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

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