1.If two companies have the same net income and the same level of risk, they must also have the same stock price or the market is not in equilibrium.

Select one:

a. True

b. False

2.When evaluating an investment project, which of the following best describes the financial information needed by the decision maker?

Select one:

a.after-tax accounting profits

b.after-tax incremental cash flows to the company as a whole

c.incremental cash flows before taxes so the decision will not be biased by a tax code that may change in the future

d.pre-tax accounting profits adjusted for any accounting method changes

3.Which of the following statements about the corporate form of business organization is true?

Select one:

a.The corporate form has the disadvantage of double taxation relative to a sole proprietorship.

b.The corporate form is preferred over the sole proprietorship because a corporation is easier to form and faces less regulation.

c.Sole proprietorships are the most common form of business organization because liability is limited to the amount invested in the business by the sole proprietor.

d.The corporate form has the advantage of unlimited liability.

4.Which of the following categories of owners have limited liability?

Select one:

a.general partners

b.sole proprietors

c.shareholders of a corporation

d.both A and B

5.Assume that an investor is offered a choice of a risk-free government bond that is expected to return 3.5% or a high-risk corporate stock. According to one of the principles of finance, what would induce the investor to purchase the corporate stock?

Select one:

a.a return that is substantially lower than 3.5%

b.cash dividends

c.a return that is substantially higher than 3.5%

d.none of the above

6.The sole proprietorship has no legal business structure separate from its owner.

Select one:

a.True

b.False

7.The CEO of High Tech International decides to change an accounting method at the end of the current year. The change results in reported profits increasing by 5%, but the company's cash flows are not changed. If capital markets are efficient, then

Select one:

a.the stock price will not be affected by the accounting change.

b.the stock price will increase due to higher profits.

c.the stock price will increase only if the accounting change will also result in higher profits in the next year.

d.the stock price will decrease because accounting method changes are not permitted under generally accepted accounting principles.

8.When making financial decisions, managers should always look at marginal, or incremental cash flows.

Select one:

a.True

b.False

9.Determining the best way to raise money to fund a firm's long-term investments is called

Select one:

a.the capital budgeting decision.

b.the portfolio decision.

c.the money flow processing decision.

d.the capital structure decision.

10.The true owners of the corporation are the

Select one:

a.holders of debt issues of the firm.

b.preferred stockholders.

c.board of directors of the firm.

d.common stockholders.

11.The financial manager most directly responsible for producing the company's financial statements and directing its cost accounting functions is the

Select one:

a.chief financial officer.

b.controller.

c.treasurer.

d.vice president - financer.

12.A basis point is equal to

Select one:

a.one percent.

b.one-tenth of one percent.

c.one-hundredth of one percent.

d.one-half of one percent.

13.Prices of securities that are traded on the organized exchanges are determined by

Select one:

a.a "bid" and "ask" negotiation process amongst brokers who hold these securities in their own account.

b.the Securities Exchange Commission.

c.a continuous auction process reflecting the sentiments of buyers and sellers.

d.the sellers of the securities.

14.Which of the following refers to all institutions and procedures that provide for transactions in short-term debt instruments generally issued by borrowers with very high credit ratings?

Select one:

a.capital market

b.commercial banks

c.money market

d.stock market

15.Insurance companies invest in the "long-end" of the securities market by purchasing securities with longer maturities. In which of the following instruments would an insurance company be least likely to invest most of its assets?

Select one:

a.corporate stocks

b.corporate bonds

c.mortgages

d.commercial paper