to the authors, the focus of financial managers in a firm should be ________. 

12) 

______ 

A) 

increasing the types of products or services provided by the firm 

B) 

maximizing the value of the firm's present owners 

C) 

maximizing the profits earned by the firm 

D) 

minimizing the amount of taxes paid by the firm 

13) 

The long-run objective of financial management should be to ________. 

13) 

______ 

A) 

maximize the firm's percentage of product market share 

B) 

maximize the firm's earnings after taxes 

C) 

maximize the firm's earnings per share 

D) 

maximize the value of the firm's common stock 

14) 

The price of a share of common stock in a publicly-traded firm represents ________. 

14) 

______ 

A) 

the board of directors' assessment of the intrinsic value of the firm 

B) 

the market's evaluation of a firm's present and future performance 

C) 

the book value of the firm's assets less the book value of its liabilities 

D) 

earnings after tax divided by the number of shares outstanding 

15) 

The best measure of how well management is doing on behalf of its stockholders is ________. 

15) 

______ 

A) 

the size of the dividend paid 

B) 

the common stock price 

C) 

the level of total profits 

D) 

the earnings per share 

16) 

If the goal of the financial manager were to maximize earnings per share ________. 

16) 

______ 

A) 

risk would not matter 

B) 

the timing of returns would not matter 

C) 

the company would never pay a dividend 

D) 

all of the above 

17) 

The market price of a firm's stock ________. 

17) 

______ 

A) 

changes when stockholders become dissatisfied with management performance 

B) 

ignores the timing of earnings per share 

C) 

does not change when a company's risk changes 

D) 

is not affected by dividends 

18) 

Stock options, management bonuses, and perquisites are incentives given to the firm's ________. 

18) 

______ 

A) 

"agents." 

B) 

"principals." 

C) 

"principals and agents." 

D) 

"stakeholders." 

19) 

Managers are considered to be "agents" of the firm's owners because ________. 

19) 

______ 

A) 

they have been delegated authority to manage the firm 

B) 

they always act in the best interests of the owners 

C) 

they put shareholder interests above concern for social responsibility 

D) 

they themselves are usually the largest shareholders in the firm 

20) 

The treasurer of a large corporation is primarily concerned with ________. 

20) 

______ 

A) 

gathering and reporting information for external bodies, such as the SEC 

B) 

investing, financing, and asset management decisions 

C) 

preparing budgets and forecasts 

D) 

gathering and reporting accounting information for internal company use 

21) 

In a large corporation, the controller is primarily concerned with ________. 

21) 

______ 

A) 

determining the financing necessary to support assets 

B) 

cash and credit management 

C) 

gathering and reporting accounting information 

D) 

managing and acquiring assets 

22) 

Incentives such as stock options, bonuses, and perquisites are utilized by the corporation ________. 

22) 

______ 

A) 

to provide an incentive to employees to act in the best interest of shareholders 

B) 

to provide an incentive to allocate resources towards philanthropic endeavors 

C) 

as a means of over-compensating white-collar workers relative to blue-collar workers 

D) 

as a means of controlling the actions of competitors 

23) 

The branch of economic theory which relates the behavior of principals and agents is referred to as ________. 

23) 

______ 

A) 

Agency Theory 

B) 

Behavioral Theory 

C) 

Management Behavior Theory 

D) 

Theory of the Firm 

24) 

The primary difference between the corporation and other historically popular forms of business organizations is ________. 

24) 

______ 

A) 

the separation between ownership and management 

B) 

that the corporation is unconcerned about the welfare of its employees 

C) 

that owners and management are generally the same entity 

D) 

that the corporation is primarily concerned with the social welfare of society 

25) 

"Shareholder wealth" in a firm is represented by ________. 

25) 

______ 

A) 

the amount of salary paid to its employees 

B) 

the book value of the firm's assets less the book value of its liabilities 

C) 

the number of people employed in the firm 

D) 

the market price per share of the firm's common stock 

26) 

What are the earnings per share (EPS) for a company that earned $100,000 last year in earnings after taxes, has 200,000 common shares outstanding, and $1.2 million in retained earnings at the year end? 

26) 

______ 

A) 

$6 

B) 

$6.50 

C) 

$0.50 

D) 

$100,000 

27) 

In the U.S., the Public Company Accounting Oversight Board (PCAOB) has been given the power to adopt ________ standards for public companies and their auditors as well as investigate and discipline those involved. 

27) 

______ 

A) 

auditing 

B) 

ethics 

C) 

quality control 

D) 

disclosure 

E) 

All of the above answers are correct. 

28) 

What piece of legislation was largely a response to a series of corporate scandals involving Enron, WorldCom, Global Crossing, Tyco and numerous others? 

28) 

______ 

A) 

Financial Accounting Standards Board Act (FASB) 

B) 

The Sarbanes-Oxley Act of 2002 (SOX) 

C) 

The Corporate Corruption Act of 1992 (CCA) 

D) 

Securities Exchange Act of 1932 (SEA) 

29) 

When a firm is meeting the present needs of the firm without compromising the ability of future generations to meet their own needs it is commonly referred to as ________. 

29) 

______ 

A) 

sustainability 

B) 

the investment decision 

C) 

personal social responsibility 

D) 

None of the above answers are correct. 

30) 

The ________ decision begins with the determination of the total amount of assets needed and also involves decisions related to which assets should be reduced, eliminated or replaced. 

30) 

______ 

A) 

financing 

B) 

wealth management 

C) 

investment 

D) 

asset management 

31) 

The ________ decision is concerned about the make-up of the right-hand side of the balance sheet with the dividend policy of the firm being integral as well as the mechanics of physically requiring the necessary funds. 

31) 

______ 

A) 

investment 

B) 

wealth management 

C) 

asset management 

D) 

financing 

32) 

The ________ decision is concerned about charging the manager with an appropriate level of operating responsibility over existing assets to supervise the assets efficiently. 

32) 

______ 

A) 

asset management 

B) 

investment 

C) 

financing 

D) 

wealth management 

 

1) 

TRUE 

2) 

FALSE 

3) 

TRUE 

4) 

TRUE 

5) 

FALSE 

6) 

FALSE 

7) 

TRUE 

8) 

FALSE 

9) 

TRUE 

10) 

FALSE 

11) 

TRUE 

12) 

B 

13) 

D 

14) 

B 

15) 

B 

16) 

D 

17) 

A 

18) 

A 

19) 

A 

20) 

B 

21) 

C 

22) 

A 

23) 

A 

24) 

A 

25) 

D 

26) 

C 

27) 

E 

28) 

B 

29) 

A 

30) 

C 

31) 

D 

32) 

A