Multiple Guess: Mark the single best answer for each question on your scan-tron answer sheet.

Each correct answer is worth 1 point.

1. The best goal of a corporation is generally presumed to be:
1. Maximize market share
2. Maximize profitability
3. Minimize risk
4. Maximize value
5. More than one of the above.
 
2. Which of the following is NOT a role of the financial manager?
1. Acquire and service capital
2. Evaluate and select investments
3. Manage working capital
4. Support the goals and policies of the company
5. All of the above ARE roles of the financial manager
 
3. Which of the following statements is(are) true?
1. The auditor's statement, found at the end of the financial report, certifies that the company is in good condition and that the financial statements are accurate portrayals of the company's financial condition.
2. The total value of assets shown on the balance sheet is generally a reasonable estimate of the current book value of the company.
3. The true profit of a company during a period is the change in the company's actual value during the period.
4. More than one of the above.
5. None of the above.
 
4. Which of the following statements is (are) true?
1. Majority voting makes it easier for a minority shareholder group to elect one or more representatives to the company' Board of Directors.
2. The responsibilities of the Controller include auditing, management accounting, and financial reporting.
3. Financial intermediaries facilitate the purchasing and selling of financial securities for their clients.
4. More than one of the above.
5. None of the above.
 
5. Which of the following is (are) true?
1. The book value of equity is the price at which stocks are bought and sold in the market.
2. For well established companies, we should expect its market value and book value to be approximately equal.
3. For a publicly traded company, the market value of the company is very difficult to estimate.
4. More than one of the above.
5. None of the above.
 
6. Which of the following is(are) true?
1. Depreciation expense is part of the operating cash flow (specifically a cash outflow) for a company.
2. Depreciation is meant to represent the real loss of value that a company experiences from owning an asset over a period of time.
3. Dividends to the common shareholders are a tax-deductible expense for the company.
4. More than one of the above.
5. None of the above.
 
7. Factors that can affect the value of a company but which are missing from the traditional balance sheet include:
1. The value of human capital
2. The value of the company's reputation
3. The appreciated value of financial or real assets
4. Two of the above.
5. All of the above.
 
8. Which of the following statements is(are) true?
1. Companies that show a large amount of retained earnings on their balance sheet generally have high liquidity ratios due to the large amount of cash that is being held in the retained earnings account.
2. An increase in accrued wages will increase the company's current ratio, other things equal.
3. A common size balance sheet shows all entries as a percent of sales.
4. More than one of the above.
5. None of the above.
 
9. Which of the following statements is(are) FALSE?
1. Microsoft has higher liquidity than the industry average.
2. Microsoft has higher profitability than the industry average.
3. Microsoft has a higher dividend yield than the industry average.
4. More than one of the above is FALSE.
5. None of the above is FALSE.
 
10. The situation in which the management of a corporation can take unobserved actions which are for its own benefit and against the interests of the shareholders is an example of:
1. Illegal activities
2. Immoral activities
3. Opportunity costs
4. The agency problem
5. None of the above.
 
11. The market rate of interest on a U.S. Government Treasury security is NOT affected by:
1. The risk of default
2. The real rate of interest
3. The expected inflation rate over the period of the investment
4. The maturity date of the security.
5. It is affected by ALL of the above.
 
12. Which of the following statements is(are) true?
1. According to financial theory, all investors are rational and risk averse.
2. The average investor will accept a lower expected rate of return on an investment in exchange for less risk.
3. Diversification is a means of increasing expected return while simultaneously reducing risk.
4. More than one of the above.
5. None of the above.
 
13. A cost that has already been incurred and cannot be recouped is a(n):
1. Opportunity cost
2. Sunk cost
3. Incremental cost
4. Agency cost
5. None of the above
 
14. Market prices of financial assets that are traded regularly in the capital markets reflect all available information and adjust fully and quickly to "new" information. This statement reflects the
    1. Principle of Incremental Benefits
    2. Principle of Capital Market Efficiency
    3. Principle of Information Transfer
    4. Principle of Investor Competence
    5. None of the above.
     
15. Which of the following statements is(are) true?
    1. If two assets have identical present values using a given discount rate, then the future value of those assets' cash flows at any time t will also be identical using the same rate regardless of the amount or timing of their cash flows.
    2. If two assets have identical present values using a given discount rate, then the future value of those assets' cash flows at any time t will also be identical using the same rate regardless of the amount or timing of their cash flows.
    3. In a world in which there was no inflation, investors would be satisfied to earn the "real" rate of return on all investments.
    4. Two of the above.
    5. All of the above.
 
