Deck 1: Introduction

Question 1

The shareholders of a corporation have unlimited liability.

Answer 1

False

Question 2

The three factors that determine the value of future dividends are

A)size, timing, and risk.
B)type, size, and cost.
C)size, risk, and return.
D)timing, risk, and location.

Answer 2

A

Question 3

Financial management cannot be related to other functional areas of management such as marketing.

Answer 3

False

Question 4

Which of the following is the difficulty in forming a Subchapter S Corporation?

A)The owners cannot be residents of the United States.
B)There can be no more than 75 owners.
C)The stock must have a very low par value.
D)The company must promise to pay dividends quarterly.

Question 5

Preferred stock is a security that has the features of both debt and equity.

Question 6

The three major decisions of financial management involve

A)investing, financing, and payment of dividends.
B)investing, reporting, and financing.
C)financing, diversifying, and payment of dividends.
D)investing, classifying, and financing.

Question 7

If you wanted to take actions to maximize value for the owners, which of the following actions would be the most effective?

A)raising prices
B)maximizing revenue
C)cutting costs such as advertising and training
D)none of the above

Question 8

Shirking is considered an agency problem.

Question 9

A good example of an agency relationship in a hotel is the relationship between a bartender and a server.

Question 10

Which of the following makes preferred stock different from common stock?

A)Common stockholders receive dividends.
B)Common stockholders get paid after the bondholders.
C)Common stockholders can vote for the board of directors.
D)Dividends to common stockholders are tax deductible.

Question 11

The most common form of business organization in the United States is the sole proprietorship.

Question 12

Maximizing revenue will always maximize the wealth of the owners.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Question 13

Which of the following is the disadvantage of the corporate form of organization?

A)difficulty in raising capital
B)unlimited liability of the owners
C)finite life of the organization
D)the tax treatment of dividends

Question 14

The goal of hospitality financial management is to maximize the wealth of the owners.

Question 15

The three major decisions in financial management involve investing, financing, and the payment of dividends.

Question 16

Value is created if a project's

A)incremental costs exceed incremental benefits.
B)incremental costs equal incremental benefits.
C)incremental benefits exceed incremental costs.
D)none of the above.

Question 17

The earnings of a firm are not equivalent to its cash flows.

Question 18

Financial management is the process of classifying financial information.

Question 19

The value of dividends is not affected by the date they are received.

Question 20

The goal of wealth maximization for the owners makes sense for the firm because

A)the owners always know what is best for themselves.
B)the lenders really don't have the right to make decisions.
C)the owners will fire all the employees otherwise.
D)if we have satisfied the owners, we have satisfied all other parties as well.

Question 21

Agency problems arise because

A)some people just don't get along.
B)the principal is shirking from her responsibility.
C)people usually act in their own best interest.
D)you can never make much money working for someone else.

Question 22

A value-creating innovation of Marriott was

A)having restaurants in their hotels.
B)guest rewards program.
C)hotel swimming pools.
D)exercise rooms.

Question 23

The best example of an agency problem is

A)an argument between two managers about a late check-out.
B)lenders disagreeing with hotel owners about dividend payments.
C)two employees disagreeing about proper table service.
D)the maintenance manager arguing with the housekeeping manager about an out-of-order room.

Question 24

The best way to address agency problems is

A)always hire your friends.
B)design the initial contract properly with appropriate incentives.
C)hire an attorney and threaten the agent with a lawsuit.
D)have the principal and agent go through arbitration.

Question 25

A value-creating innovation of Holiday Inns was

A)the unique green and yellow color scheme.
B)exterior corridor properties.
C)a "cash-only" payment policy.
D)a national reservation system.

Question 26

Which of the following is the best description of how McDonald's created value for their owners in the breakfast market?

A)They generated additional revenues without increasing fixed costs.
B)They invented the Egg McMuffin.
C)They saved money by using the drive-through window.
D)The employees wear headsets so they can communicate to each other directly.

Question 27

You are the owner of a Comfort Inn and would like to hire a new general manager. In terms of preventing possible agency problems, what should you include in your offer?

A)a very high fixed salary
B)a fancy office with a private secretary
C)a 37-hour workweek
D)profit sharing