1、Chapter One Financial EconomicsThis chapter contains 48 multiple choice questions, 20 short problems and 5 longer problems.Multiple Choice1. The primary goal of corporate management is to _ shareholder wealth.(a) minimize(b) maximize(c) leverage(d) mitigateAnswer: (b)2. A _ stock market imposes _ di
2、scipline on managers to take actions to maximize the market value of the firms shares.(a) competitive, strong(b) dispersed, weak(c) mature, no(d) dispersed, strongAnswer: (a)3. The _ form is especially well suited to the separation of ownership and management of firms because it allows relatively fr
3、equent changes in owners by share transfer without affecting the operations of the firm.(a) corporate(b) sole proprietorship(c) partnership(d) householdAnswer: (a)4. _ is anything that has economic value.(a) A partnership(b) An asset(c) A balance sheet(d) An income statementAnswer: (b)5. A household
4、s wealth or net worth is measured by the value of its _ minus its _.(a) liabilities; assets(b) assets; liabilities(c) stocks; bonds(d) bonds; liabilitiesAnswer: (b)6. The branch of finance dealing with financial decisions of firms is called _ or _.(a) investments; international finance(b) markets; i
5、nstitutions(c) business finance; institutions(d) business finance; corporate financeAnswer: (d)7. Bonds promise _ cash payments, while stocks pay the _ value left over after all other claimants have been paid.(a) variable; residual(b) residual; fixed(c) fixed; residual(d) fixed; variableAnswer: (c)8
6、. The day-to-day financial affairs of the firm are usually referred to as _.(a) working capital management(b) capital structure(c) capital budgeting(d) strategic planningAnswer: (a)9. A disadvantage of the sole proprietorship is the fact that the sole proprietor has _.(a) limited liability for the d
7、ebts of the firm(b) unlimited liability for the debts of the firm(c) expensive costs to establish the firm(d) limited authority over the day-to-day business decisions of the firmAnswer: (b)10. In the U.S. corporations with concentrated ownership are called _ and corporations with broadly dispersed o
8、wnership are called _.(a) private corporations; public corporations(b) public corporations; private corporations(c) public corporations; monopolies(d) private corporations; state owned corporationsAnswer: (a)11. Billy owns a house worth $350,000 and has a $55,000 bank account. Billy owes $270,000 to
9、 the bank on a home mortgage loan and has a $12,000 credit card debt outstanding. Calculate Billys net worth.(a) $135,000(b) $123,000(c) $497,000(d) $37,000Answer: (b)12. Marlowe owns a house worth $150,000, a car worth $25,000 and has an $18,000 bank account. Marlowe owes $135,000 to the bank on a
10、home mortgage loan, $18,000 on the car loan and has an $18,000 credit card debt outstanding. Calculate Marlowes net worth.(a) $58,000(b) $123,000(c) $22,000(d) $37,000Answer: (c)13. An advantage of the corporate form of ownership is _.(a) no liability(b) unlimited liability(c) limited liability(d) C
11、EO liabilityAnswer: (c)14. In the corporate form, the separated structure creates the potential for _ between owners and managers.(a) a conflict of interest(b) increased transactional costs(c) stability in relations(d) none of the aboveAnswer: (a)15. All of the following are reasons for having a sep
12、aration of management and ownership of the firm except:(a) the going concern effect favors the separated structure(b) professional managers may be found who possess a superior ability to run the business(c) it prevents the possibility of a conflict of interest between the owners and management(d) it
13、 allows for savings in the cost of information gatheringAnswer: (c)16. _ involves the evaluation of costs and benefits spread out over time, and it is largely a financial decision-making process.(a) Stock valuation(b) Bond valuation(c) Inventory costing(d) Strategic planningAnswer: (d)17. Shareholde
14、r wealth maximization depends on all of the following except:(a) production technology(b) market interest rates(c) risk aversion(d) market risk premiumsAnswer: (c)18. A problem with using the profit maximization criterion is _.(a) deciding which periods profit is to be maximized(b) the definition of
15、 maximize profits is ambiguous(c) the failure to consider risk(d) all of the above Answer: (d) 19. The existence of a well functioning stock market facilitates the efficient separation of the ownership and management of firms, since stock prices can be substituted for external information about _.(a
16、) the firms production technology(b) the wealth, preferences, and other investment opportunities of the owners(c) the historic costs of the firms infrastructure(d) the firms ability to meet its projected goalsAnswer: (b)20. One place to look for a statement of the goals of a corporations top manager
17、s is the _.(a) balance sheet(b) income statement(c) annual report(d) bankruptcy filingAnswer: (c)21. In the absence of a stock market, managers would require information that is _ to obtain.(a) costly if not impossible (b) costless(c) readily available(d) time-consuming but inexpensiveAnswer: (a)22.
