Deck 1: The Role of Managerial Finance

Question 1

Managerial finance is concerned with design and delivery of advice and financial products to individuals, businesses, and governments.

Answer 1

False

Question 2

________ is concerned with design and delivery of advice and financial products to individuals, businesses, and governments.

A) Managerial finance
B) Auditing services
C) Financial services
D) Cost accounting

Answer 2

Financial services

Question 3

In large companies, CEOs are legally responsible for coordinating the assets and liabilities of the employees' pension fund.

Answer 3

False

Question 4

In partnerships, owners have unlimited liability and may have to cover debts of other less financially sound partners.

Question 5

A capital expenditures analyst/manager is responsible for the evaluation and recommendation of proposed asset investments.

Question 6

A ________ is responsible for evaluating and recommending proposed long-term investments.

A) financial analyst
B) credit manager
C) pension fund manager
D) capital expenditures manager

Question 7

Financial managers perform different tasks developing a financial plan or budget, extending credit to customers, evaluating proposed large expenditures, and raising money to fund a firm's operations.

Question 8

Managerial finance ________.

A) involves tasks such as budgeting, financial forecasting, cash management, and funds procurement
B) involves the design and delivery of advice and financial products
C) recognizes funds on an accrual basis
D) devotes the majority of its attention to the collection and presentation of financial data

Question 9

Which of the following is a duty of a financial manager in a business firm?

A) developing marketing plans
B) controlling the stock price
C) raising financial resources
D) auditing financial records

Question 10

A controller typically handles the accounting activities, such as tax management, data processing, financial accounting, and cost accounting.

Question 11

A sole proprietor has unlimited liability; his or her total investment in the business, but not his or her personal assets, can be taken to satisfy creditors.

Question 12

Which of the following is an area of career opportunities in managerial finance?

A) investment
B) real estate and insurance
C) capital expenditures management
D) personal financial planning

Question 13

A controller administers a firm's credit policy by analyzing or managing the evaluation of credit applications, extending credit, and monitoring and collecting accounts receivable.

Question 14

In a limited partnership, all partners' liabilities are limited to their investment in the partnership.

Question 15

Finance is concerned with the process institutions, markets, and instruments involved in the transfer of money among and between individuals, businesses, and government.

Question 16

A financial analyst is responsible for maintaining and controlling a firm's daily cash balances.

Question 17

Which of the following is an area of career opportunities in financial services?

A) supply chain management
B) personal financial planning
C) auditing of financial statements
D) production planning

Question 18

Finance is ________.

A) the system of verifying, analyzing, and recording business transactions
B) the science of the production, distribution, and consumption of goods and services
C) the art and science of managing money
D) the art of merchandising products and services

Question 19

Financial managers administer the financial affairs of all types of businesses such as private and public, large and small, and profit seeking and not for profit.

Question 20

In partnerships, partners can readily transfer their wealth to other partners.

Question 21

High net cash flow with fixed risk is generally associated with a higher share price.

Question 22

The profit maximization goal ignores the timing of returns, does not directly consider cash flows, and ignores risk.

Question 23

A treasurer is responsible for the firm's accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting.

Question 24

Which of the following is the purest and most basic form of corporate ownership?

A) bond
B) notes
C) common stock
D) preferred stock

Question 25

Dividend payments change directly with changes in earnings per share.

Question 26

Which of the following forms of organizations is the easiest to form?

A) sole proprietorships
B) limited liability corporation
C) limited partnership
D) S-corporations

Question 27

Which of the following is a strength of a corporation?

A) low taxes
B) limited liability
C) low organization costs
D) less government regulation

Question 28

A major weakness of a partnership is ________.

A) the difficulty in maintaining owners' control
B) the difficulty in liquidating or transferring ownership
C) the double taxation of income
D) its high organizational costs

Question 29

When considering a firm's financial decision alternative, financial managers should accept only those actions that are expected to maximize shareholder value.

Question 30

Which of the following legal forms of organizations is characterized by unlimited liability?

A) sole proprietorship
B) limited partnership
C) corporation
D) C-corporation

Question 31

Which of the following is true of a partnership and a corporation?

A) In a corporation, income is taxed at the corporate level; whereas, in a partnership, income is taxed twice.
B) In a partnership, income is taxed at the corporate level; whereas, in a corporation, income is taxed twice.
C) Income from both forms of organizations are double-taxed.
D) In a partnership, income is exempted from tax up to $10 million; whereas, in a corporation, income is taxed twice.

