Professional Documents
Culture Documents
1
Multiple
Choice
Questions
1.
Generally,
a
corporation
is
owned
by
the:
I)
Managers;
II)
Board
of
Directors;
III)
Shareholders
A.
I
only
B.
II
and
III
C.
III
only
D.
I,
II
and
III
2.
The
following
are
examples
of
intangible
assets
except:
A.
Buildings
B.
Trademarks
C.
Patents
D.
Technical
expertise
3.
A
firm's
investment
decision
is
also
called
the:
A.
Financing
decision
B.
Liquidity
decision
C.
Capital
budgeting
decision
D.
None
of
the
above
4.
The
following
are
examples
of
financial
assets
except:
A.
Common
stock
B.
Bank
loan
C.
Preferred
stock
D.
Buildings
5.
The
following
are
important
functions
of
financial
markets:
I)
Source
of
financing;
II)
Provide
liquidity;
III)
Reduce
risk;
IV)
Source
of
information
A.
I
only
B.
I
and
II
only
C.
I,
II,
III,
and
IV
D.
IV
only
6.
Conflicts
of
interest
between
shareholders
and
managers
of
a
firm
result
in:
A.
Principal-agent
problem
B.
Increased
agency
costs
C.
Both
A
and
B
D.
Managers
owning
the
firm
7.
In
the
principal-agent
framework:
A.
Shareholders
are
the
principals
B.
Managers
are
the
principals
C.
Managers
are
the
agents
D.
A
and
C
8.
Costs
associated
with
the
conflicts
of
interest
between
the
bondholders
and
the
shareholders
of
a
corporation
are
called:
A.
Legal
costs
B.
Bankruptcy
costs
C.
Administrative
costs
D.
Agency
costs
9.
Agency
costs
are
incurred
by
a
corporation
because:
A.
managers
may
not
attempt
to
maximize
the
value
of
the
firm
to
shareholders
B.
shareholders
incur
monitoring
cost
C.
separation
of
ownership
and
management
D.
all
of
the
above
10.
The
financial
goal
of
a
corporation
is
to:
A.
Maximize
profits
B.
Maximize
sales
C.
Maximize
the
value
of
the
firm
for
the
shareholders
D.
Maximize
managers'
benefits
11.
The
sale
of
financial
assets
is
also
referred
to
as
the:
A.
Capital
decision
B.
CFO
decision
C.
Financing
decision
D.
Investment
decision
12.
The
mixture
of
debt
and
equity,
used
to
finance
a
corporation
is
also
known
as:
A.
Capital
budgeting
B.
Capital
structure
C.
Investing
D.
Treasury
13.
Of
the
following
list,
which
is
a
stakeholder?
I)
Employee;
II)
Customer;
III)
Community;
IV)
Supplier
A.
I,
II
and
IV
only
B.
III
only
C.
I
and
II
only
D.
All
14.
The
idea
of
maximizing
shareholder
value
is
widely
accepted
in:
I)
U.S.A.;
II)
U.K;
III)
Germany;
IV)
France;
V)
Japan
A.
I
only
B.
I
and
II
only
C.
III,
IV
and
V
only
D.
I,
II,
III,
IV
and
V
15.
The
idea
that
firms
should
be
run
for
stakeholders
welfare
is
accepted
in:
I)
U.S.A.;
II)
U.K;
III)
Germany;
IV)
France;
V)
Japan
A.
I
only
B.
I
and
II
only
C.
III,
IV
and
V
only
D.
I,
II,
III,
IV
and
V
True
/
False
Questions
1.
Real
assets
of
a
corporation
are
claims
on
their
financial
assets.
FALSE
2.
A
firm's
overall
value
belongs
entirely
to
the
shareholders.
FALSE
3.
Managers,
Shareholders,
and
lenders
of
firm
have
identical
information
about
the
value
of
the
firm.
FALSE
Short
Answer
Questions
1.
Briefly
explain
the
sequence
flow
of
cash
between
financial
markets
and
the
firm.
Cash
is
raised
by
selling
financial
assets
to
investors.
Cash
is
invested
in
the
firm's
operation
and
used
to
purchase
real
assets.
Cash
is
generated
by
the
firm's
operations.
Cash
is
reinvested
or
returned
to
investors.
2.
Briefly
explain
the
functions
of
financial
markets.
There
are
five
important
functions
of
financial
markets.
They
are:
A
source
of
financing
for
corporations.
Provide
liquidity
for
the
investors.
Reduce
risk
for
the
investors.
Source
of
information.
Monitor
of
firms'
financial
performance.
3.
Briefly
discuss
the
role
of
the
various
types
of
financial
managers.
Chief
Financial
Officer
(CFO):
Supervises
the
treasurer
and
the
controller
in
a
large
corporation.
CFO
is
involved
in
corporate
planning
and
financial
policy.
Treasurer:
Is
responsible
for
obtaining
funds,
managing
cash,
banking
relationships
and
investor
relationships.
Controller:
Is
responsible
for
accounting
functions,
payroll
and
taxes.
2. Mr.
Bird
has
$100
income
this
year
and
zero
income
next
year.
The
market
interest
rate
is
10%
per
year.
Mr.
Bird
also
has
an
investment
opportunity
in
which
he
can
invest
$50
today
and
receive
$80
next
year.
Suppose
Mr.
Bird
consumes
$30
this
year
and
invests
in
the
project.
What
will
be
his
consumption
next
year?
A.
$88
B.
$102
C.
$80
D.
$100
Consumption
next
year
=
(100
-
30
-
50)
*
1.1
+
80
=
102
3.
Ms.
Venus
has
$100
income
this
year
and
$110
next
year.
The
market
interest
rate
is
10%
per
year.
Suppose
Ms.
Venus
consumes
$60
this
year.
What
will
be
her
consumption
next
year?
A.
$154
B.
$170
C.
$120
D.
None
of
the
above
Consumption
next
year
=
(100
-
60)
*
1.1
+
110
=
154
4.
Mr.
Thomas
has
$100
income
this
year
and
zero
income
next
year.
The
market
interest
rate
is
10%
per
year.
Mr.
Thomas
also
has
an
investment
opportunity
in
which
he
can
invest
$50
this
year
and
receive
$80
next
year.
Suppose
Mr.
Thomas
consumes
$50
this
year
and
invests
in
the
project.
What
will
be
his
consumption
next
year?
A.
$55
B.
$80
C.
$50
D.
None
of
the
above
Mr.
Thomas'
investment
this
year
=
100
-
50
=
50.
His
income
next
year
by
taking
the
investment
opportunity
is
equal
to
80.
5.
Mr.
Dell
has
$100
income
this
year
and
zero
income
next
year.
The
market
interest
rate
is
10%
per
year.
Mr.
Dell
also
has
an
investment
opportunity
in
which
he
can
invest
$50
this
year
and
receive
$80
next
year.
Suppose
Mr.
Dell
consumes
$50
this
year
and
invests
in
the
project.
What
is
the
NPV
of
the
investment
opportunity?
A.
$5
B.
$22.73
C.
$0
(zero)
D.
None
of
the
above.
NPV
=
(80/1.1)
-
50
=
+
22.73