Exam

Name___________________________________

TRUE/FALSE.WriteTifthestatementistrueandFifthestatementisfalse.
1) Afinancialanalystisresponsibleformaintainingandcontrollingthefirmsdailycashbalances.He
orshefrequentlymanagesthefirmsshort-terminvestmentsandcoordinatesshort-term
borrowingandbankingrelationships.

1)

2) Financeisconcernedwiththeprocessinstitutions,markets,andinstrumentsinvolvedinthe
transferofmoneyamongandbetweenindividuals,businessesandgovernment.

2)

3) Financialservicesisconcernedwiththedutiesofthefinancialmanager.

3)

4) Financialmanagersactivelymanagethefinancialaffairsofmanytypesofbusiness--financialand
non-financial,privateandpublic,for-profitandnot-for-profit.

4)

5) Inapartnership,ownershaveunlimitedliabilityandmayhavetocoverdebtsofotherless
financiallysoundpartners.

5)

6) Inapartnership,apartnercanreadilytransferhis/herwealthtootherpartners.

6)

7) Theboardofdirectorsisresponsibleformanagingday-to-dayoperationsandcarryingoutthe
policiesestablishedbythechiefexecutiveofficer.

7)

8) Thesoleproprietorhasunlimitedliability;onlyhisorhertotalinvestmentinthebusinesscanbe
takentosatisfycreditors.

8)

9) Inalimitedpartnership,onlyonepartnermayassumelimitedliability,allotherpartnershaveto
haveunlimitedliability.

9)

10) Thepresidentorchiefexecutiveofficeriselectedbythefirmsstockholdersandhasultimate
authoritytoguidecorporateaffairsandmakegeneralpolicy.

10)

11) Inalimitedpartnership,partnersliabilitiesarelimitedtotheirinvestmentinthepartnership.

11)

12) Inalimitedpartnership,theliabilityprotectiondoesnotprotectpartnersfromtheirindividualacts
ofmalpractice.

12)

13) Thecapitalexpendituresanalyst/managerisresponsiblefortheevaluationandrecommendationof
proposedassetinvestmentsandmaybeinvolvedinthefinancialaspectsofimplementationof
approvedinvestments.

13)

14) Thefinancialanalystadministersthefirmscreditpolicybyanalyzingormanagingtheevaluation
ofcreditapplications,extendingcredit,andmonitoringandcollectingaccountsreceivable.

14)

15) Inlargecompanies,theprojectfinancemanagerisresponsibleforcoordinatingtheassetsand
liabilitiesoftheemployeespensionfund.

15)

16) Marginalanalysisstatesthatfinancialdecisionsshouldbemadeandactionstakenonlywhen
addedbenefitsexceedsaddedcosts.

16)

17) Thecontrollertypicallyhandlestheaccountingactivities,suchastaxmanagement,dataprocessing,
andcostandfinancialaccounting.

17)

18) Thefinancialmanagerplacesprimaryemphasisoncashflows,theinflowandoutflowofcash.

18)

19) Managerialfinanceisconcernedwiththedesignanddeliveryofadviceandfinancialproductsto
individuals,businesses,andgovernment.

19)

20) Thetreasurertypicallyhandlesthecostandfinancialaccounting.

20)

21) Accrualmethodrecognizesrevenueatthepointofsaleandrecognizesexpenseswhenincurred.

21)

22) Theaccountantevaluatesfinancialstatements,developsadditionaldata,andmakesdecisions
basedonhisorherassessmentoftheassociatedreturnsandrisks.

22)

23) Thetreasureristheofficerresponsibleforthefirmsaccountingactivities,suchascorporate
accounting,taxmanagement,financialaccounting,andcostaccounting.

23)

24) Thecontrolleristheofficerresponsibleforthefirmsfinancialactivitiessuchasfinancialplanning
andfundraising,makingcapitalexpendituredecisions,andmanagingcash,credit,thepension
fund,andforeignexchange.

24)

25) Highcashflowisgenerallyassociatedwithahighersharepricewhereashigherrisktendstoresult
inalowershareprice.

25)

26) Thetreasurersfocustendstobemoreexternal,whilethecontrollersfocusismoreinternal.

26)

27) Thefinancialmanagerpreparesfinancialstatementsthatrecognizerevenueatthepointofsaleand
expenseswhenincurred.

27)

28) Usingcertainstandardizedandgenerallyacceptedaccountingprinciples,theaccountantprepares
financialstatementsthatrecognizerevenueatthepointofsaleandexpenseswhenincurred.

28)

29) Thefinancialmanagermustlookbeyondfinancialstatementstoobtaininsightintodevelopingor
existingproblemssincetheaccrualaccountingdatadonotfullydescribethecircumstancesofa
firm.

29)

30) Whenconsideringeachfinancialdecisionalternativeorpossibleactionintermsofitsimpactonthe
sharepriceofthefirmsstock,financialmanagersshouldacceptonlythoseactionsthatare
expectedtoincreasethefirmsshort-termprofitability.

30)

31) Financialanalysisandplanningisconcernedwithanalyzingthemixofassetsandliabilities.

31)

32) Financingdecisionsdealwiththeleft-handsideofthefirmsbalancesheetandinvolvethemost
appropriatemixofcurrentandfixedassets.

32)

33) Thegoalofethicsistomotivatebusinessandmarketparticipantstoadheretoboththeletterand
thespiritoflawsandregulationsinallaspectsofbusinessandprofessionalpractice.

33)

34) Toachievethegoalofprofitmaximization,foreachalternativebeingconsidered,thefinancial
managerwouldselecttheonethatisexpectedtoresultinthehighestmonetaryreturn.

34)

35) Dividendpaymentschangedirectlywithchangesinearningspershare.

35)

36) Thewealthofcorporateownersismeasuredbythesharepriceofthestock.

36)

37) TheEconomicValueAdded(EVA)isthedifferencebetweenthecostoffundsusedtofinancean
investmentanditsafter-taxoperatingprofits.

37)

38) Economicvalueaddediscalculatedbysubtractingthecostoffundsusedtofinanceaninvestment
fromitsafter-taxoperatingprofits.