Question 32

A higher earnings per share (EPS) does not necessarily translate into a higher stock price.

Question 33

Risk, the magnitude and timing of cash flows are the key determinants of share price, which represent the wealth of the owners in the firm.

Question 34

The wealth of corporate owners is measured by the share price of the stock.

Question 35

Which of the following is true of sole proprietorships and corporations?

A) It is difficult to transfer ownership of corporations compared to that of sole proprietorships.
B) Income from both forms of organizations are taxed only at the corporate level.
C) Both sole proprietorships and corporations are equally scrutinized and regulated by government bodies.
D) In sole proprietorships, owners have unlimited liability; whereas, in corporations, owners have limited liability.

Question 36

When considering a firm's financial decision alternative, financial managers should accept only those actions that are expected to increase the firm's profitability.

Question 37

Which of the following legal forms of organization has the ease of dissolution?

A) sole proprietorships
B) partnerships
C) limited partnerships
D) corporations

Question 38

Which of the following legal forms of organization is most expensive to organize?

A) sole proprietorships
B) partnerships
C) corporations
D) limited partnership

Question 39

To achieve the goal of profit maximization for each alternative being considered, a financial manager would select the one that is expected to result in the highest return.

Question 40

Under which of the following legal forms of organization is ownership readily transferable?

A) sole proprietorships
B) partnerships
C) limited partnerships
D) corporations

Question 41

Wealth maximization as the goal of a firm implies enhancing the wealth of ________.

A) the auditors
B) the creditors
C) the federal reserve
D) the firm's stockholders

Question 42

Profit maximization as a goal is ideal because it directly considers ________.

A) risk and book value of assets
B) timing and cash flow
C) timing and risk
D) EPS and stock price.

Question 43

The wealth of the owners of a corporation is represented by ________.

A) profits
B) earnings per share
C) share value
D) cash flow

Question 44

An ethics program is expected to have ________ impact on a firm's share price.

A) a positive
B) a negative
C) no impact
D) an unpredictable

Question 45

The primary goal of a financial manager is ________.

A) minimizing risk
B) maximizing profit
C) maximizing wealth
D) minimizing return

Question 46

The amount earned during the accounting period on each outstanding share of common stock is called ________.

A) dividend per share
B) earnings per share
C) net profits after taxes
D) book value per share

Question 47

Which of the following is true of cash flows and risk?

A) Low cash flow and low risk result in an increase in share price.
B) High cash flow and low risk result in an increase in share price.
C) High cash flow and high risk result in an increase in share price.
D) Lo cash flow and high risk result in an increase in share price.

Question 48

The key variables in the owner wealth maximization process are ________.

A) market risk premium and risk
B) cash flows and risk
C) risk-free rate and share price
D) total assets and risk

Question 49

If the CEO of a company were to pass away, what do you think would happen to price of the stock?

A) It would decrease because of the perceived increased risk due of lack of near-term leadership.
B) It would increase because of the perceived increased risk due of lack of near-term leadership.
C) It would decrease because of the perceived decreased risk due of lack of near-term leadership.
D) It would increase because of the perceived decreased risk due of lack of near-term leadership.

Question 50

The goal of business ethics is to motivate business and market participants to adhere to both the letter and the spirit of laws and regulations in all aspects of business and professional practice.

Question 51

As the risk of a stock investment increases, investors' ________.

A) return will increase
B) return will decrease
C) required rate of return will decrease
D) required rate of return will increase

Question 52

An increase in a firm's risk will always result in a higher share price since the stockholder must be compensated for the greater risk.

Question 53

Cash flows and risk are the key determinants in share price. Increased cash flow results in ________, other things remaining the same.

A) a lower share price
B) a higher share price
C) an unchanged share price
D) an undetermined share price

Question 54

Stockholders expect to earn higher rates of return on investments with lower risk and lower rates of return on investments with higher risk.

Question 55

Cash flows and risk are the key determinants in share price. Increased risk, other things remaining the same, results in ________.

A) a lower share price
B) a higher share price
C) an unchanged share price
D) an undetermined share price

Question 56

Profit maximization as the goal of the firm is not ideal because ________.

A) profits are only accounting measures
B) cash flows are more representative of financial strength
C) profit maximization does not consider risk
D) profits today are less desirable than profits earned in future years

Question 57

Corporate owners receive return ________.

