Exam questions OSHINSKI.docx - Exam Name TRUE\/FALSE Write'T if the statement is true and'F if the statement is false 1 The area of investments examines

Exam questions OSHINSKI.docx - Exam Name TRUE/FALSE Write'T...

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Unformatted text preview: Exam Name___________________________________ TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1 The area of investments examines financial transactions from the viewpoint of investors outside the firm. 1) _______ 2 Financial securities are contracts that provide for the exchange of money. 2) _______ 3 The balance sheet identity states that Total Assets equals Liabilities minus Stockholders' Equity. 3) _______ 4 Equity contains a legal obligation to repay borrowed money. 4) _______ 5 The investment-vehicle model of the firm implies that managers should maximize shareholder wealth. 5) _______ 6 In a partnership, a single individual owns all the firm's assets directly and is directly responsible for all its liabilities. 6) _______ 7 Limited liability means you can lose more than what you have paid for your ownership in a firm. 7) _______ 8 Shareholder wealth maximization focuses the profit motive squarely on the owners. 8) _______ 9 Capital markets are markets where financial securities, such as stocks and bonds, are bought and sold. 9) _______ 1 The field of finance is influenced by major economic needs of the time. 10) ______ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1 The decision rule in finance proclaims that you should purchase an asset if it is worth ________. 11) ______ A) more than it can be maximally sold for B) less than it costs C) more than it costs D) all of these 1 There are three primary areas of corporate finance. Which of the below is (are) included among these three areas? 12) B __B___ A) financial markets and intermediaries. B) investments. C) corporate financial management. D) all of these 1 Corporate financial management is best described as focusing on ________. 13) ______ A) maximizing sales B) the asset side of the balance sheet C) how a corporation can create and maintain value D) none of these 1 The investment decision best addresses which of the following questions? 14) ______ A) Should we increase our advertising budget? B) Should we borrow in a foreign currency? C) Should we buy new equipment? D) Should debt be short-term? 1 The financing decision best addresses which of the following questions? 15) ______ A) Should we buy this piece of land? B) Should we increase our inventory? C) Should we issue common stock or convertible debt? D) Should we give employees stock options? 1 The managerial decision best addresses which of the following questions? 16) ______ A) How fast should we grow? B) How should we compensate our managers? C) What size of firm do we want? D) all of these 1 Which of the following forms of ownership are purchased in the capital markets? 17) ______ A) computer equipment B) stocks C) research and development D) bank debt 1 Financial intermediaries purchase financial securities in order to ________. 18) ______ A) give them away B) hold them as investments C) immediately resell them D) none of these 1 Which of the following statements is true? 19) ______ A) Finance is not a science. B) Finance is not an art. C) Finance has fundamental concepts, principles, and theories. D) Finance is the same as accounting. 2 Which of the following statements best describes an asymmetric information problem? 20) ______ A) Executives and customers both know that flip-flops can be made cheaply. B) Every investor who shares in the interest payment of debt also shares in the dividend payment of stock. C) Managers and owners are privy to the same information. D) Insiders know that the market tests are favorable but investors do not. 2 Finance uses models. Which of the following statements about modeling is false? 21) ______ A) Modeling is a method of describing reality. B) Modeling is never useful in predicting outcomes. C) Modeling can be used to specify relationships. D) Both A & C are false. 2 Which of the following statements best describe the difference between finance and accounting? 22) ______ A) Accounting generally has an historical outlook, while finance considers the future. B) Finance wants to know what happened yesterday, while accounting wants to know what happened today. C) Accounting asks questions like "Where do we go from here?", while finance asks questions like, "What do we do now?" D) Accounting focuses on making decisions, while finance tries to determine value. 2 Which of the following statements about a stakeholder is true? 23) ______ A) A stakeholder is someone who does not collect dividend payments. B) A stakeholder is a person who has a legitimate claim on the firm. C) A stakeholder is a person who does not have a claim on the firm's cash flows. D) A stakeholder is any former employee of a company. 