38)

39) Returnandriskarethekeydeterminantsofshareprice,whichrepresentsthewealthoftheowners
inthefirm.

39)

40) Ahighepsdoesnotnecessarilytranslateintoahighstockprice.

40)

41) Theprofitmaximizationgoalignoresthetimingofreturns,doesnotdirectlyconsidercashflows,
andignoresrisk.

41)

42) Whenconsideringeachfinancialdecisionalternativeorpossibleactionintermsofitsimpactonthe
sharepriceofthefirmsstock,financialmanagersshouldacceptonlythoseactionsthatare
expectedtoincreaseshareprice.

42)

43) Higherrisktendstoresultinahighersharepricesincethestockholdermustbecompensatedfor
thegreaterrisk.

43)

44) Whereriskisinvolved,stockholdersexpecttoearnhigherratesofreturnoninvestmentsoflower
riskandviceversa.

44)

45) Thelikelihoodthatmanagersmayplacepersonalgoalsaheadofcorporategoalsiscalledagency
problem.

45)

46) Agencycostsarethereductioninshareholderswealthwhenmanagersacttomaximizetheirown
wealthinsteadofshareholderwealth.

46)

47) Agentsofcorporateownersarethemselvesownersofthefirmandhavebeenelectedbyallthe
corporateownerstorepresentthemindecision-makingandmanagementofthefirm.

47)

48) Anagencyproblemistheacquisitionofafirmbyanotherfirmorgroupthatisnotsupportedby
management.

48)

49) Marketforcesandagencycostshelptopreventorminimizeagencyproblems.

49)

50) Afirmsarticlesofincorporationandbylaws,alongwithgovernmentlegislation,provide
shareholderswithaframeworkonhowtheirfirmwillbegoverned.

50)

51) InCanada,corporateboardsseemtobedrawnfromalargesubsetofpeoplerepresentingthe
culturaldifferencesofCanadians.

51)

52) Theseparationofownershipandliabilitymaketheoptionofincorporatingaprivatebusinessvery
appealing.

52)

53) TheCEOofalargecorporationtakeshisfamilyonacruisechargingthecosttohisbusiness
account;thisisconsideredanagencycost.

53)

54) JaniceSmithhasrecentlyjoinedtheRoyalBankofCanadaasaPersonalFinancialPlanner
Representative;Janiceisworkingintheareaofmanagerialfinance.

54)

55) SomeofCanadaslargestcorporationsincludeNortelNetworks,Bombardier,andtheRoyalBank.

55)

56) JupitorInc.isanon-publiccorporationownedbytwoSaskatchewanresidents;Jupitorwouldbe
consideredaCanadianControlledPrivateCorporationfortaxationpurposes.

56)

57) JoeTootoosisandFrankInnwereworkingpartnersinapartnershipthatfailed;atfailure,the
partnershipdebtwas$100,000.IfFrankInnhasnoassets,JoeTootoosiscouldbeheldliableforthe
entire$100,000.

57)

58) Ifamanagerscompensationisbasedonaperformancemeasuresuchasearningspershare,he/she
hasanincentiveplan.

58)

59) Astockexchangeisasecondaryfinancialmarket.

59)

60) Themajordisadvantageofthesoleproprietorshipandpartnershipistheunlimitedliabilityofthe
businessowners.

60)

61) Corporationsarethemostcommonformofbusinessorganization.

61)

MULTIPLECHOICE.Choosetheonealternativethatbestcompletesthestatementoranswersthequestion.
62) Thepartoffinanceconcernedwiththedesignanddeliveryofadviceandfinancialproductsto
individuals,businesses,andgovernmentiscalled
A) financialservices.
B) managerialfinance.
C) financialmanager.
D) noneoftheabove.

62)

63) Managerialfinance
A) involvestaskssuchasbudgeting,financialforecasting,cashmanagement,andfunds
procurement.
B) recognizesfundsonanaccrualbasis.
C) devotesthemajorityofitsattentiontothecollectionandpresentationoffinancialdata.
D) involvesthedesignanddeliveryofadviceandfinancialproducts.

63)

64) Financecanbedefinedas
A) thesystemofdebitsandcredits.
B) thescienceoftheproduction,distribution,andconsumptionofwealth.
C) theartofmerchandisingproductsandservices.
D) theartandscienceofmanagingmoney.

64)

65) Financialservice
A) involvesthedesignanddeliveryofadviceandfinancialproducts.
B) providesguidelinesfortheefficientoperationofthebusiness.
C) handlesaccountingactivitiesrelatedtodataprocessing.
D) isconcernedwiththedutiesofthefinancialmanager.

65)

66) CareeropportunitiesinfinancialservicesincludeallofthefollowingEXCEPT
A) investments.
B) capitalexpendituresmanagement.
C) realestateandinsurance.
D) personalfinancialplanning.

66)

67) Whichofthefollowingisacareeropportunityinmanagerialfinance?
A) CapitalExpendituresManagement
B) Investment
C) RealEstateandInsurance
D) PersonalFinancialPlanning

67)

68) Whichofthefollowinglegalformsoforganizationismostexpensivetoorganize?
A) corporations
B) limitedpartnerships
C) soleproprietorships
D) partnerships

68)

69) WhichofthefollowinglegalformsoforganizationsincomeisNOTtaxedunderindividualincome
taxrate?
A) corporations
B) partnerships
C) limitedpartnerships
D) soleproprietorships

69)

70) Underwhichofthefollowinglegalformsoforganization,isownershipreadilytransferable?
A) partnerships
B) corporations
C) soleproprietorships
D) limitedpartnerships

70)

71) Thetrueownersofthecorporationis/arethe
A) creditors.
C) chiefexecutiveofficer.

71)
B) boardofdirectors.
D) stockholders.

72) The________has/havetheultimateresponsibilityinguidingcorporateaffairsandcarryingout
policies.
A) chiefexecutiveofficer
B) boardofdirectors
C) creditors
D) stockholders

72)

73) Theresponsibilityformanagingday-to-dayoperationsandcarryingoutcorporatepoliciesbelongs
tothe
A) stockholders.
B) boardofdirectors.
C) creditors.
D) chiefexecutiveofficer.

