Finance 303 - Financial Management » Spring 2024 » Quiz 1

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Question #1
Which of the following is NOT a main area of finance as taught in universities?
A.   Investments
B.   Capital markets
C.   Financial management
D.   All of these are considered areas of a finance discipline
E.   Accounting
Question #2
If the CEO is accused of questionable behavior, the Board of Directors should
A.   take proactive steps to ensure the situation is dealt with.
B.   All of these answer choices are correct.
C.   ensure that the company's reputation is not damaged.
D.   investigate the situation.
E.   avoid damage to the company's culture and long-term performance.
Question #3
Which of the following statements is true?
A.   Finance developed from economics and accounting.
B.   Accounting developed from finance and economics.
C.   Economics developed from accounting and finance.
D.   The COO is in charge of accounting and finance in most businesses.
E.   Finance, economics, and accounting are not related.
Question #4
B corporations
A.   All of these answer choices are correct.
B.   are committed to putting other stakeholders on an equal footing with shareholders.
C.   still focus on making a profit.
D.   undergo an annual audit to review practices regarding social responsibility, corporate governance, and transparency.
E.   are a fairly small but rapidly growing number of companies.
Question #5
Which of the following is NOT a part of effective corporate governance?
A.   Rules and practices to ensure that managers balance the needs of customers, employees, and affected citizens with shareholder interests
B.   Use of stock-based compensation for key employees
C.   Holding managers accountable for poor performance
D.   Having a strong, independent board of directors
E.   Focus on short-run profits that add up in the long run
Question #6
Stocks are overvalued when
A.   the intrinsic value of the stock exceeds the market price.
B.   the actual stock price exceeds the intrinsic value of the stock.
C.   investors are pessimistic about a stock.
D.   the firm's intrinsic value is maximized.
E.   there is an R&D breakthrough.
Question #7
Finance is important to individuals because
A.   decision-making skills improve over time .
B.   all jobs require some level of financial knowledge .
C.   employers make investment decisions in "defined contribution" pension plans.
D.   employees decide how individual retirement funds are invested and how much risk they are willing to assume.
E.   most employees are not willing to take financial risks.
Question #8
Double taxation is a major drawback to which form of business organization?
A.   LLCs and LLPs
B.   Partnerships
C.   C corporations
D.   S corporations
E.   Proprietorships
Question #9
Why might stockholders prefer riskier projects than bondholders?
A.   Stockholders do better when the company does better because the stock price is higher.
B.   Stockholders protect themselves with covenants.
C.   When the market is bad, stockholders don't lose as much.
D.   Stockholders get paid first.
E.   Additional debt gives stockholders an advantage in the market.
Question #10
Effective communication with stockholders by managers
A.   allows managers to persuade stockholders that the firm is socially responsible.
B.   makes it less likely that corporate raiders will undervalue a firm's stock.
C.   causes the stock price to remain close to the intrinsic value over time.
D.   avoids shareholder activism.
E.   ensures that underperforming firms will be able to change course and recover.
Question #11
Bondholders may demand a higher rate of return when
A.   the amount of common stock in a firm exceeds the amount of bonds.
B.   All of these answer choices are correct.
C.   there are more than two bondholders.
D.   they believe that a company will pursue risky projects.
E.   covenants are included in the bond agreements.
Question #12
To maximize shareholder wealth, decisions are evaluated
A.   in terms of financial consequences and how they affect society at large.
B.   based on how they affect the stock price.
C.   consistent with management goals.
D.   for transparency and corporate governance.
E.   to prioritize the broader needs of society .
Question #13
Kayla is concerned that her division manager may be pushing the development of a new product by ordering her to omit recent negative test results from internal reports. Kayla should
A.   anonymously tip off the local news team.
B.   There is no clear answer but staying quiet may be the worst choice.
C.   not say anything because she's not in charge of development.
D.   obey the order but talk to other members of her team about the issue.
E.   disobey and include the test results anyhow.
Question #14
Which of the following statements about managers' compensation is true?
A.   Awarding managers stock options on a monthly basis instead of yearly keeps stock prices high.
B.   Rewarding managers for stock performance over the long run gives them an incentive to keep the stock price high over time.
C.   Basing managers' compensation on intrinsic value, not market price, will lead to constant increases in stock price.
D.   High salaries motivate managers to increase stockholders' wealth.
E.   Yearly changes in compensation policies keep managers alert to differences in stock prices.
Question #15
Finance does NOT affect decisions in which of the following areas?
A.   Human Resources
B.   Accounting
C.   None of these answers is correct.
D.   Management
E.   Marketing
Question #16
A limited liability company (LLC) is
A.   a hybrid between a partnership and a corporation
B.   a legal entity created by a state, separate and distinct from its owners and managers
C.   often established easily and inexpensively
D.   a legal arrangement between two or more people who decide to do business together
E.   an unincorporated business owned by one individual

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