1.A financial analyst is responsible for maintaining and controlling the firm’s daily cash balances. Frequently manages the firm’s short term investments and coordinates short term borrowing and banking relationships.
False
2.Finance is concerned with the process institutions, markets, and instruments involved in the transfer of money among and between individuals, businesses and government.
True
3.Financial services are concerned with the duties of the financial manager.
False
4.Financial managers actively manage the financial affairs of many types of business—financial and non-financial, private and public, for-profit and not-for-profit.
True
5.In partnerships, owners have unlimited liability and may have to cover debts of other less financially sound partners.
True
In partnerships, a partner can readily transfer his/her wealth to other partners.
False
7.The board of directors is responsible for managing day to day operations and carrying out the policies established by the chief executive officer.
False
8.The sole proprietor has unlimited liability; his or her total investment in the business can be taken to satisfy creditors.
False
9.In limited partnerships, only one partner may assume limited liability. All other partners have to have unlimited liability.
False
10.The president or chief executive officer is elected by the firm’s stockholders and has ultimate authority to guide corporate affairs and make general policy.
False
11.In limited partnerships, partners’ liabilities are limited to their investment in the partnership.
False
12.In limited liability partnerships, the liability protection does not protect partners from their individual acts of malpractice.
True
13.The capital expenditures analyst/manager is responsible for the evaluation and recommendation of proposed asset investments and may be involved in the financial aspects of implementation of approved investments.
True
14.The financial analyst administers the firm’s credit policy by analyzing or managing the evaluation of credit applications, extending credit, and monitoring and collecting accounts receivable.
False
15.In large companies, the project finance manager is responsible for coordinating the assets and liabilities of the employees’ pension fund.
False
16.In S corporations, stockholders receive all of the organizational benefits of a corporation and the tax advantages of a partnership, but lose certain tax advantages related to pension plans that are available to traditional corporations.
True
17.Unlike an S corporation, the limited liability corporation (LLC) can own more than 80 percent of another corporation, and corporations, partnerships, or non-U.S. residents can own limited liability corporation shares.
True
18.In limited liability partnership, all partners have limited liability with regard to the business—they are not personally liable for other partners’ malpractice—and the limited liability partnership is taxed as partnership.
True
19.Marginal analysis states that financial decisions should be made and actions taken only when added benefits exceeds added costs.
True
20.The corporate controller typically handles the accounting activities, such as tax management, data processing, and cost and financial accounting.
True
21.The financial manager places primary emphasis on cash flows, the inflow and outflow of cash.
True
22.Managerial finance is concerned with design and delivery of advice and financial products to individuals, business, and government.
False
23.The corporate treasurer typically handles the both cost accounting and financial accounting.
False
24.The accrual method recognizes revenue at the point of sale and recognizes expenses when incurred.
True
25.The accountant evaluates financial statements, develops additional data, and makes decisions based on his or her assessment of the associated returns and risks.
False
26.The corporate treasurer is the officer responsible for the firm’s accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting.
False
27.The corporate controller is the officer responsible for the firm’s financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange.
False
28.High cash flow is generally associated with a higher share price whereas higher risk tends to result in a lower share price.
True
29.The corporate treasurer’s focus tends to be more external, while the controller’s focus is more internal.
True
30.The financial manager prepares financial statements that recognize revenue at the point of sale and expenses when incurred.
False
31.Using certain standardized and generally accepted principles, the accountant prepares financial statements that recognize revenue at the point of sale and expenses when incurred.
True
32.The financial manager must look beyond financial statements to obtain insight into developing or existing problems since the accrual accounting data do not fully describe the circumstances of a firm.
True
33.When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm’s stock, financial managers should accept only those actions that are expected to increase the firm’s profitability.
False
34.Financial analysis and planning is concerned with analyzing the mix of assets and liabilities.
False
35.Financing decisions deal with the left-hand side of the firm’s balance sheet and involve the most appropriate mix of current and fixed assets.
False
36.The goal of ethics is to motivate business and market participants to adhere to both the letter and the spirit of laws and regulations in all aspects of business and professional practice.
True
37.To achieve the goal of profit maximization, for each alternative being considered, the financial manager would select the one that is expected to result in the highest monetary return.
True
Dividend payments change directly with changes in earnings per share.
False
39.The wealth of corporate owners is measured by the share price of the stock.
True
40.Economic value added (EVA) is the difference between the cost of funds used to finance an investment and its after-tax operating profits.
True
41.Economic value added (EVA) is calculated by subtracting the cost of funds used to finance an investment from its after-tax operating profits.
