Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)   If expected inflation increases, interest rates are likely to increase.
B)   If individuals in general increase the percentage of their income that they save, interest rates are likely to increase.
C)   If companies have fewer good investment opportunities, interest rates are likely to increase.
D)   Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities.
E)   Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills.F) C) and E)
G) B) and E)

Question 2

If a firm's stock price falls during the year, this indicates that the firm's managers are not acting in shareholders' best interests.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is most correct?

Accepted Answer

A)   Firms that try to maximize their stock values will tend to lay off employees to cut costs.
B)   Firms that try to maximize their stock values will raise the prices of their products, gouging customers and driving them away.
C)   Anti-pollution laws are unnecessary because firms will choose not to pollute because that is in their best interests.
D)   The government should allow monopolies to operate without regulation so that they may maximize their shareholders' wealth.
E)   Newly-privatized firms generally hire more employees.F) C) and E)
G) A) and E) E

Question 4

Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

Accepted Answer

A)   Households start saving a larger percentage of their income.
B)   The economy moves from a boom to a recession.
C)   The level of inflation begins to decline.
D)   Corporations step up their expansion plans and thus increase their demand for capital.
E)   The Federal Reserve uses monetary policy in an attempt to stimulate the economy.F) B) and E)
G) A) and B)

Question 5

The primary goal of a publicly-owned firm interested in serving its stockholders should be to

Accepted Answer

A)   Maximize expected total corporate profit.
B)   Maximize expected EPS.
C)   Minimize the chances of losses.
D)   Maximize the stock price per share.
E)   Maximize expected net income.F) A) and E)
G) B) and D)

Question 6

Which of the following work to reduce agency conflicts between stockholders and bondholders?

Accepted Answer

A)   Including restrictive covenants in the company's bond contract.
B)   Providing managers with a large number of stock options.
C)   The passage of laws which make it easier for companies to resist hostile takeovers.
D)   Statements b and c are correct.
E)   All of the statements above are correct.F) B) and E)
G) C) and E)

Question 7

Executive stock options are shares of stock awarded to managers on the basis of corporate performance.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is most correct?

Accepted Answer

A)   Compensating managers with stock can reduce the agency problem between stockholders and managers.
B)   Restrictions are included in credit agreements to protect bondholders from the agency problem that exists between bondholders and stockholders.
C)   The threat of a takeover can reduce the agency problem between bondholders and stockholders.
D)   Statements a and b are correct.
E)   All of the statements above are correct.F) A) and D)
G) B) and E) D

Question 9

Which of the following statements is most correct?

Accepted Answer

A)   EVA is a measure of the value added to customers.
B)   EVA is a measure of the value added to management.
C)   EVA is a measure of the firm's true profitability.
D)   EVA is a measure of management compensation.
E)   EVA is a measure of stock price.F) B) and C)
G) A) and B)

Question 10

If a firm's managers want to maximize stock price it is in their best interests to operate efficient, low-cost plants, develop new and safe products that consumers want, and maintain good relationships with customers, suppliers, creditors, and the communities in which they operate.

Accepted Answer

A) True 
 B)False  True

Question 11

Suppose the U.S. Treasury announces plans to issue $50 billion of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

Accepted Answer

A)   Prices and interest rates would both rise.
B)   Prices would rise and interest rates would decline.
C)   Prices and interest rates would both decline.
D)   There would be no changes in either prices or interest rates.
E)   Prices would decline and interest rates would rise.F) A) and B)
G) A) and D)

Question 12

An agency problem exists between stockholders and managers. A second agency problem arises between stockholders and creditors.

Accepted Answer

A) True 
 B)False

Question 13

The proper goal of the financial manager should be to maximize the firm's expected profit, since this will add the most wealth to each of the individual shareholders (owners) of the firm.

Accepted Answer

A) True 
 B)False

Question 14

An agency relationship exists when one or more persons hire another person to perform some service but withhold decision-making authority from that person.

Accepted Answer

A) True 
 B)False

Question 15

If a firm has a single owner, we may say that the proper goal of a financial manager would be to maximize the firm's earnings per share.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is most correct?

Accepted Answer

A)   Sarbanes-Oxley requires the Securities Exchange Commission to audit public companies' financial statements.
B)   Sarbanes-Oxley made it illegal for company executives to trade on insider information.
C)   Sarbanes-Oxley requires the Chairman of the Board of Directors to sign and certify the company's financial statements.
D)   Sarbanes-Oxley requires the CEO sign and certify the company's financial statements.
E)   Sarbanes-Oxley requires company executives to disclose their fraudulent activities "in a timely and accurate manner."F) A) and B)
G) A) and D)

Question 17

Which of the following statements is most correct?

Accepted Answer

A)   A firm's fundamental value is its market value.
B)   A firm's fundamental value is the present value of its future free cash flows.
C)   A firm's market price is usually greater than its fundamental value.
D)   A firm's fundamental value is usually greater than its market price.
E)   A firm's fundamental value is its book value.F) A) and C)
G) A) and E)

Question 18

Which of the following statements is most correct?

