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.   Capital markets
B.   Accounting
C.   Investments
D.   All of these are considered areas of a finance discipline
E.   Financial management
Question #2
If the CEO is accused of questionable behavior, the Board of Directors should
A.   investigate the situation.
B.   All of these answer choices are correct.
C.   ensure that the company's reputation is not damaged.
D.   avoid damage to the company's culture and long-term performance.
E.   take proactive steps to ensure the situation is dealt with.
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.   undergo an annual audit to review practices regarding social responsibility, corporate governance, and transparency.
B.   All of these answer choices are correct.
C.   still focus on making a profit.
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.   Holding managers accountable for poor performance
B.   Focus on short-run profits that add up in the long run
C.   Use of stock-based compensation for key employees
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 actual stock price exceeds the intrinsic value of the stock.
B.   the intrinsic value of the stock exceeds the market price.
C.   there is an R&D breakthrough.
D.   investors are pessimistic about a stock.
E.   the firm's intrinsic value is maximized.
Question #7
Finance is important to individuals because
A.   employees decide how individual retirement funds are invested and how much risk they are willing to assume.
B.   all jobs require some level of financial knowledge .
C.   most employees are not willing to take financial risks.
D.   decision-making skills improve over time .
E.   employers make investment decisions in "defined contribution" pension plans.
Question #8
Double taxation is a major drawback to which form of business organization?
A.   C corporations
B.   Proprietorships
C.   Partnerships
D.   S corporations
E.   LLCs and LLPs
Question #9
Why might stockholders prefer riskier projects than bondholders?
A.   When the market is bad, stockholders don't lose as much.
B.   Additional debt gives stockholders an advantage in the market.
C.   Stockholders do better when the company does better because the stock price is higher.
D.   Stockholders get paid first.
E.   Stockholders protect themselves with covenants.
Question #10
Effective communication with stockholders by managers
A.   makes it less likely that corporate raiders will undervalue a firm's stock.
B.   causes the stock price to remain close to the intrinsic value over time.
C.   avoids shareholder activism.
D.   allows managers to persuade stockholders that the firm is socially responsible.
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.   covenants are included in the bond agreements.
B.   they believe that a company will pursue risky projects.
C.   All of these answer choices are correct.
D.   there are more than two bondholders.
E.   the amount of common stock in a firm exceeds the amount of bonds.
Question #12
To maximize shareholder wealth, decisions are evaluated
A.   in terms of financial consequences and how they affect society at large.
B.   for transparency and corporate governance.
C.   based on how they affect the stock price.
D.   consistent with management goals.
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.   There is no clear answer but staying quiet may be the worst choice.
B.   disobey and include the test results anyhow.
C.   obey the order but talk to other members of her team about the issue.
D.   not say anything because she's not in charge of development.
E.   anonymously tip off the local news team.
Question #14
Which of the following statements about managers' compensation is true?
A.   Basing managers' compensation on intrinsic value, not market price, will lead to constant increases in stock price.
B.   Rewarding managers for stock performance over the long run gives them an incentive to keep the stock price high over time.
C.   High salaries motivate managers to increase stockholders' wealth.
D.   Awarding managers stock options on a monthly basis instead of yearly keeps stock prices high.
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.   Management
B.   Accounting
C.   None of these answers is correct.
D.   Human Resources
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.   an unincorporated business owned by one individual
D.   a hybrid between a partnership and a corporation
E.   often established easily and inexpensively

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