18、 Managements task is made much easier when it can observe the _ of its own and other firms shares.(a) book prices(b) market prices(c) historical prices(d) security pricesAnswer: (b)23. _ are entitled to a share of any of the distributions from the corporation such as cash dividends.(a) Sole propriet
19、ors(b) General partners(c) Professional managers(d) ShareholdersAnswer: (d)24. _ is the founder of modern portfolio theory.(a) Harry Markowitz(b) Merton Miller(c) William Sharpe(d) Bill GatesAnswer: (a)25. In Germany, public corporations are identifiable by _ after the company name, whereas private
20、companies are denoted by _.(a) PLC, Inc.(b) GmbH, AG(c) AG, GmbH(d) SpA, GmbHAnswer: (c)26. In the United Kingdom, public corporations are identifiable by _ after the company name, whereas private companies are denoted by _.(a) Inc, PLC(b) LTD, PLC(c) AG, GmbH(d) PLC, LTDAnswer: (d)27. Shareholders
21、elect _ who in turn select _ to run the business.(a) a board of directors; a treasurer(b) a board of directors; managers(c) managers; a board of directors(d) a board of directors; accountantsAnswer: (b)28. In a competitive stock market, _ offer(s) another important mechanism for aligning the incenti
22、ves of managers with those of shareholders.(a) takeovers(b) increased taxes(c) liquidation(d) increased liabilityAnswer: (a)29. If a raider is interested in making a profit through the takeover of a prospective firm, the only expenses that need be incurred are _.(a) the cost of identifying a mismana
23、ged firm(b) the cost of acquiring the firms shares(c) physical capital(d) both (a) and (b)Answer: (d)30. The cost of identifying a mismanaged firm can be low if the raider is which of the following:(a) a supplier(b) a customer(c) a competitor(d) all of the aboveAnswer: (d)31. Takeover mechanisms can
24、 most effectively be reduced by _.(a) directives from the board of directors (b) media intervention(c) government policies(d) public disapprovalAnswer: (c)32. The chief financial officer (CFO) of a corporation normally reports to the _ of the company.(a) controller(b) treasurer(c) chief executive of
25、ficer(d) chairman of the board of directorsAnswer: (c)33. All of the following departments typically report to the chief financial officer (CFO) except:(a) marketing(b) financial planning(c) treasury(d) controlAnswer: (a)34. The treasurers job includes managing all of the following except:(a) the fi
26、rms exposure to currency and interest rate risks(b) the tax department(c) relations with the external investment community(d) the analysis of proposed mergers and acquisitionsAnswer: (d)35. The activities of the vice president for financial planning include all of the following except:(a) analyzing
27、proposed mergers(b) analyzing proposed spin-offs(c) preparing internal reports comparing planned and actual costs(d) analyzing major capital expendituresAnswer: (c)36. Which of the following statements is most correct?(a) The shareholders of a corporation elect managers who in turn select a board of
28、 directors to run the business.(b) Partnerships do not pay corporate tax.(c) A disadvantage of the corporation is unlimited liability.(d) The government is powerless to discourage corporate takeovers.Answer: (b)37. For a typical firm, which of the following statements is most correct?(a) The CFO has
29、 three departments reporting to him: financial planning, treasury and control.(b) The treasurer oversees the accounting and auditing activities of the firm.(c) The controller has responsibility for managing the financing activities of the firm and for working capital management.(d) The CEO is a seni
30、or vice president with responsibility for all the financial functions in the firm.Answer: (a)38. Which of the following are financial decisions a firm has to make?(a) financing decisions(b) capital budgeting decisions(c) working capital decisions(d) all of the aboveAnswer: (d)39. The controllers job
31、 includes responsibility for _.(a) relations with the external investment community(b) preparation of financial statements for use by shareholders, creditors and regulatory authorities(c) analysis of proposed mergers, acquisitions and spin-offs(d) all of the aboveAnswer: (b)40. The basic unit of ana
