the spirit of laws and regulations in all aspects of business and professional practice.

TRUE Primary and secondary markets are for short-term and long-term securities, respe ctively. FALSE The ordinary income of a corporation is income earned through the sale of a firm 's goods and services and is currently taxed subject to the individual income ta x rates. FALSE Finance is concerned with the process institutions, markets, and instruments inv olved in teh transfer of money among and between individuals, businesses and gov ernment. TRUE The corporate controller typically handles the accounting activities, such as ta x management, data processing, and cost and financial accounting. TRUE Financial analysis and planning is concerned with analyzing the mix of assets an d liabilities. FALSE To achieve the goal of profit maximization for each alternative being considered , the financial manager would select the one that is expected to result in the h ighest monetary return. TRUE Financial markets are intermediaries that channel the savings of individuals, bu sinesses and government into loans or investments. FALSE The marginal tax rate represents the rate at which additional income is taxed. TRUE Financial services are concerned with the duties of the financial manager. FALSE The financial manager places primary emphasis on cash flows, the inflow and outf low of cash. TRUE Financing decisions deal with the left-hand side of the firm's balance sheet and involve the most appropriate mix of current and fixed assets. FALSE Dividend payments change directly with changes in earnings per share. FALSE Money markets involve the trading of securities with maturities of one year or l ess while capital market involve the buying and selling of securities with matur ities of more than one year. TRUE All dividend income received by one corporation from an investment in the common and preferred stock of another corporation is excluded from taxation. FALSE Financial managers actively manage the financial affairs of many types of busine ss-financial and non-financial, private and public, for-profit and not-for-profi t. TRUE Managerial finance is concerned with design and delivery of advice and financial products to individuals, business, and government. FALSE The key role of the financial manager is decision making. The wealth of corporate owners is measured by the share price of the stock. TRUE A financial institution is an intermediary that channels the savings of individu als, businesses, and governments into loans or investments. TRUE Because of the dividend exclusion only 70% of intercorporate dividend income is included as ordinary income. FALSE In partnerships, owners have unlimited liability and may have to cover debts of other less financially sound partners. TRUE The corporate treasurer typically handles both the cost accounting and financial accounting FALSE The key activities of the financial manager include all of the following EXCEPT managing financial accounting Risk and the magnitude and timing of cash flows are the key determinants of shar e price, which represents teh wealth of the owners in the firm. TRUE A public offering is teh sale of a new security issue -- typically debt or prefe rred stock -- directly to an investor or group of investors. FALSE Tax laws often are used to accomplish economic goals such as providing incentive s for corporate investment in certain types of assets. TRUE In partnerships, a partner can readily transfer his/her wealth to other partners . FALSE The accrual method recognizes revenue at the point of sale and recognizes expens

es when incurred. TRUE Included in teh primary activities of the financial manager are financial analys is and planning, making financing decisions, making investment decisions, analyz ing and planning cash flows (all of the above) A high earnings per share (EPS) does not necessarily translate into a high stock price. TRUE Eurocurrency deposits arise when a corporation or individual makes a deposit in a bank in a currency other than the local currency of teh country where the bank is located. TRUE With progressive tax rates, the average tax rate is always less than or equal to the marginal tax rate. TRUE The board of directors is responsible for managing day-to-day operations an carr ying out the policies established by the chief executive officer. FALSE The accountant evaluates financial statements, develops additional data, and mak es decisions based on his or her assessment of the associated returns and risks. FALSE The financial manager may be responsible for any of the following EXCEPT monitoring of quarterly tax payments. The profit maximization goal ignores the timing of returns, does not directly co nsider cash flows, and ignores risk. TRUE A primary market is a financial market in which pre-owned securities are traded. FALSE Dividends received by a corporation on an investment in the common and preferred stock of another corporation (where ownership in the dividend paying corporatio n is less than 20%) is subject to 70% exclusion for tax purposes. TRUE The sole proprietor has unlimited liability; his or her total investment in teh business, but not his or her personal assets, can be taken to satisfay creditors . FALSE The corporate treasurer is the officer responsible for the firm's accounting act ivities, such as corporate accounting, tax management, financial accounting, and cost accounting. FALSE Making investment decisions includes all of the following EXCEPT notes pa yable When considering each financial decision alternative or possible action in terms of its impact on the share price of the fim's stock, financial managers should accept only those actions that are expected to maximize shareholder value. TRUE Loan transactions between commercial banks in which the federal government becom es involved are referred to as federal funds. FALSE The tax deductibility of various expenses such as general and administrative exp enses [BLANK] their after-tax cost. reduces In limited partnerships, only one partner may assume limited liability. All othe r partners have to have unlimited liability. FALSE The corporate controller is the officer responsible for the firm's financial act ivities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange. FALSE Making financing decisions includes all of the following EXCEPT analyzing quarte rly budget and performance reports. An increase in firm risk tends to result in a higher share price since the stock holder must be compensated for the greater risk. FALSE If a corporation sells certain capital equipment for more than their initial pur chase price, the difference between the sale price and the purchase price is cal led a(n) capital gain Congress allows corporations to exclude from taxes 70 to 100% of dividends recei ved from other corporations. Congress did this to avoid triple taxation on dividends. The primary goal of the financial manager is maximizing wealth Corporation A owns 15% of the stock of corporation B. Corporation B pays corpora tion A $100,000 in dividends in 2002. Corporation A must pay tax on $30,000