True
42.Return and risk are the key determinants of share price, which represents the wealth of the owners in the firm.
True
43.A high earnings per share (EPS) does not necessarily translate into a high stock price.
True
44.The profit maximization goal ignores the timing of returns, does not directly consider cash flows, and ignores risk.
True
45.When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm’s stock, financial managers should accept only those actions that are expected to increase share price.
True
46.Higher risk tends to result in a higher share price since the stockholder must be compensated for the greater risk.
False
47.Where risk is involved, stockholders expect to earn higher rates of return on investments of lower risk and vice versa.
False
48.The likelihood that managers may place personal goals ahead of corporate goals is called the agency problem.
True
49.Agents of corporate owners are themselves owners of the firm and have been elected by all the corporate owners to represent them in decision making and management of the firm.
False
50.The agency problem is the acquisition of a firm by another firm that is not supported by management.
False
51.Market forces and agency costs help to prevent or minimize agency problems.
True
52.Credit unions are the largest type of financial intermediary that handle individual savings.
False
53.A mutual fund is a type of financial intermediary that obtains funds through the sale of shares and uses the proceeds to acquire bonds and stocks issued by various business and governmental units.
False
54.Primary and secondary markets are markets for short term and long term securities, respectively.
False
55.Financial markets are intermediaries that channel the savings of individuals, businesses and government into loans or investments.
False
56.Money markets involve the trading of securities with maturities of one year or less while capital market involve the buying and selling of securities with maturities of more than one year.
True
A financial institution is an intermediary that channels the savings of individuals, businesses, and governments into loans or investments
True
58.A public offering is the sale of a new security issue—typically debt or preferred stock—directly to an investor or group of investors.
False
59.Eurocurrency deposits arise when a corporation or individual makes a deposit in a bank in a currency other than the local currency of the country where the bank is located.
True
60.The Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) instituted interest-rate ceilings on all accounts a financial institution offers.
False
61.A financial supermarket is an institution at which a customer can obtain a full array of financial services, such as checking, savings, brokerage, insurance, retirement and estate planning.
True
62.A primary market is a financial market in which pre-owned securities are traded.
False
63.Loan transactions between commercial banks in which the federal government becomes involved are referred to as federal funds.
False
64.The eurocurrency market is a market for short-term bank deposits denominated in U.S. dollars or other easily convertible currencies.
True
65.The Over-the-Counter (OTC) exchange is not an organization but an intangible market for trading securities which are not listed by the organized exchanges.
True
66.The money market is a financial relationship created by a number of institutions and arrangements that allows suppliers and demanders of long-term funds to make transactions.
False
67.Unlike the organized exchanges, the OTC makes a market in both outstanding securities and new public issues, making it both a secondary and a primary market.
True
68.In the OTC market, the ask price is the highest price offered by a dealer to purchase a given security.
False
69.In the OTC market, the prices at which securities are traded result from both competitive bids and negotiation.
True
70.The price-to-earnings (PE) ratio measures the amount common stock investors are willing to pay for each dollar of the firm’s earnings.
True
71.An efficient market is a market that allocates funds to their most productive use as a result of competition among wealth maximizing investors.
True
72.Investors find Eurobonds attractive because they provide currency diversification and because they provide anonymity to the investor wishing to avoid payment of taxes.
True
73.The ordinary income of a corporation is income earned through the sale of a firm’s goods and services and is currently taxed subject to the individual income tax rates.
False
74.The marginal tax rate represents the rate at which additional income is taxed.
True
75.Dividends received on common and preferred stocks held in other corporations are all subject to exclusion for tax purposes in order to avoid triple taxation.
False
76.Because of the dividend exclusion only 70 percent of the intercorporate dividends are included as ordinary income.
False
77.Tax laws are used to accomplish economic goals such as providing incentives for corporate investment in certain types of assets.
True
78.With progressive tax rates, the average tax rate is always less than or equal to the marginal tax rate.
True
79.Dividends received by corporations on common and preferred stock held in other corporations and representing less than 20 percent ownership in them is subject to 70 percent exclusion for tax purposes.
True
80.The board of directors of most large corporations today include both inside directors and outside directors.
True
81.The major purpose of the Sarbanes-Oxley Act of 2002 was to place caps on the compensation that could be paid to corporate executives.
False
82.Institutional investors are professional investors who work on behalf of the federal government to ensure fairness in the financial markets.
False
83.Recent studies on executive compensation have failed to find a strong relationship between CEO compensation and share price.
