FIN 3301 Practice # 1 – Chapter 1 & 2 – AK Friday, September 17, 2010 True or False statements 1- The separation of ownership and management is one distinctive feature of corporations. TRUE 2- A major disadvantage of partnerships is that they have "double taxation" of profits. FALSE 3- Capital budgeting decisions are used to determine how to raise the cash necessary for investments. FALSE 4- Financial assets have value because they are claims on the firm's real assets and the cash that those assets will produce. TRUE 5- Boards of directors are often portrayed as active supporters of top management. FALSE 6- Maximizing profits is the same as maximizing the value of the firm. FALSE 7- Major banks and securities firms protect their reputations by emphasizing their long history and their responsible behavior when seeking new customers. TRUE 8- Making good investment and financing decisions is the chief task of the financial manager. TRUE 9- While control of large public companies in the United States is exercised through the board of directors and pressure from the stock market, in many other countries the stock market is less important and control shifts to major stockholders, typically banks and other companies. TRUE
10- Insider trading is the purchase or sale of shares based on information that is not available to public investors, and such behavior is accepted by the CDVM. FALSE 11- The reinvestment of cash back into the firm's operations is an example of a flow of savings to investment. TRUE 12- Previously issued securities are traded among investors in the secondary markets. TRUE 13- Financial markets are also called equity markets. FALSE 14- The derivative market is also a source of financing. FALSE 15- For corporate bonds, the higher the credit quality of an issuer, the higher the interest rate. FALSE 16- The cost of capital is the interest rate paid on a loan from a bank or some other financial institution. FALSE
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