of ordinary income. The accountant recognizes revenues and expenses on an accrual basis. Most businesses raise money by selling their securities in a public offering. The financial manager recognizes revenues and expenses utilizing the actu al inflows and outflows of cash. The [BLANK] is created by a financial relationship between suppliers and demande rs fo short-term funds. money market The financial manager is interested in the cash inflows and outflows of the firm , rather than the accounting data, in order to ensure sovency If a company's managers are NOT owners of the company, then they are agents. Economic theories that the financial manager must be able to utilize for efficie nt business operations, include price theory, profit-maximizing strategies, supp ly-and-demand analysis, and marginal analysis. A competitive market that allocates funds to their most productive use is called a(n) efficient market. The primary economic principle used in managerial finance is marginal analysi s. Which of the following legal forms of organization is most expensive to orgaize? Corporations. Most money market transactions are made in marketable securities. Agency costs include all of the following EXCEPT management reports to st ockholders. Under which of the following legal forms of organization, is ownership readily t ransferable? Corporation One way often used to insure that management decisions are in the best interest of the stockholders is to tie management compensation to the performance o f the company's common stock price. The true owner(s) of the corporation is (are) the [BLANK]. stockholders The amount earned during teh accounting period on each outstanding share of comm on stock is called earnings per share. The nonexclusive sale of either bonds or stocks to the general public is called public offering. Marginal analysis states that financial decisions should be made and actions tak en only when added benefits exceed added costs. Profit maximization as a goal is not ideal because it does NOT directly consider risk and cash flow. Profit maximization as the goal of the firm is NOT ideal because profit m aximization does not consider risk. Profit maximization fails because it ignores all EXCEPT earnings per share. A major weakness of a partnership is difficulty liquidating or transferring o wnership. Long-term debt instruments used by both government and business are known as bonds. The two key financial markets are money market and capital market. Financial managers evaluating decision alternatives or potential actions must co nsider risk, return, and the impact on share price. As the risk of a stock investment increases, investors' required rate of return will increase. -----------chapter 2 Time-series analysis is the evaluation of the firm's financial performance in c omparison to other firm(s) at teh same point in time. FALSE The liquidity of a business firm refers to the solvency of the firm's overall fi nancial position. TRUE The magnification of risk and return introduced through the use of fixed-cost fi nancing such as debt and preferred stock is called financial leverage. TRUE Earnings per share represent the dollar amount earned and distributed to shareho lders. FALSE

The financial leverage multiplier is the ratio of the firm's total assets to sto ckholders' equity. TRUE The liquidity of a business firm is measured by its ability to satisfy its longterm obligations as they come due. FALSE The DuPont formula allows the firm to break down its return into the net profit margin, which measures the firm's profitability on sales, and its total asset tu rnover, which indicates how efficiently the firm has used its assets to generate sales. TRUE Since the differences in the composition of a firm's current assets and liabilit ies can significantly affect the firm's "true" liquidity, it is important to loo k beyond measures of overall liquidity to assess the activity (liquidity) of spe cific current accounts. TRUE In general, the more debt (other people's money) a firm uses in relation to its assets, the smaller its financial leverage. FALSE Return on total assets (ROA) measures teh overall effectiveness of management in generating profits with the owners' investment in the firm. FALSE The DuPont system merges the income state