73)

74) Inacorporation,themembersoftheboardofdirectorsareelectedbythe
A) chiefexecutiveofficer.
B) stockholders.
C) creditors.
D) employees.

74)

75) ________isconcernedwiththedutiesofthefinancialmanagerinthebusinessfirm.
A) FinancialServices
B) ManagerialFinance
C) TheFinancialManager
D) Noneoftheabove

75)

76) About75percentofallbusinessfirmsare
A) corporations.
C) soleproprietorships.

76)
B) cooperatives.
D) partnerships.

77) Amajorweaknessofapartnershipis
A) accesstocapitalmarkets.
B) difficultyliquidatingortransferringownership.
C) limitedliability.
D) loworganizationalcosts.

77)

78) AllofthefollowingarekeystrengthsofacorporationEXCEPT
A) readilytransferableownership.
B) accesstocapitalmarkets.
C) loworganizationcosts.
D) limitedliability.

78)

79) Whichofthefollowinglegalformsoforganizationischaracterizedbylimitedliability?
A) professionalpartnership
B) soleproprietorship
C) corporation
D) partnership

79)

80) Thedominantformoforganizationwithrespecttorevenuesandnetincomeisthe
A) limitedpartnership.
B) soleproprietorship.
C) corporation.
D) partnership.

80)

81) Alegalentitywhichcansueandbesued,makeandbepartytocontracts,andacquirepropertyin
itsownnameis
A) acorporation.
B) aprofessionalpartnership.
C) asoleproprietorship.
D) apartnership.

81)

82) ________isresponsiblefortheevaluationandrecommendationofproposedassetinvestments.
A) TheCreditAnalyst
B) TheCapitalExpendituresAnalyst
C) TheFinancialAnalyst
D) ThePensionFundManager

82)

83) In________,ownershavelimitedliabilitywithregardtothebusinesstheyarenotpersonally
liableforotherownersmalpractice.
A) apartnership
B) ssoleproprietorship
C) inacooperative
D) alimitedpartnership

83)

84) Managerialfinance
A) devotesthemajorityofitsattentiontothecollectionandpresentationoffinancialdata.
B) involvestaskssuchasbudgeting,financialforecasting,cashmanagement,andfunds
procurement.
C) recognizesfundsonanaccrualbasis.
D) involvesthedesignanddeliveryofadviceandfinancialproducts.

84)

85) Thetreasureriscommonlyresponsiblefor
A) costaccounting.
C) makingcapitalexpenditures.

85)
B) taxes.
D) dataprocessing.
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86) Thecontrolleriscommonlyresponsiblefor
A) financialplanning.
C) managingcash.

86)
B) managingcreditactivities.
D) financialaccounting.

87) Theaccountantsprimaryfunctionis
A) thecollectionandpresentationoffinancialdata.
B) planningcashflows.
C) evaluatingthefinancialstatements.
D) makingdecisionsbasedonfinancialdata.

87)

88) Theaccountantrecognizesrevenuesandexpenseson
A) anaccrualbasis.
B) anexpensebasis.
C) arevenuebasis.
D) acashbasis.

88)

89) Thefinancialmanagerrecognizesrevenuesandexpensesutilizing
A) theactualinflowsandoutflowsofcash.
B) theaccrualmethod.
C) therevenuemethod.
D) standardized,generallyaccepted,accountingprinciples.

89)

90) Thefinancialmanagerisinterestedinthecashinflowsandoutflowsofthefirm,ratherthanthe
accountingdata,inordertoensure
A) profitability.
B) theabilitytoacquirenewassets.
C) theabilitytopaydividends.
D) solvency.

90)

91) TheaccountantmayberesponsibleforanyofthefollowingEXCEPT
A) processingpurchaseordersandinvoices.
B) preparingthemonthlyincomestatement.
C) ensuringaccountspayablearepaidontime.
D) analyzingthemixofcurrenttofixedassets.

91)

92) Whichofthefollowingisadisadvantageofanincometrust?
A) incometrustsneverprovidestablecashflows
B) onlyimmaturecompaniesthatdonothavearegularcashflowcancreateincometrusts
C) unitholdersofincometrustshavealowerclaimonassetsthantheholdersofdebtsecurities
D) incometrustsdonotofferthepotentialforcapitalappreciation

92)

93) Economictheoriesthatthefinancialmanagermustbeabletoutilizeforefficientbusiness
operations,include
A) profit-maximizingstrategies.
B) marginalanalysis.
C) supply-and-demandanalysis.
D) alloftheabove.

93)

94) Theprimaryeconomicprincipleusedinmanagerialfinanceis
A) thecrowdingouteffect.
B) supplyanddemand.
C) theliquiditytrap.
D) marginalanalysis.

94)

95) Johnson,Inc.hasjustendedthecalendaryearmakingasaleintheamountof$10,000of
merchandisepurchasedduringtheyearatatotalcostof$7,000.Althoughthefirmpaidinfullfor
themerchandiseduringtheyear,ithasyettocollectatyearendfromthecustomer.Thenetprofit
andcashflowfromthissalefortheyearare
A) $3,000and$10,000respectively.
B) $7,000and-$3,000respectively.
C) $3,000and$7,000respectively.
D) $3,000and-$7,000respectively.

95)

96) Afirmhasjustendeditscalendaryearmakingasaleintheamountof$150,000ofmerchandise
purchasedduringtheyearatatotalcostof$112,500.Althoughthefirmpaidinfullforthe
merchandiseduringtheyear,ithasyettocollectatyearendfromthecustomer.Thenetprofitand
cashflowfromthissalefortheyearare
A) $37,500and-$112,500respectively.
B) $0and$150,000respectively.
C) $37,500and-$150,000respectively.
D) $150,000and$112,500respectively.

96)

97) Theprimaryemphasisofthefinancialmanageristheuseof
A) cashflow.
B) accruedearnings.
C) organizationcharts.
D) profitincentives.