2 A primary motive for starting a company is ________. 24) ______ A) to earn money B) to control voting shares C) to get perks D) both A & C 2 A firm's capital structure can consist of ________. 25) ______ A) preferred stock B) common stock C) various types of debt D) all of these 2 A firm seeks out a banker and obtains a loan. Which of the following is true? 26) ______ A) The bank can lend money to the firm but will not have to share in the firm's risk. B) The bank will demand interest payments if it agrees to loaning the firm money. C) The bank will listen even though its primary motive is not to make money. D) both A & C 2 Which of the following statements is true? 27) ______ A) An all-equity company that issues debt will change its balance sheet. B) A company that hires more managers will change its balance sheet. C) A company that hires more employees will change its balance sheet. D) A company that alters its board of directors will change its balance sheet. 2 Which of the following would not create risk-sharing for Acme Inc.? 28) ______ A) Acme announces a two-for-one stock split. B) More bank loans are taken out. C) Acme issues more shares. D) New debtholders are added. 2 If Tom Brown decides to lower his ownership proportions in his company, Brown & Sons Co., by selling new shares then which of the following can result? 29) ______ A) Tom's interests will be less aligned with the wealth maximization of the company. B) Tom can lose control of the voting. C) Tom is more likely to spend company money on his personal needs. D) all of these 3 Which of the following statements is true? 30) ______ A) The set-of-contracts model represents the firm as a set of financial statements. B) The investment-vehicle model views the firm from the viewpoint of managers. C) The investment-vehicle model views the firm from the viewpoint of debtholders. D) The set-of-contracts model views the firm as a set of contracts among its various shareholders. 3 Which of the following statements is false? 31) ______ A) The set-of-contracts model views the firm as a set of contracts among its various shareholders. B) The accounting model represents the firm as a set of financial statements. C) The investment-vehicle model views the firm as a set of financial statements. D) The investment-vehicle model views the firm from the viewpoint of stockholders. 3 Which of the following (if any) is an advantage of the accounting model? 32) ______ A) Its language is not widely familiar. B) It is an historical model. C) It is highly integrated, showing how the pieces fit together. D) none of these 3 The set-of-contracts model ________. 33) ______ A) does not contain implicit contracts B) does not contain explicit contracts C) recognizes the imperfections that can arise in the contracts among the firm's many stakeholders D) is a refinement of the accounting model TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 3 Today's financial manager is a part of the total company effort to create value. 34) ______ 3 The goal of the firm should be to maximize earnings per share. 35) ______ 3 The investment decision includes determining the appropriate levels of assets that the firm should hold. 36) ______ 3 Shareholder wealth is best measured in terms of the market price of the firm's common stock. 37) ______ 3 Financial management revolves around three basic decision areas: recording, reporting, and reorganizing. 38) ______ 3 Discouraging managers from buying stock in the company for which they work helps to promote shareholder interests. 39) ______ 4 The success of a business decision should be judged by the effect that is ultimately has on the price of the firm's common stock. 40) ______ 4 Management typically has the same objectives as the firm's stockholders. 41) ______ 4 Maximizing the price of a share of the firm's stock is the equivalent of maximizing the wealth of the firm's present owners. 42) ______ 4 Social responsibility by the firm should not be considered given the objective of wealth maximization. 43) ______ 4 A company's board of directors is potentially the most effective instrument of good corporate governance. 44) ______ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 4 According to the authors, the focus of financial managers in a firm should be 45) ______ A) increasing the types of products or services provided by the firm. B) maximizing the profits earned by the firm. C) minimizing the amount of taxes paid by the firm. D) maximizing the value of the firm's present owners. 4 The long-run objective of financial management should be to: 46) ______ A) maximize the value of the firm's common stock. B) maximize the firm's earnings after taxes. C) maximize the firm's earnings per share. D) maximize the firm's percentage of product market share. 