267778769 Chapter 1 pdf PDF

Preview

Summary

Download 267778769 Chapter 1 pdf PDF

Description

Chapter 01 - Goals and Governance of the Firm

Chapter 01 Goals and Governance of the Firm Multiple Choice Questions

1. Finance, generally, deals with: I) Money; II) Markets; III) People A. I only B. I and II only C. I and III only D. I, II and III

2. This book is mainly about: A. financial decisions made by households B. financial decisions made by corporations C. financial decisions made by governments D. none of the above

3. The following are examples of the United States-based corporations except: I) Boeing; II) Microsoft; III) Bank of America; IV) Sony A. I only B. I and II only C. I, II, and III only D. IV only

4. The following are examples of foreign-based corporations except: I) British Petroleum; II) General Electric; III) Sony; IV) Volkswagen A. I only B. II only C. II and III only D. I, II, & IV only

1-1

Chapter 01 - Goals and Governance of the Firm

5. Shareholders of a corporation may be, among others: I) Individuals; II) Pension Funds; III) Insurance Companies A. I only B. I and II only C. II only D. I, II and III

6. 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

7. Corporations, potentially, have infinite life because: A. it is a legal entity B. of separation of ownership and management C. it has limited liability D. none of the above

8. Limited liability is an important feature of: A. Sole proprietorships B. Partnerships C. Corporations D. All of the above

9. As a legal entity a corporation can perform the following functions except: I) borrow money; II) lend money; III) sue and be sued; IV) vote A. I and II only B. I, II, and III only C. IV only D. I, II, III and IV

1-2

Chapter 01 - Goals and Governance of the Firm

10. The following are examples of intangible assets except: A. Building B. Trademarks C. Patents D. Technical expertise

11. The following are examples of tangible assets except: A. Machinery B. Factories C. Trademarks D. Offices

12. A firm's investment decision is also called the: A. Financing decision B. Liquidity decision C. Capital budgeting decision D. None of the above

13. The following are examples of financial assets except: A. Common stock B. Bank loan C. Preferred stock D. Buildings

14. The treasurer usually oversees the following functions of a corporation except: I) Preparation of financial statements; II) Investor relationships; III) Cash management; IV) raising new capital A. I only B. I and II only C. II, III and IV only D. III only

1-3

Chapter 01 - Goals and Governance of the Firm

15. The treasurer is usually responsible the following functions of a corporation: I) Tax obligations; II) Investor relationships; III) Cash management; IV) raising new capital A. I only B. I and II only C. II, III and IV only D. I, II, III and IV

16. The controller usually oversees the following functions of a corporation: I) Preparation of financial statements; II) Internal accounting; III) Cash management and IV) Taxes A. I, II and IV only B. III only C. I and II only D. II and III

17. The controller is usually responsible for the following functions of a corporation except: I) Preparation of financial statements; II) Internal accounting; III) Cash management; IV) Taxes A. I only B. III only C. I and II only D. IV only

18. 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

1-4

Chapter 01 - Goals and Governance of the Firm

19. The Chief Financial Officer (CFO) of a corporation oversees: A. Treasurer's functions B. Controller's functions C. Both A and B D. None of the above

20. 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

21. In the principal-agent framework: A. Shareholders are the principals B. Managers are the principals C. Managers are the agents D. A and D

22. 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

23. 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

1-5

Chapter 01 - Goals and Governance of the Firm

24. The following groups are some of the claimants to a firm's income stream: I) Shareholders; II) Bondholders; III) Employees; IV) Management and V) Government A. I and II only B. I, II, and III only C. I, II, III and IV only D. I, II, III, IV and V

25. 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

26. The purchase of real assets is also referred to as the: A. Capital decision B. CFO decision C. Financing decision D. Investment decision

27. The sale of financial assets is also referred to as the: A. Capital decision B. CFO decision C. Financing decision D. Investment decision

28. 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

1-6

Chapter 01 - Goals and Governance of the Firm

29. Which of the following is not a common function of the firm's chief financial officer? A. Hiring CEO B. Hiring controller C. Investing capital D. Paying dividends

30. 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

31. The following are examples of real assets: I) Machinery; II) Office buildings; III) Warehouse; IV) Common stock A. I, II, and III only B. I and II only C. IV only D. I only

32. The following are examples of tangible assets except: I) Machinery; II) Office buildings; III) Warehouse; IV) Training for employees A. I only B. I and II only C. IV only D. I, II, and III only

