Chapter 1 - BUS 361 Sample Test
1. Most actions that help a firm increase the price of its stock also benefit society at large.
2. Which of the following factors tend to encourage management to pursue stock price maximization as a goal?
a. Shareholders link
management’s compensation to company performance.
b. Managers’ reactions to the threat of firing and hostile takeovers.
c. Statements a and b are both correct.
3. One main disadvantage of partnerships is the requirement of a charter and set of bylaws.
4. A corporate charter should include which of the following:
a. name of the proposed
b. type of activities it will pursue
c. amount of capital stock
d. number of directors and names and addresses of directors
e. all of the above
5. Mechanisms used to motivate managers to act in shareholders’ best interests include:
a. managerial compensation
b. direct intervention by shareholders
c. the threat of firing
d. the threat of takeovers
e. all of the above
6. Which of the following could explain why a business might choose to organize as a corporation rather than as a sole proprietorship or a partnership?
a. Corporations generally face
b. Corporations generally face lower taxes.
c. Corporations generally find it easier to raise capital.
d. Corporations enjoy unlimited liability.
e. All of the above statements are correct.
7. The globalization of business and the increased use of information technology are the two key trends in financial management today.
8. The activities of the financial staff include:
a. forecasting and planning.
b. major investment and financing decisions.
c. dealing with financial markets.
d. risk management.
e. all of the above.
9. Most firms today have in place strong codes of ethical behavior, yet there are no obvious answers for many of the ethical questions facing many companies.
10. The primary contribution of finance to total social welfare is its:
a. Function as a productive
b. Contribution to the efficient allocation and use of resources.
c. Role as an exogenous variable.
d. Positive impact on the externalities of “other variables.”
e. Contribution to environmental protection.
11. In most firms the treasurer has the responsibility for managing the firm’s cash and marketable securities, for planning its capital structure, for selling stocks and bonds to raise capital, for overseeing the corporate pension plan, and for managing risk.
12. The managers should always undertake actions that result in a transfer of wealth from bondholders to stockholders.
13. Which of the following represents a significant disadvantage to the corporate form of organization?
a. Difficulty in transferring
b. Exposure to taxation of corporate earnings and stockholder dividend income.
c. Degree of liability to which corporate owners and managers are exposed.
d. Difficulty corporations face in obtaining large amounts of capital in financial markets.
14. Socially responsible actions that increase costs may have to be put on a mandatory basis.
15. Managers that depart from the goal of shareholder wealth maximization run the risk of being removed from their jobs.