4 The price of a share of common stock represents 47) ______ A) the board of directors' assessment of the intrinsic value of the firm. B) the market's evaluation of a firm's present and future performance. C) earnings after tax divided by the number of shares outstanding. D) the book value of the firm's assets less the book value of its liabilities. 4 The best measure of how well management is doing on behalf of its stockholders is 48) ______ A) the earnings per share. B) the level of total profits. C) the size of the dividend paid. D) the common stock price. 4 If the goal of the financial manager were to maximize earnings per share 49) ______ A) the company would never pay a dividend. B) risk would not matter. C) the timing of returns would not matter. D) all of the above. 5 The market price of a firm's stock 50) ______ A) is not affected by dividends. B) does not change when a company's risk changes. C) ignores the timing of earnings per share. D) changes when stockholders become dissatisfied with management performance. 5 Stock options, management bonuses, and perquisites are incentives given to the firm's 51) ______ A) "agents." B) "stakeholders." C) "principals and agents." D) "principals." 5 Managers are considered to be "agents" of the firm's owners because: 52) ______ A) they always act in the best interests of the owners. B) they have been delegated authority to manage the firm. C) they put shareholder interests above concern for social responsibility. D) they themselves are usually the largest shareholders in the firm. 5 The treasurer of a large corporation is primarily concerned with 53) ______ A) gathering and reporting accounting information for internal company use. B) preparing budgets and forecasts. C) investing, financing, and asset management decisions. D) gathering and reporting information for external bodies, such as the SEC. 5 In a large corporation, the controller is primarily concerned with 54) ______ A) determining the financing necessary to support assets. B) gathering and reporting accounting information. C) cash and credit management. D) managing and acquiring assets. 5 Incentives such as stock options, bonuses, and perquisites are utilized by the corporation ________. 55) ______ A) to provide an incentive to allocate resources towards philanthropic endeavors B) as a means of over-compensating white-collar workers relative to blue-collar workers C) to provide an incentive to employees to act in the best interest of shareholders D) as a means of controlling the actions of competitors 5 The branch of economic theory which relates the behavior of principals and agents is referred to as ________. 56) ______ A) Theory of the Firm B) Agency Theory C) Behavioral Theory D) Management Behavior Theory 5 The primary difference between the corporation and other historically popular forms of business organizations is ________. 57) ______ A) that owners and management are generally the same entity B) that the corporation is unconcerned about the welfare of its employees C) the separation between ownership and management D) that the corporation is primarily concerned with the social welfare of society 5 "Shareholder wealth" in a firm is represented by ________. 58) ______ A) the amount of salary paid to its employees B) the book value of the firm's assets less the book value of its liabilities C) the number of people employed in the firm D) the market price per share of the firm's common stock 5 What are the earnings per share (EPS) for a company that earned $100,000 last year in after-tax profits, has 200,000 common shares outstanding, and $1.2 million in retained earnings at the year end? 59) ______ A) $6.50 B) $0.50 C) $100,000 D) $6 6 In the US, the Public Company Accounting Oversight Board (PCAOB) has been given the power to adopt ________ standards for public companies and their auditors as well as investigate and discipline those involved. 60) ______ A) ethics B) disclosure C) quality control D) auditing E) All of the above answers are correct. 6 What piece of legislation was largely a response to a series of corporate scandals involving Enron, WorldCom, Global Crossing, Tyco and numerous others? 61) ______ A) The Sarbanes-Oxley Act of 2002 (SOX) B) The Corporate Corruption Act of 1992 (CCA) C) Financial Accounting Standards Board Act (FASB) D) Securities Exchange Act of 1932 (SEA) TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 6 The primary objective of multinational tax planning is to minimize the firm's worldwide tax burden. 62) ______ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 6 The issue of ethics in the reporting of income and the payment of taxes is a considerable one. The authors state that most MNEs operating in foreign countries tend to follow the general principle of 63) ______ A) full disclosure to the tax authorities. B) "when in Rome, do as the Romans do." C) maintain a competitive playing field by cheating as much as the local competition, no more, no less. D) none of the above 6 Which of the following is an unlikely objective of U.S. government policy for the taxation of foreign MNEs? 64) ______ A) To improve the U.S. balance of payments B) To provide an incentive for U.S. private investment in developing countries C) To raise revenues D) All of the above are objectives. 