(Test Bank) Finance Applications & Theory

Cornett,Adair,Nofsinger, 6

Business

Test Bank

6th Edition

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Test Bank for Finance Applications & Theory, The downloadable file consists of 1236 pages, and the total size of the file is 4.73 MB. Purchase now only for highly discounted price.

Author(s): Cornett, Adair, Nofsinger

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Version 1 1 Test Bank for Finance Applications & Theory, 6e Marcia Cornett, Troy Adair, John Nofsinger (All Chapters Answers are at the end of each chapter) 1) Which statements(s) is/are true for successful application of financial theories? A) The economy will be more productive. B) Individual ’s wealth will grow. C) The economy will be more productive and individual's wealth will grow. D) None of these choices are correct. 2) Not all cash a company generates will be returned to the investors. Which of the following will NOT reduce the amount of capital returned to the investors? A) retained earnings B) taxes C) dividends 3) This subarea of finance involves m ethods and techniques to make appropriate decisions about what kinds of securities to own, which firms' securities to buy, and how to be paid back in the form that the investor wishes. A) real markets B) investments C) financial management 4) This subarea of finance looks at firm decisions in acquiring and utilizing cash received from investors or from retained earnings. A) investments B) financial management C) financial institutions and markets 5) Financial management involves decisions about which of the following? A) Which projects to fund B) How to minimize taxation C) What type of capital should be raised D) All of these choices are correct. Version 1 2 6) This subarea of finance helps facilitate the capital flows between investors and companies. A) investments B) financial management C) treasury management D) financial institutions and markets 7) This subarea of finance is important for adapting to the global economy. A) investments B) financial management C) international finance D) financial institutions and markets 8) A potential future negative impact to value and/or cash flows is often discussed in terms of probability of loss and the expected magnitude of the loss. This is called A) options. B) standard deviation. C) coefficient of variation. D) risk. 9) This is a term to describe non -physical assets like stocks and bonds that get their value from future c ash flows. A) investment B) financial asset C) real asset D) financial markets 10) Which of the following is defined as a group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations? Version 1 3 A) investments B) asset classes C) market instruments D) financial markets 11) The most commonly accepted groups of asset classes include all of the following except A) stocks. B) bonds. C) machinery and equipment. D) real estate. 12) The_________ is the interest rate at which banks and other depository institutions lend reserve balances to one another overnight; this rate heavily influences other short -term rates. A) average tax rate B) exchange rate C) federal funds rate D) none of these choices are correct. 13) Which of the following statements regarding quantitative easing (QE) are true? A) QE is a monetary policy designed to increase the money supply i n the economy through buying securities in the market and lowering short -term interest rates. B) The first round of QE involved the Fed to purchase potentially toxic mortgage -backed securities from banks. C) During early 2020 due to the COVID -19 pandemi c, the Fed dropped the federal funds rate to 1.25% and then again 0.25 a few months later. D) All of these choices are correct. 14) Which of the following is the firm's highest -level financial manager? Version 1 4 A) chief executive officer B) chief financial officer C) board of directors D) corporate governance 15) Which of the following managers would NOT use finance primarily? A) operational managers B) marketing managers C) human resource managers D) all of t hese choices are correct. 16) Which of the following personal decisions is impacted by finance? A) borrowing money to purchase cars or homes B) making credit card payments C) making retirement decisions D) all of these choices ar e correct. 17) When determining a form of business organization, all of the following are considered EXCEPT A) who owns the firm. B) the owners' risks. C) the tax ramifications. D) the physical location of the business. Version 1 5 18) This type of business organization is relatively easy to start, and it is subject to much lighter regulatory and paperwork burden than other business forms. A) sole proprietorship B) partnership C) corporation D) hybrid organizatio n 19) This type of business organization is entirely legally independent from its owners. A) sole proprietorship B) partnership C) public corporations D) hybrid organizations 20) Which of the following is NOT considered a hybrid organization? A) S corporation B) limited liability partnership C) limited liability company D) limited partnership E) all of these choices are considered hybrid organizations. 21) The practice generally known a s double taxation is due to A) shareholders' dividends being taxed at both the federal and state levels only. B) corporate income being taxed at both the federal and state levels only. C) interest on shareholders' dividends being taxed as incom e only. D) corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends. Version 1 6 22) As individual legal entities, corporations assume liability for their own debts, so the shareholders hold A) only limited liability. B) unlimited liability. C) shared liability. D) joint liability. 23) In order for an angel investor or venture capitalist to exchange capital for ownership in a business that is a sole proprietorship, which of these must happen? A) The business must be re -formed as a partnership. B) The owner must give up some control. C) The owner must co -sign on all loans. D) The business must be re -formed as a partnership and th e owner must give up some control. 24) Which statement(s) should be considered to maximize owner ’s equity value? A) How best to bring additional funds into the firm. B) Which projects to invest in. C) How best to return the profi ts from those projects to the owners over time. D) All of these should be considered. 25) For corporations, maximizing the value of owner's equity can also be stated as A) maximizing retained earnings. B) maximizing earnings per share. C) maximizing net income. D) maximizing the stock price. Version 1 7 26) A metaphor used to illustrate how an individual pursuing his own interests also tends to promote the good of the community. A) agency theory B) angel investor C) invisible hand D) perks or perquisites 27) This should be the primary objective of a firm as it may actually be the most beneficial for society in the long run. A) minimizing layoffs B) maximizing market share C) minimizing costs D) maximizing shareholder value 28) Nonwage compensation that might actually enhance owner value, in that such items may boost managers' productivity. A) agency theory B) angel investor C) invisible hand D) perks or perquisites 29) Which of these are NOT basic approaches to minimizing the agency problem? Version 1 8 A) ignore the conflict of interest B) monitor managers' actions C) align managers' personal interest with those of the owners by m aking the managers owners D) all of these choices are correct. 