16. Which of the following statements is(are) true?

    A.    A desirable investment is one in which the expected return exceeds the required return.

    B.    In perfect capital markets, the expected return equals the required return on all investments.

    C.    The effective rate of interest increases as the frequency of compounding decreases.

    D.    Two of the above.

    E.    All of the above.

 
17.  Other things equal, the present value of a stream of cash flows:

    A.    Increases as the uncertainty of the cash flows increases.

    B.    Increases as the future value of the cash flows increases.

    C.    Increases as the discount rate increases.

    D.    More than one of the above.

    E.    None of the above.

 
18. As the general level of interest rates increases (other things equal), the value of all investments

    A.    increases

    B.    decreases

    C.    stays the same

    D.    more than one of the above.

    E.    none of the above.

 
19. Historically, the source of external funds that has provided the greatest proportion of external funds is:

    A.    Debt

    B.    Preferred stock

    C.    Common Stock

    D.    Retained earnings

    E.    None of the above.

 
20. As compared to private debt issues, public debt issues:

    A.    are generally larger

    B.    generally have more restrictive covenants

    C.    are less likely to require collateral

    D.    Two of the above

    E.    All of the above

 
21. Advantages of going public include:

    A.    greater flexibility in raising capital

    B.    greater liquidity of the common shares.

    C.    reduced pressure for short-term results

    D.    two of the above

    E.    all of the above

 
22. It is generally true that issue costs are the highest for:

    A.    Convertible bonds

    B.    Senior debentures

    C.    Preferred stock

    D.    Common stock

    E.    Subordinated debentures

 
23. Which of the following statements is(are) true?

    A.    Underwriters bear the risk of an issue not completely sold to the pubic.

    B.    The shelf registration rule allow a firm to register an inventory of securities for up to one year.

    C.    A private placement of securities increases the liquidity of those securities.

    D.    Two of the above.

    E.    All of the above.

 
24. Which of the following statements is(are) true?

    A.    A bond issued in Germany that is denominated in U.S. dollars is an example of a Eurobond.

    B.    Corporate bonds (debentures) are a form of secured debt.

    C.    The higher the general level of interest rates, the more likely a bond issue will be called (other things equal).

    D.    Two of the above.

    E.    All of the above.

 
25. For a given company, which type of debt is likely to have the highest cost (required interest rate)?

    A.    Senior debentures

    B.    Subordinated debentures

    C.    Mortgage bonds

    D.    Collateral trust bonds

 
26. In the Wall Street Journal article Accounting Rule Makers Weigh a Major Change on Reporting, it was reported that:

    A.    The proposed change in accounting standards could help to smooth out excessive earnings volatility.

    B.    The proposal under debate may require companies to record the fair market value of financial assets and liabilities on their quarterly balance sheets, and then include any changes in those values in their quarterly earnings.

    C.    Banks will probably not oppose the proposal since their earnings will receive a positive boost as the value of their securities investments increases in bull markets.

    D.    Two of the above.

    E.    All of the above.

 
27. In the Barron's article More Second-Guessing: Markets need better disclosure of earnings management, it was reported that:

    A.    Sometimes managers will accelerate or decelerate the delivery of goods and services in order to manipulate quarterly earnings.

    B.    Cendant lost nearly half its market value in one day when it admitted that its accounting for deferred revenues was faulty-and that was just the tip of Cendant's iceberg of accounting chicanery.

    C.    Besides requiring well-detailed descriptions about changes in accounting assumptions, the SEC or the FASB should mandate a schedule -- on an annual basis -- for the sensitive accrual accounts that can affect earnings.

    D.    Two of the above

    E.    All of the above

 
28. In the Wall Street Journal article Greenspan's Words Seem to Do the Trick, it was reported that:

    A.    One rational explanation for the markets rise following Mr. Greenspan's remarks was that investors figure that the Fed may soon consider cutting U.S. interest rates.

    B.    One rational explanation for the markets' rise following Mr. Greenspan's remarks was that investors were pleased that someone credible seems to be taking charge, giving markets some sorely needed reassurance.

    C.    Mr. Greenspan vowed that he and his colleagues "will ... consider carefully the potential ramifications of interest rate reductions."

    D.    Two of the above.

    E.    All of the above.

 
29. Let's play Jeopardy! The answer is 20. What's the right question?

    A.    What is Bill Clinton's IQ?

    B.    What is Ken Starr's IQ?

    C.    What is Clinton's IQ plus Starr's IQ?

    D.    What is Clinton's IQ times Starr's IQ?

    E.    Who cares?

 
30. Let's play Jeopardy! The answer is 0 (zero). What's the right question?

    A.    What is the number of questions you're sure you got right on this test.

    B.    What is the number of times you're sure Bill Clinton told the truth in the past 20 years.

    C.    What is the number of things you've won in your life but you still keep entering sweepstakes anyway.

    D.    Two of the above.

    E.    All of the above.