97)

98) Byconcentratingoncashflowswithinthefirmthefinancialmanagershouldbeableto
A) preparetaxreturns.
B) avoidinsolvency.
C) controlexpenses.
D) speakauthoritativelytostockholders.

98)

99) Theofficerresponsibleforthefirmsfinancialactivitiessuchasfinancialplanningandfundraising,
makingcapitalexpendituredecisions,andmanagingcash,credit,thepensionfund,andforeign
exchangeis
A) thecontroller.
B) thetreasurer.
C) theforeignexchangemanager.
D) noneoftheabove.

99)

100) Marginalanalysisstatesthatfinancialdecisionsshouldbemadeandactionstakenonlywhen
A) benefitsequalcosts.
B) addedbenefitsexceedaddedcosts.
C) addedbenefitsaregreaterthanzero.
D) demandequalssupply.

100)

101) Theofficerresponsibleforthefirmsaccountingactivities,suchascorporateaccounting,tax
management,financialaccounting,andcostaccountingis
A) theforeignexchangemanager.
B) thetreasurer.
C) thecontroller.
D) noneoftheabove.

101)

102) Afirmhasjustendeditscalendaryearmakingasaleintheamountof$200,000ofmerchandise
purchasedduringtheyearatatotalcostof$150,500.Althoughthefirmpaidinfullforthe
merchandiseduringtheyear,ithasyettocollectatyearendfromthecustomer.Thepossible
problemthisfirmmayfaceis
A) inabilitytoreceivecredit.
B) highleverage.
C) lackofcashflow.
D) lowprofitability.

102)

103) Thekeyroleofthefinancialmanageris
A) decisionmaking.
B) thepresentationoffinancialstatements.
C) thecollectionoffinancialdata.
D) thepreparationofdataforfutureevaluation.

103)

104) ThekeyactivitiesofthefinancialmanagerincludeallofthefollowingEXCEPT
A) makinginvestmentdecisions.
B) financialanalysisandplanning.
C) managingfinancialaccounting.
D) makingfinancingdecisions.

104)

105) Includedintheprimaryactivitiesofthefinancialmanageris/are
A) makingfinancingdecisions.
B) financialanalysisandplanning.
C) makinginvestmentdecisions.
D) alloftheabove.

105)

106) ThefinancialmanagermayberesponsibleforanyofthefollowingEXCEPT
A) analyzingbudgetandperformancereports.
B) monitoringofquarterlytaxpayments.
C) determiningwhethertoacceptorrejectacapitalassetacquisition.
D) analyzingtheeffectsofmoredebtonthefirmscapitalstructure.

106)

107) MakinginvestmentdecisionsincludesallofthefollowingEXCEPT
A) notespayable.
B) inventory.
C) machinery.

107)
D) buildings.

108) MakingfinancingdecisionsincludesallofthefollowingEXCEPT
A) decidingwhichindividualshort-termsourcesarebestatagivenpointintime.
B) analyzingquarterlybudgetandperformancereports.
C) decidingwhichindividuallong-termsourcesarebestatagivenpointintime.
D) determiningtheappropriatemixofshort-termandlong-termfinancing.

108)

109) ManagingthefirmsassetsincludesallofthefollowingEXCEPT
A) accountsreceivable.
B) notespayable.
C) inventory.
D) fixedassets.

109)

110) ManagingthefirmsliabilitiesincludesallofthefollowingEXCEPT
A) notespayable.
B) cash.
C) accountspayable.
D) accruals.

110)

111) ThefinancialmanagermayberesponsibleforanyofthefollowingEXCEPT
A) analyzingtheeffectsofmoredebtonthefirmscapitalstructure.
B) determiningwhethertoacceptorrejectacapitalassetacquisition.
C) keepingtrackofquarterlytaxpayments.
D) analyzingquarterlybudgetandperformancereports.

111)

112) FinancialanalysisandplanninginvolveallofthefollowingEXCEPT
A) determiningtheadditionalfinancingneeds.
B) controllingthedataprocessingactivities.
C) transformingdataintoaformthatcanbeusedtomonitorthefirmsfinancialposition.
D) evaluatingtheneedforincreasedorreducedproductivecapacity.

112)

113) Thefinancialmanagersinvestmentdecisionsdetermine
A) boththemixandthetypeofassetsfoundonthefirmsbalancesheet.
B) boththemixandthetypeofshort-termandlong-termfinancing.
C) boththemixandthetypeofliabilitiesfoundonthefirmsbalancesheet.
D) boththemixandthetypeofassetsandliabilitiesfoundonthefirmsbalancesheet.

113)

114) Inplanningandmanagingtherequirementsofthefirm,thefinancialmanagerisconcernedwith
A) thetypeoffinancingutilized,butnotthemixandtypeofassets.
B) themixandtypeofassets,thetypeoffinancingutilized,andanalysisinordertomonitorthe
financialcondition.
C) theacquisitionoffixedassets,allowingsomeoneelsetoplanthelevelofcurrentassets
required.
D) themixandtypeofassets,butnotthetypeoffinancingutilized.

114)

115) Thefinancialmanagersfinancingdecisionsdetermine
A) themostappropriatemixofshort-termandlong-termfinancing.
B) theproportionofthefirmsearningstobepaidasdividend.
C) boththemixandthetypeofassetsandliabilitiesfoundonthefirmsbalancesheet.
D) boththemixandthetypeofassetsfoundonthefirmsbalancesheet.

115)

116) Theprimarygoalofthefinancialmanageris
A) maximizingwealth.
C) maximizingprofit.

116)
B) minimizingrisk.
D) minimizingreturn.

117) Corporateownersreceivearealizablereturnthrough
A) increaseinsharepriceandcashdividends.
B) profitandearningspershare.
C) increaseinsharepriceandearningspershare.
D) earningspershareandcashdividends.

117)

118) TheroleofBoardofDirectorsisto
A) ensurethatmanagerscompensationisprotectedevenwhenthecompanyperformspoorly
B) monitor management on behalf of shareholders
C) followthedirectionsoftheChiefExecutiveOfficer(CEO)ofthecompany
D) representtheinterestsofmanagementtotheshareholders

118)

119) Thewealthoftheownersofacorporationisrepresentedby
A) shareprice.
B) earningspershare.
C) cashflow.
D) profits.

