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Fundamentals of Corporate Finance, 4/c/e

Fundamentals of Corporate Finance, 4/e

Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky
Gordon S. Roberts, York University

Introduction to Corporate Finance

Quick Quiz 2

After taking this quiz, click 'Submit Answers' for graded results. You'll also have the option of emailing the results to your instructor and/or yourself.


1	The management of the firm's short-term assets and liabilities is called:
		A)	capital structure.
		B)	financial depreciation.
		C)	agency cost analysis.
		D)	capital budgeting.
		E)	working capital management.


2	Which of the following is an answer to "What are the duties of a financial manager?" I. Deciding how much interest to pay the holders of the corporation's bonds II. Deciding the mix of long-term debt and equity III. Deciding which projects a firm should undertake IV. Deciding how much short-term debt to use
		A)	I and II only
		B)	II, III, and IV only
		C)	II and III only
		D)	I, II, and III only
		E)	I, II, III, and IV


3	The Board of Directors of Beeline, Inc. have decided to base the salary of its financial manager entirely upon the market share of the firm. Accordingly,
		A)	the firm may incur some agency costs since the manager will be focused on the market share of the firm rather than acting to maximize earnings
		B)	the financial manager will always act in the best interest of the shareholders since all agency costs have been eliminated through salary incentives
		C)	this arrangement may be unnecessary, since the goal of the firm is to maximize earnings for shareholders, and that is most likely accomplished through larger market share
		D)	the firm will incur some agency costs only if the manager does not act to maximize market share
		E)	the manager may not act to maximize the current value of the firm's stock, resulting in agency costs for the firm's stockholders


4	The document that legally establishes a corporation's name is called the:
		A)	articles of incorporation.
		B)	partnership agreement.
		C)	amended homestead filing.
		D)	bylaws.
		E)	indenture contract.


5	Which of the following is the BEST description of the goal of the financial manager in a corporation where shares are publicly traded?
		A)	Maximize sales
		B)	Maximize profits
		C)	Maximize the current value per share of the existing stock
		D)	Maintain steady earnings growth
		E)	Avoid financial distress


6	Which of the following is/are correct regarding agency costs? I. Indirect costs occur when managers, acting to minimize the risk of the firm, forego investments shareholders would prefer they take II. Direct costs occur when shareholders must incur costs to monitor their manager's actions III. Direct costs occur when managers buy assets considered unnecessary by the firm's owners
		A)	I, II, and III are all correct
		B)	Only I and II are correct
		C)	Only II is correct
		D)	Only II and III are correct
		E)	Only I is correct


7	When does the double taxation problem faced by corporations exist?
		A)	Whenever a corporation earns a profit, pays taxes on that profit, and then pays interest to its bondholders who are taxed
		B)	Whenever a corporation earns a profit, pays taxes on that profit, and then pays dividends to its stockholders who are taxed
		C)	Whenever a corporation earns a profit and pays taxes on that profit
		D)	Whenever a corporation earns a profit, pays taxes on that profit, and then pays dividends to its shareholders
		E)	Whenever stockholders are paid a dividend and are taxed on that dividend income


8	The total market value of the firm's equity is determined by ______________ .
		A)	the corporate treasurer
		B)	the firm's financial manager
		C)	the firm's stakeholders
		D)	the firm's stockholders
		E)	regulatory authorities


9	A(n)____________________ can lose, at most, what s/he has already invested in a firm. I. common stockholder II. limited partner III. general partner IV. sole proprietor
		A)	I and II only
		B)	I only
		C)	I, II, and IV only
		D)	II, III, and IV only
		E)	II and III only


10	Which of the following combinations of attributes would make a capital expenditure project desirable to a financial manager? I. The project is worth more to the firm than the cost to acquire it II. The value of the cash flow generated by the project exceed the cost of the project III. The project's cash flows have acceptable levels of risk and size, but not timing
		A)	I only
		B)	I, II, and II
		C)	I and III only
		D)	II and III only
		E)	I and II only

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