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Multiple Choice
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1
Generally, a corporation is owned by its:
A)Managers
B)Board of Directors
C)Shareholders
D)All of the above
2
Limited liability is an important feature of:
A)Sole proprietorships
B)Partnerships
C)Corporations
D)All of the above
3
Financial markets serve which of the following functions?
A)Provide liquidity for investors
B)Allow investors to adjust risk exposure
C)Allow firms to manage risk
D)All of the above
4
A firm's investment decision is also called the:
A)Financing decision
B)Capital budgeting decision
C)Liquidity decision
D)None of the above
5
The treasurer usually oversees the following functions of a corporation except:
A)Preparation of financial statements
B)Investor relationships
C)Cash management
D)Obtaining finances
6
The treasurer is usually responsible for the following functions of a corporation except:
A)Raising new capital
B)Cash management
C)Banking relationships
D)Internal accounting
7
The following are advantages of separation of ownership and management of corporations except:
A)Corporations can exist forever.
B)Facilitate transfer of ownership without affecting the operations of the firm.
C)Hire professional managers
D)Incur agency costs
8
The financial goal of a corporation is to:
A)Maximize sales
B)Maximize profits
C)Maximize the value of the firm
D)Maximize managers' benefits
9
Agency costs are costs incurred when:
A)Managers do not attempt to maximize firm value.
B)Shareholders incur costs to monitor the managers and influence their actions.
C)Both A and B
D)None of the above
10
Which of the following is typically not considered a financial manager in a large corporation?
A)Chief Financial Officer
B)Treasurer
C)Controller
D)Auditor
11
The difference in information held by managers, owners, and lenders is often referred to as what kind of information?
A)Asymmetric
B)Convergent
C)Private
D)Quality
12
Generally, a corporation is owned by its shareholders.
A)True
B)False
13
Shares owned and not traded on an exchange are sometimes referred to as:
A)Asymmetric
B)Closely Held
C)Private
D)Public
14
Which of the following is not a disadvantage of organizing as a corporation?
A)Limited liability
B)Costly communication
C)Managing legal issues
D)Tax consequences
15
What the name most often used in place of financial markets?
A)Bond markets
B)Capital markets
C)Options markets
D)Stock markets
16
What is the phrase used to describe the typical relationship between capital budgeting and financing decisions?
A)Dependent
B)Linked
C)Separated
D)Tied
17
The controller typically does all of the following, expect:
A)Accounting
B)Prepare financial statements
C)Raise capital
D)Taxes
18
Which of the following is typically considers an agency cost?
A)Audit
B)Cost of goods sold
C)Consultant fees
D)Taxes
19
What function raises cash and invests in projects?
A)Firm's operations
B)Financial manager
C)Financial markets
D)Shareholders





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