33. The financial goal of a corporation is to: A. Minimize stockholder wealth B. Maximize profit C. Maximize value of the corporation to the stockholders D. Decrease job security

1-7

Chapter 01 - Goals and Governance of the Firm

34. Managers' actions are monitored by: A. The board of directors B. Commercial banks that have loaned funds to the firm C. The Wall Street analysts D. All of the above

35. The following are some of the actions shareholders can take if the corporation is not performing well: A. Replace the board of directors in an election. B. Force the board of directors to change the management team. C. Sell their shares of stock in the corporation. D. Any of the above

36. 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

37. 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

38. The Sarbanes-Oxley Act of 2002 (SOX) was passed largely in response to: A. the corporate accounting scandals of the previous years B. the increase in the budget deficits C. the increase in the trade deficits D. none of the above

1-8

Chapter 01 - Goals and Governance of the Firm

39. A major advantage of the Sarbanes-Oxley Act of 2002 (SOX) is: A. good investor protection B. increase in compliance costs C. that it constrains managers' ability to run the firm D. that it may discourage development of human capital in the firm

40. Major disadvantages of the Sarbanes-Oxley Act of 2002 (SOX) are the following except: A. good investor protection B. increase in compliance costs C. that it constrains managers' ability to run the firm D. that it may discourage development of human capital in the firm

True / False Questions

41. The board of directors is ultimately responsible for all large investment decisions. True False

42. A corporation has a legal existence of its own and is based on "articles of incorporation." True False

43. Real assets of a corporation are claims on their financial assets. True False

44. Since the investment and financing decisions are analyzed separately, the financial manager can completely ignore investors and financial markets when analyzing capital investment projects. True False

1-9

Chapter 01 - Goals and Governance of the Firm

45. The treasurer's responsibilities include preparation of financial statements. True False

46. In large firms, there is usually a Chief Financial Officer (CFO) who oversees both the treasurer and controller's work. True False

47. The controller's responsibilities include banking relations and cash management. True False

48. A firm's overall value belongs entirely to the shareholders. True False

49. Managers, Shareholders, and lenders of firm have identical information about the value of the firm. True False

Short Answer Questions

50. Explain the term "corporation."

1-10

Chapter 01 - Goals and Governance of the Firm

51. Briefly explain the term limited liability.

52. Briefly explain the advantages of a corporation as a form of business organization.

53. Briefly explain the sequence flow of cash between financial markets and the firm.

54. Briefly explain the functions of financial markets.

1-11

Chapter 01 - Goals and Governance of the Firm

55. Briefly discuss the role of the financial managers.

56. Briefly explain the term "Agency costs" as related to a corporation.

57. Briefly discuss principal - agent problems as related to a corporation

58. What function does the Securities and Exchange Commission play in protecting investors?

1-12

Chapter 01 - Goals and Governance of the Firm

59. What items of good corporate governance serve to mitigate the tension between owners and managers?

60. Explain why "maximization of shareholders' wealth" is the appropriate goal of the firm.

61. Briefly explain some of the institutional arrangements that ensure that managers work toward increasing the value of a firm.

62. Briefly explain different views taken in different countries about the corporation's goals.

1-13

Chapter 01 - Goals and Governance of the Firm

63. Briefly explain the reasons for enacting the Sarbanes-Oxley Act of 2002.

64. Briefly explain the advantages and disadvantages of Sarbanes-Oxley Act of 2002 (SOX).

65. Briefly explain the major provisions of the Sarbanes-Oxley Act of 2002 (SOX).

66. What are the main purposes of the Sarbanes-Oxley Act of 2002 (SOX).

1-14

Chapter 01 - Goals and Governance of the Firm

67. What is Toyota's business philosophy?

Multiple Choice Questions

68. Mr. Free has $100 dollars income this year and zero income next year. The market interest rate is 10% per year. If Mr. Free consumes $30 this year, and invests the rest in the market, what will be his consumption next year? A. $50 B. $100 C. $77 D. $55

69. 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

70. 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

1-15

Chapter 01 - Goals and Governance of the Firm

71. 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

72. 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.