A) by realizing gains through increases in share price and interest earnings
B) by realizing gains through increases in share price and cash dividends
C) through capital appreciation and retained earnings
D) through interest earnings and earnings per share

Question 58

Financial managers evaluating decision alternatives or potential actions must consider ________.

A) only risk
B) only return
C) either risk or return
D) risk, return, and the impact on share price

Question 59

Which of the following is a measure of profit maximization to shareholders?

A) the timing of returns
B) earnings per share
C) current assets
D) market risk premium

Question 60

Which of the following is the best measure of profit maximization goal?

A) retained earnings
B) risk of the investment
C) earnings per share
D) timing of the returns

Question 61

Which of the following is true of stakeholders?

A) They are the owners of a firm.
B) They are groups to whom a firm has financial obligations.
C) They are groups having a direct economic link to a firm.
D) They include only the bondholders, common stockholders, and preferred stockholders.

Question 62

Which of the following is an example of a firm's stakeholder?

A) suppliers
B) Federal reserve
C) media
D) competitors

Question 63

A corporate treasurer typically handles both the cost accounting and financial accounting.

Question 64

Marginal cost-benefit analysis states that financial decisions should be made and actions should be taken only when the added benefits exceed the added costs.

Question 65

Which of the following is one of the positive benefits of an effective ethics program?

A) reduce potential litigation and judgment costs
B) maintain and build competitor confidence
C) gain the loyalty, commitment, and respect of the firm's competitors
D) making sure violations are penalized, while at the same time not subjecting the employee to publicity

Question 66

A financial manager must choose between three alternative investments. Each asset is expected to provide earnings over a three-year period as described below. Based on the wealth maximization goal, the financial manager would ________.

A) choose Asset 1
B) choose Asset 2
C) choose Asset 3
D) be indifferent between Asset 1 and Asset 2

Question 67

The implementation of a pro-active ethics program is expected to result in ________.

A) a positive corporate image and increased respect, but is not expected to affect cash flows
B) an increased share price resulting from a decrease in risk, but is not expected to affect cash flows
C) a positive corporate image and increased respect, but is not expected to affect share price
D) a positive corporate image and increased respect, a reduction in risk, and enhanced cash flow resulting in an increase in share price

Question 68

A corporate treasurer's focus tends to be more external, while the controller's focus is more internal.

Question 69

Using certain standardized and generally accepted principles, an accountant prepares financial statements that recognize revenue at the point of sale and expenses when incurred.

Question 70

The financial manager must look beyond financial statements to obtain insight into developing or existing problems since the accrual accounting data do not fully describe the circumstances of a firm.

Question 71

An effective ethics program ________.

A) can weaken corporate value
B) has no effect on a corporation's value
C) can enhance a corporation's value
D) will result in high employee attrition rate

Question 72

Which of the following is considered as a violation of business ethics?

A) earnings management
B) repurchase of shares
C) using the call option on a callable bond when the interest rate is low
D) paying a high amount of dividends every year

Question 73

A financial manager must choose between four alternative Assets: 1, 2, 3, and 4. Each asset costs $35,000 and is expected to provide earnings over a three-year period as described below. Based on the wealth maximization goal, the financial manager would choose ________.

A) Asset 1
B) Asset 2
C) Asset 3
D) Asset 4

Question 74

The accountant of a firm evaluates financial statements, develops additional data, and makes decisions based on his or her assessment of the associated returns and risks.

Question 75

Which of the following is true of a cash flow?

A) Profits do not necessarily result in cash flows available to the stockholders.
B) It is guaranteed that the board of directors will increase dividends when net cash flows increase.
C) A firm's income statement will never show a positive profit when its cash outflows exceed its cash inflows.
D) An increase in revenue will always result in an increase in cash flow.

Question 76

A corporate controller is an officer responsible for a firm's financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange.

Question 77

Corporate ethics policies typically apply to ________ in dealing with ________.

A) employee actions; customers and creditors
B) employee actions; customers, vendors, and regulators
C) management actions; all corporate constituents
D) employee actions; all corporate constituents

Question 78

The financial manager of a firm prepares financial statements that recognize revenue at the point of sale and expenses when incurred.

Question 79

The accrual method recognizes revenue at the point of sale and recognizes expenses when incurred.

Question 80

The treasurer typically manages a firm's cash, investing surplus funds when available and securing outside financing when needed.