119)

120) Wealthmaximizationasthegoalofthefirmimpliesenhancingthewealthof
A) thefirmsemployees.
B) thefirmsstockholders.
C) thefederalgovernment.
D) theBoardofDirectors.

120)

121) IfacompanysmanagersareNOTownersofthecompany,theyare
A) agents.
B) dealers.
C) brokers.

121)
D) outsiders.

122) Theconflictbetweenthegoalsofafirmsownersandthegoalsofitsnonownermanagersis
A) theagencyproblem.
B) oflittleimportanceinmostlargeU.S.firms.
C) incompatibility.
D) seriousonlywhenprofitsdecline.

122)

123) TheagencyproblemmayresultfromamanagersconcernsaboutanyofthefollowingEXCEPT
A) corporategoals.
B) jobsecurity.
C) company-providedperquisites.
D) personalwealth.

123)

10

124) AgencycostsincludeallofthefollowingEXCEPT
A) costofgoodssold.
C) opportunitycosts.

124)
B) monitoringexpenditures.
D) bondingandstructuringexpenses.

125) AgencycostsincludeallofthefollowingEXCEPT
A) purchasinginsuranceagainstmanagementmisconduct.
B) thecostofmonitoringmanagementbehavior.
C) managementreportstostockholders.
D) performanceincentivespaidtomanagers.

125)

126) Onewayoftenusedtoinsurethatmanagementdecisionsareinthebestinterestofthestockholders
isto
A) tiemanagementcompensationtothelevelofearningspershare.
B) tiemanagementcompensationtotheperformanceofthecompanyscommonstockprice.
C) removemanagementsperquisites.
D) threatentofiremanagerswhoareseenasnotperformingadequately.

126)

127) Theamountearnedduringtheaccountingperiodoneachoutstandingshareofcommonstockis
called
A) earningspershare.
B) acommonstockdividend.
C) netprofitsaftertaxes.
D) netincome.

127)

128) Thegoalofprofitmaximizationwouldresultinpriorityfor
A) riskoftheinvestment.
B) timingofthereturns.
C) earningspershare.
D) cashflowsavailabletostockholders.

128)

129) ProfitmaximizationdoesNOTtakeintoconsideration
A) cashflowandstockprice.
B) riskandcashflow.
C) riskandeps.
D) epsandstockprice.

129)

130) ProfitmaximizationasthegoalofthefirmisNOTidealbecause
A) profitstodayarelessdesirablethanprofitsearnedinfutureyears.
B) profitmaximizationdoesnotconsiderrisk.
C) cashflowsaremorerepresentativeoffinancialstrength.
D) profitsareonlyaccountingmeasures.

130)

131) ProfitmaximizationfailsbecauseitignoresallEXCEPT
A) cashflowsavailabletostockholders.
B) thetimingofreturns.
C) earningspershare.
D) risk.

131)

132) Thekeyvariablesintheownerwealthmaximizationprocessare
A) profitsandrisk.
B) earningspershareandshareprice.
C) earningspershareandrisk.
D) cashflowsandrisk.

132)

133) Returnandriskarethekeydeterminantsinshareprice.Increasedreturnresultsin________,other
thingsremainingthesame.
A) ahighershareprice
B) alowershareprice
C) anunchangedshareprice
D) anundeterminedshareprice

133)

11

134) Returnandriskarethekeydeterminantsinshareprice.Increasedrisk,otherthingsremainingthe
same,resultsin
A) anundeterminedshareprice.
B) anunchangedshareprice.
C) alowershareprice.
D) ahighershareprice.

134)

135) Financialmanagersevaluatingdecisionalternativesorpotentialactionsmustconsider
A) risk,return,andtheimpactonshareprice.
B) onlyrisk.
C) onlyreturn.
D) bothriskandreturn.

135)

136) Anethicsprogramisexpectedtohave________impactonthefirmsshareprice.
A) undetermined
B) no
C) negative
D) positive

136)

137) Thedifferencebetweenthecostoffundsusedtofinanceaninvestmentanditsafter-taxoperating
profitsiscalled
A) earningspershare.
B) retainedearnings.
C) adividend.
D) economicvalueadded.

137)

138) Returnandrisk
A) haveaninverseeffectonshareprice.
C) adverselyaffectshareprice.

138)
B) havethesameeffectonshareprice.
D) havenoeffectonshareprice.

139) Astheriskofastockinvestmentincreases,
A) requiredrateofreturnwilldecrease.
C) returnwillincrease.

B) returnwilldecrease.
D) requiredrateofreturnwillincrease.

139)

140) Amorerecentissuethatiscausingmajorproblemsinthebusinesscommunityis
A) short-termversuslong-termfinancialgoalsofmanagement.
B) theprivatizationofownership.
C) ethicalproblems.
D) environmentalconcerns.

140)

141) Onekeyoutputofthefinancialforecastingprocessare:
A) thepastfinancialstatements
B) theforecastedfinancialstatements
C) thecurrentfinancialstatements
D) theamountoffundsthecompanyrequiredtooperateoverthepastfiscalperiod

141)

142) Allofthefollowingaremeasuresthatcanbeusedasaguideforestablishingacorporateethics
policy,EXCEPT
A) aneffectiveinternalcontrolsystem.
B) aneffectiveinternalauditsystem.
C) makingsureviolationsarepenalized,whileatthesametimenotsubjectingtheemployeeto
publicity.
D) makingreferencechecksbeforehiringnewemployees.

142)

12

143) Corporateethicspoliciestypicallyapplyto________indealingwith________.
A) employeeactions;allcorporateconstituents
B) employeeactions;customers,vendors,andregulators
C) employeeactions;customersandcreditors
D) managementactions;allcorporateconstituents

143)

144) Acompanydeterminesitsoverallcostofcapitalby
A) calculatingtheaveragecostofinterestratespaidonloansandotherdebtinstruments
B) multiplyingthepercentageofdebtinthecapitalstructurebythepercentageofequity
C) multiplyingthepercentageofdebtbyitscostandaddingtheresulttothepercentageof
equitymultipliedbyitscost
D) calculatingthepercentofearningspaidoutindividends

144)

145) Afinancialmanagermustchoosebetweenfouralternativeinvestments,1,2,3,and4.Eachasset
costs$35,000andisexpectedtoprovideearningsoverathree-yearperiodasdescribedbelow.