Accepted Answer

A)   One of the ways in which firms can mitigate or reduce agency problems between bondholders and stockholders is by increasing the amount of debt in the capital structure.
B)   The threat of takeover is one way in which the agency problem between stockholders and managers can be alleviated.
C)   Managerial compensation can be structured to reduce agency problems between stockholders and managers.
D)   Statements b and c are correct.
E)   All of the statements above are correct.F) B) and E)
G) A) and E)

Question 19

Which of the following statements is most correct?

Accepted Answer

A)   Sarbanes-Oxley established a new Federal agency, the Public Company Auditing Board, to audit public companies' financial statements.
B)   Sarbanes-Oxley prohibited investment banks from allowing their analysts to make recommendations on stocks the investment banks do business with.
C)   Sarbanes-Oxley requires that either the CEO or CFO hand-deliver the annual and quarterly financial statements to the SEC.
D)   Sarbanes-Oxley requires that auditors maintain extensive records to document that their consulting and auditing services for a given company are not conflicting.
E)   Sarbanes-Oxley prohibits auditors from providing consulting services to the companies they audit.F) A) and B)
G) B) and C)

Question 20

In a competitive marketplace, if managers deviate too far from making decisions that are consistent with stockholder wealth maximization, they risk being disciplined by the market. Part of this discipline involves the threat of being taken over by groups who are more aligned with stockholder interests.

Accepted Answer

A) True 
 B)False

Exam 1: An Overview of Financial Management

Which of the following statements is CORRECT?

Correct Answer
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If a firm's stock price falls during the year, this indicates that the firm's managers are not acting in shareholders' best interests.

Correct Answer
verified

Which of the following statements is most correct?

Correct Answer
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E

Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

Correct Answer
verified

The primary goal of a publicly-owned firm interested in serving its stockholders should be to

Correct Answer
verified

Which of the following work to reduce agency conflicts between stockholders and bondholders?

Correct Answer
verified

Executive stock options are shares of stock awarded to managers on the basis of corporate performance.

Correct Answer
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Which of the following statements is most correct?

Correct Answer
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D

Which of the following statements is most correct?

Correct Answer
verified

If a firm's managers want to maximize stock price it is in their best interests to operate efficient, low-cost plants, develop new and safe products that consumers want, and maintain good relationships with customers, suppliers, creditors, and the communities in which they operate.

Correct Answer
verified
True

Suppose the U.S. Treasury announces plans to issue $50 billion of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

Correct Answer
verified

An agency problem exists between stockholders and managers. A second agency problem arises between stockholders and creditors.

Correct Answer
verified

The proper goal of the financial manager should be to maximize the firm's expected profit, since this will add the most wealth to each of the individual shareholders (owners) of the firm.

Correct Answer
verified

An agency relationship exists when one or more persons hire another person to perform some service but withhold decision-making authority from that person.

Correct Answer
verified

If a firm has a single owner, we may say that the proper goal of a financial manager would be to maximize the firm's earnings per share.

Correct Answer
verified

Which of the following statements is most correct?

Correct Answer
verified

Which of the following statements is most correct?

Correct Answer
verified

Which of the following statements is most correct?

Correct Answer
verified

Which of the following statements is most correct?

Correct Answer
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Correct Answer
verified

Exam 1: An Overview of Financial Management

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

If a firm's stock price falls during the year, this indicates that the firm's managers are not acting in shareholders' best interests.

Correct AnswerverifiedShow Answer

Which of the following statements is most correct?

Correct AnswerverifiedE

Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

Correct AnswerverifiedShow Answer

The primary goal of a publicly-owned firm interested in serving its stockholders should be to

Correct AnswerverifiedShow Answer

Which of the following work to reduce agency conflicts between stockholders and bondholders?

Correct AnswerverifiedShow Answer

Executive stock options are shares of stock awarded to managers on the basis of corporate performance.

Correct AnswerverifiedShow Answer

Which of the following statements is most correct?

Correct AnswerverifiedD

Which of the following statements is most correct?

Correct AnswerverifiedShow Answer

If a firm's managers want to maximize stock price it is in their best interests to operate efficient, low-cost plants, develop new and safe products that consumers want, and maintain good relationships with customers, suppliers, creditors, and the communities in which they operate.

Correct AnswerverifiedTrue

Suppose the U.S. Treasury announces plans to issue $50 billion of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

Correct AnswerverifiedShow Answer

An agency problem exists between stockholders and managers. A second agency problem arises between stockholders and creditors.

Correct AnswerverifiedShow Answer

The proper goal of the financial manager should be to maximize the firm's expected profit, since this will add the most wealth to each of the individual shareholders (owners) of the firm.

Correct AnswerverifiedShow Answer

An agency relationship exists when one or more persons hire another person to perform some service but withhold decision-making authority from that person.

Correct AnswerverifiedShow Answer

If a firm has a single owner, we may say that the proper goal of a financial manager would be to maximize the firm's earnings per share.

Correct AnswerverifiedShow Answer

Which of the following statements is most correct?

Correct AnswerverifiedShow Answer

Which of the following statements is most correct?

Correct AnswerverifiedShow Answer

Which of the following statements is most correct?

Correct AnswerverifiedShow Answer

Which of the following statements is most correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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E

Correct Answer
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D

Correct Answer
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True

Correct Answer
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Correct Answer
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Correct Answer
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