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.   All of these are considered areas of a finance discipline
B.   Financial management
C.   Accounting
D.   Investments
E.   Capital markets
Question #2
If the CEO is accused of questionable behavior, the Board of Directors should
A.   All of these answer choices are correct.
B.   ensure that the company's reputation is not damaged.
C.   investigate the situation.
D.   take proactive steps to ensure the situation is dealt with.
E.   avoid damage to the company's culture and long-term performance.
Question #3
Which of the following statements is true?
A.   Accounting developed from finance and economics.
B.   Economics developed from accounting and finance.
C.   The COO is in charge of accounting and finance in most businesses.
D.   Finance, economics, and accounting are not related.
E.   Finance developed from economics and accounting.
Question #4
B corporations
A.   undergo an annual audit to review practices regarding social responsibility, corporate governance, and transparency.
B.   are committed to putting other stakeholders on an equal footing with shareholders.
C.   All of these answer choices are correct.
D.   still focus on making a profit.
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.   Focus on short-run profits that add up in the long run
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.   Rules and practices to ensure that managers balance the needs of customers, employees, and affected citizens with shareholder interests
Question #6
Stocks are overvalued when
A.   the intrinsic value of the stock exceeds the market price.
B.   investors are pessimistic about a stock.
C.   the firm's intrinsic value is maximized.
D.   there is an R&D breakthrough.
E.   the actual stock price exceeds the intrinsic value of the stock.
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.   C corporations
B.   Partnerships
C.   LLCs and LLPs
D.   S corporations
E.   Proprietorships
Question #9
Why might stockholders prefer riskier projects than bondholders?
A.   Stockholders get paid first.
B.   Stockholders do better when the company does better because the stock price is higher.
C.   Additional debt gives stockholders an advantage in the market.
D.   When the market is bad, stockholders don't lose as much.
E.   Stockholders protect themselves with covenants.
Question #10
Effective communication with stockholders by managers
A.   allows managers to persuade stockholders that the firm is socially responsible.
B.   avoids shareholder activism.
C.   makes it less likely that corporate raiders will undervalue a firm's stock.
D.   causes the stock price to remain close to the intrinsic value over time.
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.   All of these answer choices are correct.
B.   they believe that a company will pursue risky projects.
C.   there are more than two bondholders.
D.   the amount of common stock in a firm exceeds the amount of bonds.
E.   covenants are included in the bond agreements.
Question #12
To maximize shareholder wealth, decisions are evaluated
A.   to prioritize the broader needs of society .
B.   based on how they affect the stock price.
C.   consistent with management goals.
D.   for transparency and corporate governance.
E.   in terms of financial consequences and how they affect society at large.
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.   not say anything because she's not in charge of development.
B.   There is no clear answer but staying quiet may be the worst choice.
C.   anonymously tip off the local news team.
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.   Rewarding managers for stock performance over the long run gives them an incentive to keep the stock price high over time.
B.   Yearly changes in compensation policies keep managers alert to differences in stock prices.
C.   Awarding managers stock options on a monthly basis instead of yearly keeps stock prices high.
D.   Basing managers' compensation on intrinsic value, not market price, will lead to constant increases in stock price.
E.   High salaries motivate managers to increase stockholders' wealth.
Question #15
Finance does NOT affect decisions in which of the following areas?
A.   None of these answers is correct.
B.   Management
C.   Accounting
D.   Human Resources
E.   Marketing
Question #16
A limited liability company (LLC) is
A.   a hybrid between a partnership and a corporation
B.   often established easily and inexpensively
C.   a legal entity created by a state, separate and distinct from its owners and managers
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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