73. Ms. Anderson has $60,000 income this year and $40,000 next year. The market interest rate is 10% per year. Suppose Ms. Anderson consumes $80,000 this year. What will be her consumption next year? A. $60,000 B. $30,000 C. $70,000 D. $18,000

74. The line that connects the maximum that one can consume this year (now) and the maximum one can consume next year: A. Has a slope of (1 + r) B. Has a slope of -(1 + r) C. Has a slope of r D. Has a slope of 1/r

1-16

Chapter 01 - Goals and Governance of the Firm

75. Ms. Newcastle has $60,000 income this year and $40,000 next year. The market interest rate is 10% per year. Suppose Ms. Newcastle wishes to consume $62,000 next year. What will be her consumption this year? A. $60,000 B. $40,000 C. $70,000 D. $19,000

76. Mr. Smith has an income of $40,000 this year and $60,000 next year. He can invest in a project that costs $30,000 this year, which generates an income of $36,000 next year. The market interest rate is 10%. What will be his consumption next year, if Mr. Smith invests in the project and consumes $50,000 this year? A. $40,000 B. $52,000 C. $60,000 D. None of the above

Short Answer Questions

77. Briefly explain how individuals can adjust their preferences for current and future consumption.

1-17

Chapter 01 - Goals and Governance of the Firm

Chapter 01 Goals and Governance of the Firm Answer Key

Multiple Choice Questions

1. Finance, generally, deals with: I) Money; II) Markets; III) People A. I only B. I and II only C. I and III only D. I, II and III

Type: Easy

2. This book is mainly about: A. financial decisions made by households B. financial decisions made by corporations C. financial decisions made by governments D. none of the above

Type: Easy

3. The following are examples of the United States-based corporations except: I) Boeing; II) Microsoft; III) Bank of America; IV) Sony A. I only B. I and II only C. I, II, and III only D. IV only

Type: Easy

1-18

Chapter 01 - Goals and Governance of the Firm

4. The following are examples of foreign-based corporations except: I) British Petroleum; II) General Electric; III) Sony; IV) Volkswagen A. I only B. II only C. II and III only D. I, II, & IV only

Type: Easy

5. Shareholders of a corporation may be, among others: I) Individuals; II) Pension Funds; III) Insurance Companies A. I only B. I and II only C. II only D. I, II and III

Type: Medium

6. 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

Type: Easy

7. Corporations, potentially, have infinite life because: A. it is a legal entity B. of separation of ownership and management C. it has limited liability D. none of the above

Type: Medium

1-19

Chapter 01 - Goals and Governance of the Firm

8. Limited liability is an important feature of: A. Sole proprietorships B. Partnerships C. Corporations D. All of the above

Type: Easy

9. As a legal entity a corporation can perform the following functions except: I) borrow money; II) lend money; III) sue and be sued; IV) vote A. I and II only B. I, II, and III only C. IV only D. I, II, III and IV

Type: Medium

10. The following are examples of intangible assets except: A. Building B. Trademarks C. Patents D. Technical expertise

Type: Medium

11. The following are examples of tangible assets except: A. Machinery B. Factories C. Trademarks D. Offices

Type: Medium

1-20

Chapter 01 - Goals and Governance of the Firm

12. A firm's investment decision is also called the: A. Financing decision B. Liquidity decision C. Capital budgeting decision D. None of the above

Type: Medium

13. The following are examples of financial assets except: A. Common stock B. Bank loan C. Preferred stock D. Buildings

Type: Medium

14. The treasurer usually oversees the following functions of a corporation except: I) Preparation of financial statements; II) Investor relationships; III) Cash management; IV) raising new capital A. I only B. I and II only C. II, III and IV only D. III only

Type: Difficult

15. The treasurer is usually responsible the following functions of a corporation: I) Tax obligations; II) Investor relationships; III) Cash management; IV) raising new capital A. I only B. I and II only C. II, III and IV only D. I, II, III and IV

Type: Difficult

1-21

Chapter 01 - Goals and Governance of the Firm

16. The controller usually oversees the following functions of a corporation: I) Preparation of financial statements; II) Internal accounting; III) Cash management and IV) Taxes A. I, II and IV only B. III only C. I and II only D. II and III

Type: Difficult

17. The controller is usually responsible for the following functions of a corporation except: I) Preparation of financial statements; II) Internal accounting; III) Cash management; IV) Taxes A. I only B. III only C. I and II only D. IV only

Type: Difficult

18. 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

Type: Medium

19. The Chief Financial Officer (CFO) of a corporation oversees: A. Treasurer's functions B. Controller's functions C. Both A and B D. None of the above

Type: Easy

1-22

Chapter 01 - Goals and Governance of the Firm

20. 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

Type: Medium

21. In the principal-agent framework: A. Shareholders are the principals B. Managers are the principals C. Managers are the agents D. A and D

Type: Medium

22. Costs associated with the conflicts of interest between the bondholders and the shareholders of a corporation are called: A. Legal cost...