Chapter 1 - BUS 361 Sample Test
1. Most actions that help a firm increase the price of its stock also benefit society at large.
a. True
b. False
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.
a. True
b. False
4. A corporate charter should include which of the following:
a. name of the proposed
corporation
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
fewer regulations.
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.
a. True
b. False
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.
a. True
b. False
10. The primary contribution of finance to total social welfare is its:
a. Function as a productive
resource.
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.
a. True
b. False
12. The managers should always undertake actions that result in a transfer of
wealth from bondholders to stockholders.
a. True
b. False
13. Which of the following represents a significant disadvantage to the
corporate form of organization?
a. Difficulty in transferring
ownership.
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.
a. True
b. False
15. Managers that depart from the goal of shareholder wealth maximization run
the risk of being removed from their jobs.
a. True
b. False