32、lysis in capital budgeting is the _.(a) financing project(b) investment project(c) strategic project(d) variable projectAnswer: (b)41. The steps involved in any capital budgeting process include:(a) evaluating projects(b) deciding which projects to undertake(c) identifying ideas for new investment p
33、rojects(d) all of the aboveAnswer: (d)42. Preferred stock, bonds, and convertible securities are also known as _.(a) nonmarketable claims(b) standardized securities(c) variable securities(d) covenantsAnswer: (b)43. The basic unit of analysis in capital structure decisions is the _.(a) firm as a whol
34、e(b) investment project(c) firms personnel(d) financial systemAnswer: (a)44. Which one of the following correctly orders the steps involved in capital structure decisions?(a) determining a feasible financing plan; identifying new ideas for investment projects(b) determining the optimal financing mix
35、; determining a feasible financing plan(c) identifying ideas for investment projects; determining the optimal financing mix(d) determining a feasible financing plan; determining the optimal financing mixAnswer: (d)45. Which of the following is not a financial function of a corporation?(a) investor r
36、elations(b) tax administration(c) provision of capital(d) regulatory legislationAnswer: (d)46. Which of the following functions may be categorized as administration of funds?(a) custodial responsibilities(b) tax administration(c) internal auditing(d) all of the aboveAnswer: (a)47. Investor relations
37、 includes:(a) government reporting(b) establishment and maintenance of communications with company stockholders(c) relations with taxing agencies(d) consultation with and advice to other corporate executivesAnswer: (b)48. Oscar owns a boat worth $2 million, a house worth $5.5.million and has $900,00
38、0 in a bank account. Oscar owes $1.1 million to the bank on the boat loan, $2 million on the home loan and has $20,000 credit card debt. Calculate Oscars net worth.(a) $3.12 million(b) $5.28 million(c) $7.28 million(d) $8.4 millionAnswer: (b)Short Problems1. Give a brief definition of the financial
39、system.Answer: A financial system is defined as the set of markets and other institutions used for financial contracting and the exchange of assets and risks.2. List the markets that the financial system likely includes.Answer: A financial system includes the markets for stocks, bonds and other fina
40、ncial instruments, financial intermediaries, financial service firms and the regulatory bodies that govern all of these institutions.3. Briefly describe the distinction between physical capital and financial capital.Answer: Physical capital includes items such as buildings, machinery and other inter
41、mediate products used in the production process. Financial capital, however, includes stocks, bonds and loans used to finance the acquisition of physical capital.4. Give a brief description of the wide range of financial instruments and claims a firm can issue.Answer: These include common stock, pre
42、ferred stock, bonds and convertible securities (standardized securities that can be traded in organized markets). Financial instruments and claims can also include nonmarketable claims such as bank loans, employee stock options, leases and pension liabilities.5. Siggy owns a house worth $200,000, a
43、car worth $25,000 and has an $18,000 bank account. He also has furniture worth $4,000 and jewelry worth $10,000. However, Siggy owes $145,000 to the bank on a home mortgage loan, $17,000 on the car loan, $40,000 on student loans and has an $16,000 credit card debt outstanding. Calculate Siggys net w
44、orth.Answer: Net Worth = Total Assets Total Liabilities = ($200,000 + $25,000 + $18,000 + $4,000 + $10,000) ($145,000 + $17,000 + $40,000 + $16,000) = $39,0006. Briefly list the problems associated with profit maximization as the chief goal of corporate managers.Answer: The profit-maximization crite
45、rion has two problems associated with it. The first is that it is difficult to determine which periods profit is to be maximized if the production process requires many periods. Secondly, if either future revenues or expenses are uncertain, then what exactly is the meaning of maximize profits if profits are described by a probability distribution?7. Kecia owns a house worth $220,000, a car worth $20,000