145)

Asset
1
2
3
4

Year1
$21,000
9,000
3,000
6,000

Year2
$15,000
15,000
20,000
12,000

Year3
$6,000
21,000
19,000
12,000

Basedontheprofitmaximizationgoal,thefinancialmanagerwouldchoose
A) Asset1.
B) Asset2.
C) Asset3.

D) Asset4.

146) Afinancialmanagermustchoosebetweenfouralternativeinvestments,1,2,3,and4.Eachassetis
expectedtoprovideearningsoverathree-yearperiodasdescribedbelow.
Asset
1
2
3
4

Year1
$21,000
9,000
3,000
6,000

Year2
$15,000
15,000
18,000
12,000

Year3
$9,000
21,000
19,000
12,000

Basedontheprofitmaximizationgoal,thefinancialmanagerwouldchoose
A) Asset1.
B) Asset2.
C) Asset3.

13

D) Asset4.

146)

147) Afinancialmanagermustchoosebetweenthreealternativeinvestments.Eachassetisexpectedto
provideearningsoverathree-yearperiodasdescribedbelow.Basedonthewealthmaximization
goal,thefinancialmanagerwould
Year
1
2
3

Asset1
$21,000
15,000
9,000

$46,000

Asset2
$9,000
15,000
18,000

$41,000

147)

Asset3
$8,000
21,000
17,000

$46,000

A) chooseAsset1.
B) chooseAsset2.
C) chooseAsset3.
D) beindifferentbetweenAsset1andAsset2.
148) Arecentethicssurveyindicatedtheopinionthatmaintaininghighethicalstandards
A) weakenedafirmscompetitiveposition,particularlyinforeignmarkets.
B) hadnoeffectonafirmscompetitiveposition.
C) wasdifficulttoenforce.
D) strengthenedafirmscompetitiveposition.

148)

149) PCExpressisevaluatingthepurchaseofanewmachinethatwillcost$300000.Thecompany
boughttheexistingmachinefor$200000fiveyearsagoandcansellittodayfor$50000.Whatis
themarginalcostofbuyingthenewmachine?
A) $100000
B) $250000
C) $300000
D) $50000

149)

150) BaysideEquipmentisconsideringbuyingnewequipment.Theexistingmachineproduces10000
unitsadayatacostof$2perunit.Thenewmachinewillproduce15000atacostof$1.50aunit.
BAysidesellseachunitfor$4.Whatisthemarginalbenefitofthenewmachine
A) $20000
B) $7500
C) $38500
D) $22500

150)

151) Theimplementationofapro-activeethicsprogramisexpectedtoresultin
A) anincreasedsharepriceresultingfromadecreaseinrisk,butisnotexpectedtoaffectcash
flows.
B) apositivecorporateimageandincreasedrespect,butisnotexpectedtoaffectshareprice.
C) apositivecorporateimageandincreasedrespect,areductioninrisk,andenhancedcashflow
resultinginanincreaseinshareprice.
D) apositivecorporateimageandincreasedrespect,butisnotexpectedtoaffectcashflows.

151)

152) Amongsolutionstotheagencyprobleminpubliclyheldcorporationsareallofthefollowing
EXCEPT
A) bonusesbasedonshort-termresults.
B) cashbonusestiedtogoalachievement.
C) performanceshares.
D) stockoptions.

152)

153) EmergingtrendsresultingfromtheagencyproblemareallofthefollowingEXCEPT
A) restructuringthroughleveragedbuyouts.
B) managementbyactiveinvestors.
C) prohibitingmanagersfrommaintaininganownershipinterest.
D) largeprivatecorporations.

153)

14

154) BenefitstoincorporatingasmallbusinesswithoneownerincludeallofthefollowingEXCEPT
A) thesmallbusinesstaxcreditonincomebelow$200,000.
B) theabilitytoraisecapitalthroughpublicofferings.
C) theabilitytolimitliabilitytotheamountinvestedinthecompany.
D) the$500,000capitalgainsexemptionforqualifiedsmallbusinessshares.

154)

155) Whenenteringintoapartnershipwithabusinessassociate,itisstronglyrecommendedthat
A) bothpartnerscontributeanequalamountofmoneyandlabor.
B) apartnershipagreementbedraftedoutliningroles,responsibilities,andprofitsharing.
C) bothpartnerscontributeanequalamountoflabor.
D) bothpartnerscontributeanequalamountofmoney.

155)

156) Asasoleproprietor,youareresponsiblefor
A) maintainingfinancialrecordsandreportingtothegovernment.
B) theday-to-daymanagementofthebusinessincludingcustomerservice.
C) marketingthebusinesstothetargetmarket.
D) alloftheabove.

156)

157) Generally,theTreasurerofalargecorporationreportstothe
A) ChiefExecutiveOfficer.
B) GeneralManager.
C) CreditManager.
D) ChiefFinancialOfficer.

157)

158) A&BWholesalerssells1,000widgetsperdayat$1each.A&Bhasintroducedanewproducttoits
mixcalledthewiggle.ItisestimatedthatA&Bwillsell400wigglesperdayat$2each;however,
thesalesofthewidgetswilldecreaseby200unitsperday.Thefirmsmarginalchangeinrevenues
fromadoptingthewiggleis
A) $1,600.
B) $800.
C) $600.
D) $1,800.

158)

159) Whendeterminingafirmslevelofnetincome,accountantsuse
A) cashflows.
B) accrualbasedamounts.
C) staticbasedamounts.
D) theactualdollarscominginandgoingout.

