FFM-Quiz 1: Chapter1-4

Which of the following decisions is an example of capital budgeting?

• Issuing new debt

• Deciding on dividend payout

• Purchasing a new production facility

• Repurchasing company shares

• Reorganizing management

Which of the following best describes agency problems?

• Conflicts between creditors and suppliers

• Differences in tax treatment

• Conflicts of interest between managers and shareholders

• Mispricing of securities

• Failure of product lines

Which type of business organization has the greatest potential to raise capital?

• Sole proprietorship

• Partnership

• Limited liability company

• Corporation

• Cooperative

What is the primary disadvantage of a corporation?

• Difficulty in transferring ownership

• Unlimited liability

• Double taxation

• Lack of continuity

• Inflexible structure

Which is NOT a major function of the Chief Financial Officer (CFO)?

• Managing the firm's accounting

• Controlling cash and credit

• Preparing operational production plans

• Raising capital

• Budgeting and forecasting

The risk-return trade-off implies:

• Lower risk always leads to higher returns

• Risk and return are unrelated

• Higher risk should be accepted only if compensated by higher return

• Higher return always implies lower risk

• There is no trade-off between the two

Which factor does NOT influence managerial behavior?

• Executive compensation packages

• Regulatory constraints

• Threat of hostile takeovers

• The Federal Reserve's monetary policy

• Shareholder monitoring

Which of the following is a form of intrinsic value?

• Market capitalization

• Book value

• Analyst forecast

• Long-run true value of the firm's stock

• GAAP net income

Financial management is primarily concerned with:

• Efficient production

• Record-keeping and reporting

• Management of the firm's assets and liabilities

• Employment policies

• Inventory controls

In a well-functioning economy, capital flows efficiently from:

• Consumers to producers

• Government to the public

• Savers to those who need capital

• Banks to government

• Retailers to wholesalers