1) In a firm with no long-term debt, the question of capital structure is irrelevant.

[A] True

[B] False

[A] :Capital structure is still relevant. This firm has chosen to have no long-term debt. [B] :You are correct!

2) Which one of the following is the best description of the goal of a financial manager in a corporation

where shares are publicly traded?

[A] maximize sales growth over the short-term

[B] maximize profits over the short-term

[C] avoid financial distress

[D] maintain steady earnings growth

[E] maximize the current value per share of the existing stock

[A] :The primary goal is to maximize the current value per share of the existing stock.

[B] :The primary goal is to maximize the current value per share of the existing stock. .

[C] :The primary goal is to maximize the current value per share of the existing stock.

[D] :The primary goal is to maximize the current value per share of the existing stock

[E] :You are correct!

3) Which one of the following is a responsibility of the corporate controller?

[A] cash management

[B] credit management

[C] cost accounting management

[D] capital expenditure management

[E] financial planning

[A] :This is the responsibility of the treasurer. Review section 1.1.

[B] :This is the responsibility of the treasurer. Review section 1.1.

[C] :You are correct!

[D] :This is the responsibility of the treasurer. Review section 1.1.

[E] :This is the responsibility of the treasurer. Review section 1.1.

4) Which one of the following creates an agency cost?

[A] auditing the corporate financial statements

[B] employee health insurance

[C] managers who own corporate stock

[D] financing the firm

[E] buying insurance on the firm's assets

[A] :You are correct!

[B] :This is a normal employee benefit and not an agency cost. Review section 1.4.

[C] :Agency costs arise when owners and managers are different individuals. Review section 1.4.

[D] :Financing costs are not agency costs. Review section 1.4.

[E] :Insurance is a risk-reducing activity, not an agency cost. Review section 1.4.

5) The partnership form of organization is considered more important than the corporate form in respect

to firm size.

[A] True

[B] False

[A] :The largest firms are generally corporations. Review section 1.2.

[B] :You are correct!

6) When evaluating a project in which a firm might invest, both the size and the timing of the cash flows

are important.

[A] True

[B] False

[A] :You are correct!

[B] :Both the size and timing of cash flows are important when evaluating a project. Review section 1.1.

7) A type of small corporation that is taxed like a partnership and thus avoids double taxation in the U.S.

is called a:

[A] limited partnership.

[B] sole proprietorship.

[C] S corporation.

[D] joint stock company.

[E] general partnership.

[A] :This is not a corporation. Review section 1.2.

[B] :This is not a corporation. Review section 1.2.

[C] :You are correct!

[D] :This is a foreign version of a corporation. Review section 1.2.

[E] :This is not a corporation. Review section 1.2.

8) Which of the following are disadvantages of a sole proprietorship?

I. ease of formation

II. double taxation

III. limited life

IV. ability to raise capital

[A] I and III only

[B] I and IV only

[C] II and III only

[D] III and IV only

[E] II and IV only

[A] :One of these is an advantage. Review section 1.2.

[B] :One of these is an advantage. Review section 1.2.

[C] :One of these does not apply to a sole proprietorship. Review section 1.2.

[D] :You are correct!

[E] :One of these does not apply to a sole proprietorship. Review section 1.2.

9) The term capital structure describes the:

[A] mixture of debt and equity a firm uses to finance its operations.

[B] types of long-term investments a firm has made.

[C] long term assets acquired by a firm.

[D] firm's short-term assets and liabilities.

[E] mixture of short-term liabilities a firm uses to finance its short-term assets.

[A] :You are correct!

[B] :This reflects a firm's capital budgeting decisions. Review section 1.1.

[C] :This reflects a firms capital budgeting decisions. Review section 1.1.

[D] :This reflects a firm's working capital decisions. Review section 1.1.

[E] :This reflects a firm's working capital decisions. Review section 1.1.

10) Which of the following criteria are required if a firm is to accept a project?

I. The size of the cash flows must be acceptable to the firm.

II. The value of the cash flows generated by the project must exceed the cost of the project.

III. The risk level of the project must be acceptable to the firm.

IV. The timing of the cash flows must be acceptable to the firm.

[A] I and II only

[B] I and IV only

[C] II and III only

[D] I, II, and III only

[E] I, II, III, and IV

[A] :True, but at least one other criteria is also required. Review section 1.1.

[B] :True, but at least one other criteria is also required. Review section 1.1.

[C] :True, but at least one other criteria is also required. Review section 1.1.

[D] :True, but at least one other criteria is also required. Review section 1.1.

[E] :You are correct!

11) In the evaluation of cash flow in a capital budgeting decision, which of the following must be

considered?

I. size of the cash flow

II. timing of the cash flow

III. risk of the cash flow

[A] I only

[B] II only

[C] III only

[D] II and III only

[E] I, I, and III

[A] :True, but this is not the only consideration. Review section 1.1.

[B] :True, but this is not the only consideration. Review section 1.1.

[C] :True, but this is not the only consideration. Review section 1.1.

[D] :True, but is the size of the cash flows not a consideration also? Review section 1.1.

[E] :You are correct