159)

160) CanadasindustryministerrecentlytravelledtoJapanonbusinessandtookhiswifeandthree
children.Theministerpaidforhiswifeandchildrenscostsoutofhisownpocket.Theminister
A) appearstohavedonenothingwronginthefulfillmentofhisdutiestothecrown.
B) hascreatedanagencyproblembytakinghisfamilywhentravellingongovernmentbusiness.
C) hasfailedinhisfiduciaryresponsibilitytothepublicandshouldstepdown.
D) hascreatedanagencycostbychargingthefamilyscoststohispersonalaccount.

160)

161) For$200,000youcanbuyabusinessthathassteadycashflowsandlowrisk.Giventhesecash
flowsandlevelofrisk,youestimatethebusinesswillearnareturninexcessofitsopportunitycost
ofmoney.Thebusiness
A) appearstobealosingpropositionbutshouldbeboughtanyway.
B) appearstobealosingpropositionandshouldnotbebought.
C) lookslikeabreak-evenopportunityandshouldberejected.
D) appearseconomicallyprofitable,andstrongconsiderationshouldbegiventobuyingit.

161)

15

162) Whenafirmisunder-managed,
A) themarketforceswillbeunabletoidentifythis,andthefirmssharepricewillremainstrong.
B) nobodycandonothingsincemanagementcontrolsthecorporation.
C) generallythereisnothingshareholderscando.
D) marketforcesexposethisweaknessandallowforcorrectiveactiontobetaken.

162)

163) Acorporation
A) isalegalentity,separateanddistinctfromitsowners.
B) cansueandbesued,andcanenterintocontracts.
C) canborrowmoneyandownproperty.
D) alloftheabovearetrue

163)

164) Whichofthefollowingwouldbeconsideredanagencycost?
A) costofanannualauditrequiredbybondholders
B) costofdividendspaidtoshareholders
C) costofwagespaidtofactoryworkers
D) costofinterestpaidtobondholders

164)

165) Whichofthefollowingrisk-returnstatementsistrue?
A) inordertoincreasethereturnexpectedfromanykindofinvestment,wemustincreaseour
exposuretorisk
B) aninvestmentinaGovernmentofCanadabondismoreriskythananinvestmentina
publiclytradedcompany,suchasNortelNetworks
C) rationalinvestorsrequirealowerreturnforexposingthemselvestorisk
D) alloftheabovearetrue

165)

166) Inacorporation,ethicaldecisionsoccuratalllevelswithinthehierarchy.Ifyouwereanethics
consultant,whichethicalbehaviorwouldconcernyouthemost?
A) aninvestmentadvisortellshisclientthatacompanynearbankruptcyhasexcellentgrowth
prospectsinordertogethissalescommission
B) astrawberrygrowerspraysalegalizedchemicalonitsberriestohelpthemturnredquicker
C) afood-wholesalerscashierroundsallweightsdownwhencalculatingthecostoffruitsand
vegetablesforcustomers
D) amedicalresearchcompanytestscancerdrugsonmice

166)

167) Whichofthefollowingisaninvestingdecision?
A) thedecisiononhowmuchcashtokeeponhandforprecautionarypurposes
B) thedecisiononhowtopriceanewissueofpreferredstock
C) thedecisionofhowmanyemployeestoutilizeovertheslowdownseason
D) thedecisiononwhichtechnologytoadoptforthefirmsproductionneeds

167)

168) Financialanalystsstudy________whileaccountantspreparefinancialstatementsusing________
accountingtechniques.
A) cashflows;forecasted
B) cashflows;accrual
C) accrual;cashflows
D) accrual;forecasted

168)

169) HardwoodFurnitureLimitedsold$1,225,000worthoftables,chairsandotherfurniturelastyear.
Duringthattimeperiod,thecompanycollected$975,755forthoseitemsandpaid$407,844forthe
materialsusedinproducingthefurnituretheysold.WhatwasHardwoodsnetcashflowforlast
year?
A) $817,156
B) $567,911
C) $975,755
D) $1,225,000

169)

16

170) HardwoodFurnitureLimitedsold$1,225,000worthoftables,chairsandotherfurniturelastyear.
Duringthattimeperiod,thecompanycollected$975,755forthoseitemsandpaid$407,844forthe
materialsusedinproducingthefurnituretheysold.WhatwasHardwoodsnetprofitforlastyear?
A) $817,156
B) $1,225,000
C) $567,911
D) $975,755

170)

171) SigHansenrunsaskiresortinBritishColumbia.Heisconsideringreplacingtheskiliftsatthe
resort.Hiscalculationssuggestthatifhedoes,theeconomicbenefitsfromtheupgradedski-lift
operationswilltotal$959,000overthenextsixyears.Theskiliftshealreadyhasareprojectedto
generate$444,000ineconomicbenefitsoverthenextsixyears.Thenewskiliftswouldrequirean
initialcashinvestmentof$385,000andSigestimateshecansellhisexistingskiliftequipmentfor
$170,000.Basedontheseestimates,whatisSigsmarginalbenefitfromreplacingtheskilifts?
A) $959,000
B) $345,000
C) $574,000
D) $515,000

171)

172) SigHansenrunsaskiresortinBritishColumbia.Heisconsideringreplacingtheskiliftsatthe
resort.Hiscalculationssuggestthatifhedoes,theeconomicbenefitsfromtheupgradedski-lift
operationswilltotal$959,000overthenextsixyears.Theskiliftshealreadyhasareprojectedto
generate$444,000ineconomicbenefitsoverthenextsixyears.Thenewskiliftswouldrequirean
initialcashinvestmentof$385,000andSigestimateshecansellhisexistingskiliftequipmentfor
$170,000.Basedontheseestimates,whatisSigsmarginalcostfromreplacingtheskilifts?
A) $385,000
B) $574,000
C) $515,000
D) $215,000

172)