30) Which of the following is an example of aligning managers' personal interests with those of the owners? A) allow the managers to have as many perks as they request B) pay the managers high salaries C) offer the managers an equity stake in the firm D) trust the managers' actions as they will always act in the owners' best interest 31) This is the set of laws, policies, incentives, and monitors desig ned to handle the issues arising from the separation of ownership and control. A) agency theory B) corporate governance C) defined benefit plan D) invisible hand 32) This group is elected by stockholders to oversee management in a corporation. A) chief counselors B) chief executives C) board of directors D) auditors Version 1 9 33) These individuals examine the firm's accounting systems and comment on whether financial statements fairly represent the firm's financ ial position. A) accounting departments B) chief financial officers C) board of directors D) auditors 34) These individuals follow a firm, conduct their own evaluations of the company's business activities, and report to the investment community. A) auditors B) investment analysts C) investment bankers D) credit analysts 35) These individuals help firms access capital markets and advise managers about how to interact with those capital markets. A) auditors B) investment analysts C) investment bankers D) credit analysts 36) These individuals examine a firm's financial strength for its debt holders. A) auditors B) investment analysts C) investment bankers D) credit analysts Version 1 10 37) Which of the following is a legal duty between two parties where one party must act in the interest of the other party? A) agency theory B) angel investor C) fiduciary D) investment banker 38) Which of the following can create ethical dilemmas between corporate managers and stockholders? A) agency relationship B) auditors C) boards of directors D) venture capitalist 39) Individuals who provide small amount s of capital and expert business advice to small firms in exchange for an ownership stake in the firm are referred to as A) institutional investors. B) corporate investors. C) angel investors. D) capital investors. 40) The opportunity to buy stock at a fixed price over a specific period of time is referred to as Version 1 11 A) stock opportunities. B) stock options. C) real assets. D) restricted stock. 41) The portion of a company's profits that are kept by t he company rather than distributed to the stockholders as cash dividends is referred to as A) restricted earnings. B) venture capital. C) retained earnings. D) institutional investment. 42) An employee stock option plan is A) a perk usually only given to the board of directors as compensation. B) a plan that only partnerships can use to defer compensation to partners. C) a way to align the interests of employees with those of the owners. 43) Outside parties that monitor the firm include all of the following EXCEPT A) credit agencies. B) the New York Stock Exchange. C) analysts. D) bankers. 44) Which of the following is NOT a function of the board of directors? Version 1 12 A) hire the CEO B) evaluate the CEO C) design compensation contracts for the CEO D) provide reports to the auditors 45) The overall goal of the financial manager is to A) minimize total costs. B) maximize net income. C) maximize earnings per share. D) maximize shareholder wealth. 46) Maximizing owners' equity value means carefully considering all of the following EXCEPT A) how to best bring additional funds into the firm. B) which projects to invest in. C) how best to increase the firm's risk. D) how best to return the profits from those projects to the owners over time. 47) The agency relationship in corporate finance occurs A) when the shareholders hire a manager to run their company. B) when the corporation hires an advertising agency to market their new product or service. C) when the board of directors are elected to staggered terms. D) when the board of directors oversee the CEO. 48) The most common type of business in the United States is the Version 1 13 A) corporation. B) partnership. C) sole proprietorship. D) hybrid organization such as a limited liability company. 49) The biggest disadvantage of the sole propri etorship is A) unlimited liability. B) double taxation. C) limited access to capital. D) total control. 50) Which of the following statements is incorrect? A) Sole proprietorships are subject to less regulation. B) Both angel investors and venture capitalists exchange capital for ownership. C) Shareholders are responsible for paying off the corporate bonds in the event of a bankruptcy. D) All of these choices are correct. 51) All of the following are advantages to organizing as a corporation EXCEPT A) limited liability. B) double taxation. C) easy access to capital. D) easy to transfer ownership. 52) Which of the following statements is correct? Version 1 14 A) Sole proprietor ships are easy to start. B) If the sole proprietorship gets sued, the owner is not liable. C) It is relatively easy for sole proprietorships to raise money. D) Profits from the sole proprietorship are subject to double taxation. 53) From a taxation perspective, the form of business organization with the highest business level taxes is the A) sole proprietorship. B) corporation. C) partnership. D) S corporation. 54) From the perspective of access to capital, t he best form of business organization is the A) sole proprietorship. B) corporation. C) partnership. D) S corporation. 55) From the perspective of ownership risk, the best form of business organization is the A) sole proprietorship. B) corporation. C) partnership. D) S corporation. 56) From the perspective of control, the best form of business organization is the Version 1 15 A) sole proprietorship. B) corporation. C) partnership. D) S corporation. 57) Which of the following statements is incorrect? A) Partnerships have unlimited liability. B) Most sole proprietors raise money by borrowing from banks. C) An advantage of sole proprietorships is that the ow ner has complete control. D) S corporations are considered a hybrid organization. 58) Which organization(s) is/are characterized by single taxation and limited liability to all owners? A) S corporations. B) Limited liability par tnerships (LLPs). C) Limited liability companies (LLCs). D) All of these choices are correct. 59) Which statement is incorrect regarding hybrid organizations? A) They offer single taxation. B) They offer limited risk to the owne rs. C) They offer the same type of control as a sole proprietorship. D) All of these choices are correct. 60) Agency problems exist in which forms of business ownership?