6 A ________ tax policy is one that has no impact on private decision-making, while a ________ policy is designed to encourage specific behavior. 65) ______ A) neutral; flat B) flat; tax incentive C) neutral; tax incentive D) none of the above 6 Which of the following is NOT an example of a tax incentive policy? 66) ______ A) Corporations are allowed to take a direct tax credit for each dollar of matching donations they make to institutions of higher education. B) The federal government gives a tax credit to MNEs that make domestic capital improvements but not foreign capital improvements. C) A tax law is passed that makes interest on property non tax-deductible, but interest payments on durable goods are. D) All are examples of a tax incentive policy. 6 General Motors operates in many different countries and pays taxes at many different rates. However, they always pay the same rate as their local competitors. General Motors is operating in an environment of ________ tax policy. 67) ______ A) territorial approach B) foreign neutrality C) domestic neutrality D) none of the above 6 The United States taxes the domestic and remitted foreign earnings of U.S. based MNEs no matter where the earnings occurred. This is an example of a ________ approach to levying taxes. 68) ______ A) worldwide B) equitable C) neutral D) territorial 6 The United States taxes all earnings on U.S. soil by both domestic and foreign firms. This is an example of a ________ approach to levying taxes. 69) ______ A) worldwide B) territorial C) neutral D) none of the above TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 7 A country CANNOT have both a territorial and a worldwide approach as a national tax policy. 70) ______ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 7 Jensen Optimetrics Inc. is based in a country with a territorial approach to taxation but generates 100% of its income in a country with a worldwide approach to taxation. The tax rate in the country of incorporation is 25%, and the tax rate in the country where they earn their income is 50%. In theory, and barring any special provisions in the tax codes of either country, Jensen should pay taxes at a rate of 71) ______ A) 75%. B) 62.5%. C) 50%. D) 0%. 7 The territorial approach to taxation policy is also termed the ________ approach. 72) ______ A) greedy B) source C) ethical D) location TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 7 Tax treaties generally have the effect of increasing the withholding taxes between the countries that are negotiating the treaties. 73) ______ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 7 ________ taxes are applied to income and ________ taxes are applied to some other measurable performance characteristic of the firm. 74) ______ A) Income; direct B) Indirect; direct C) Indirect; income D) Direct; indirect 7 Depending on the host country, corporate income taxes worldwide may be as low as 75) ______ A) 10%. B) 0%. C) 15%. D) 5%. 7 The basic idea behind withholding taxes for foreign investors is 76) ______ A) to ensure that income earned is taxed by the host country. B) to receive taxes on passively earned income. C) a recognition that most foreign investors are unlikely to file taxes in the host country. D) all of the above TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 7 A value-added tax has gained widespread usage in Western Europe, Canada, and parts of Latin America. 77) ______ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 7 A tax that is effectively a sales tax at each stage of production is defined as ________ tax. 78) ______ A) an equitable B) a value-added tax C) a flat D) none of the above 7 What is the total value of taxes paid in the following example if the value added tax is 10%? A farmer raises wheat that he sells for $1.50 to the grain company. The grain company sells to the processor for $2.00 per bushel. The processor turns the wheat into a breakfast cereal and wholesales it for $3.00 per bushel. The retailer sells the cereal for $4.00 per bushel. 79) ______ A) $.40 B) $.20 C) $.30 D) $.15 8 A tax that is a form of social redistribution of income is defined as ________ tax. 80) ______ A) an un-American B) a flat C) a transfer D) none of the above 8 A ________ is a direct reduction of taxes whereas a ________ reduces the taxable income before taxes. 81) ______ A) tax deduction; tax credit B) tax credit; tax deduction C) foreign tax credit; domestic tax credit D) none of the above TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 8 Tax credits are less valuable on a dollar-for-dollar basis than are tax-deductible expenses. 82) ______ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or an...
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