ESSAY.Writeyouranswerinthespaceprovidedoronaseparatesheetofpaper.
173) Givetwoexamplesofwhynetincomeandcashflowdonotequal.
174) Namefourapproachestocorporategovernancethatshareholdersrelyupontoensuremanagersdonotactin
theirownself-interestattheexpenseofinvestors.Brieflyexplaineach.
175) Theintroductionofamid-sizedsedanhasincreasedsalesoftheluxurymodelby2,000unitsanddecreased
salesoftheeconomymodelby1,000units.Itisexpectedthatsalesofthemid-sizedsedanwillbe10,000units
at$30,000each.Thesalespriceoftheluxurymodelis$40,000andtheeconomymodelis$20,000.Calculatethe
marginalchangeinrevenuesduetotheintroductionofthemid-sizedsedan.
176) Lastyear,afirmhadsalesrevenueof$1,000,000andnetincomeaftertaxesof$400,000.Theaccountsreceivable
accountincreasedduringtheyearfrom$250,000to$350,000andtheaccountspayableaccountdecreasedfrom
$200,000to$150,000.Therewerenodepreciationchargesorchangesinothercurrentaccounts.Calculatethe
cashflowfromoperationsforthefirm.
177) TheBoardofDirectorsofBlownGlassLtdhaverequestedaneconomicvalueadded(EVA)forthemostrecent
fiscalyear.ThetotalamountofcapitalBlownGlasshasinvestedinthebusinessis$2000000.BlownGlasscost
ofcapitalis12percent..Duringtheyear,thecompanysbefore-taxoperatingprofitswere$150000.Thefirms
taxrateis32percent.Howhasthecompanydoneintermsofcreatingvalueforthecompanysshareholder?
Commentontheimplicationsofyourfindings.

17

AnswerKey
Testname:UNTITLED1

1) FALSE
2) TRUE
3) FALSE
4) TRUE
5) TRUE
6) FALSE
7) FALSE
8) FALSE
9) FALSE
10) FALSE
11) FALSE
12) TRUE
13) TRUE
14) FALSE
15) FALSE
16) TRUE
17) TRUE
18) TRUE
19) FALSE
20) FALSE
21) TRUE
22) FALSE
23) FALSE
24) FALSE
25) TRUE
26) TRUE
27) FALSE
28) TRUE
29) TRUE
30) FALSE
31) FALSE
32) FALSE
33) TRUE
34) TRUE
35) FALSE
36) TRUE
37) TRUE
38) TRUE
39) TRUE
40) TRUE
41) TRUE
42) TRUE
43) FALSE
44) FALSE
45) TRUE
46) TRUE
47) FALSE
48) FALSE
49) TRUE
50) TRUE
18

AnswerKey
Testname:UNTITLED1

51) FALSE
52) TRUE
53) TRUE
54) FALSE
55) TRUE
56) TRUE
57) TRUE
58) FALSE
59) TRUE
60) TRUE
61) FALSE
62) A
63) A
64) D
65) A
66) B
67) A
68) A
69) A
70) B
71) D
72) B
73) D
74) B
75) B
76) C
77) B
78) C
79) C
80) C
81) A
82) B
83) D
84) B
85) C
86) D
87) A
88) A
89) A
90) D
91) D
92) C
93) D
94) D
95) D
96) A
97) A
98) B
99) B
100) B
19

AnswerKey
Testname:UNTITLED1

101)
102)
103)
104)
105)
106)
107)
108)
109)
110)
111)
112)
113)
114)
115)
116)
117)
118)
119)
120)
121)
122)
123)
124)
125)
126)
127)
128)
129)
130)
131)
132)
133)
134)
135)
136)
137)
138)
139)
140)
141)
142)
143)
144)
145)
146)
147)
148)
149)
150)

C
C
A
C
D
B
A
B
B
B
C
B
A
B
A
A
A
B
A
B
A
A
A
A
C
B
A
C
B
B
C
D
A
C
A
D
D
A
D
C
B
C
A
C
B
A
A
D
B
C
20

AnswerKey
Testname:UNTITLED1

151)
152)
153)
154)
155)
156)
157)
158)
159)
160)
161)
162)
163)
164)
165)
166)
167)
168)
169)
170)
171)
172)
173)

C
A
C
B
B
D
D
C
B
A
D
D
D
A
A
A
D
B
B
A
D
D
Twoof:
1.Salesmadetocustomersoncredit.
2.Materialspurchasedbutnotyetpaidfor.
3.Depreciationchargesforcapitalassets.
174) First,shareholderselectaBoardofDirectorstorepresenttheirinteresttoseniormanagement,anddirectlymonitor
management.Theboardisthenresponsibletoensurethattheseniormanagersactintheownersbestinterests.
Second,managersaremonitoredandmaybebonded.Monitoringexpendituresincludeauditandcontrolprocedures.
Bondingexpendituresprotectagainstthepotentialconsequencesofout-righttheftanddishonestactsbymanagers.
Third,makingmanagersownersmayaligntheirintereststotheowners.Structuringexpendituresusemanagerial
compensationplanstoprovidefinancialincentivesformanagerialactionsconsistentwithsharepricemaximization.
Structuringexpendituresarecurrentlythemostpopularwaytodealwiththeagencyproblemandalsothemost
powerfulandexpensive.Itisunclearwhethertheseexpendituresareeffectiveinpractice.Four,marketforcesinclude
shareholdervotingonmanagementsperformancethroughthemarketpriceofthecommonshares,institutional
shareholdersorotherownersoflargevotingblocksofsharesactingtodisciplinemanagement,andtakeovers.For
example,shareholderactivismfromlargeinstitutionalinvestorscanreduceoravoidtheagencyproblembecause
thesegroupscanusetheirvotingpowertoelectnewdirectorswhosupporttheirobjectivesandwillacttoreplace
poorlyperformingmanagers.Inthisway,thesegroupsplacepressureonmanagementtotakeactionsthatmaximize
shareholderwealth.
175) Changeinrevenues=10,00030,000+2,000 40,000- 1,000 20,000= $360,000
176) OCF=400,000+(250,000-350,000)-(200,000- 150,000)= $250,000

21

AnswerKey
Testname:UNTITLED1

177) EVA=After-taxoperatingprofits-(fundsinvested costofthefunds)

=(150000x(1-.32)-(2000000x12%)}
=-138000
Thecompanyhasbeendoingpoorlyintermsofcreatingvalueforthecompanysshareholders.ThecompanysEVAis
anegative$138000,whichmeansithasgeneratedareturnthatislessthantheminimumrequiredrateofreturn.

22