WorksheetsFinancial Management Function and Environment
Total questions: 30
Worksheet time: 15mins
Which of the following statements best represents what finance is about?
How political, social, and economic forces affect corporations
Maximizing profits
The study of how people and businesses make investment decisions and how to finance those decisions.
Reducing risk
From a financial point of view, a company that decides to develop new product is making
a financing decision.
an investment decision.
a capital structure decision.
a cash flow decision.
Finance managers need to interact constantly with
marketing managers.
accounting staff.
management information systems staff.
all of the above.
The true owners of the corporation are the
holders of debt issues of the firm.
preferred stockholders.
board of directors of the firm.
common stockholders.
Maximization of shareholder wealth as a goal is superior to accounting profit maximization because
it considers the time value of the money.
following the shareholder wealth maximization goal will ensure high stock prices
accounting profits are not the same as cash flows.
A and C
Which of the following best describes the goal of the firm?
The maximization of the total market value of the firm's common stock
Profit maximization
Risk minimization
None of the above
Profit maximization does not adequately describe the goal of the firm because
profit maximization does not require the consideration of risk.
profit maximization ignores the timing of a project's return.
maximization of dividend payout ratio is a better description of the goal of the firm.
A and B.
If managers are making decisions to maximize shareholder wealth, then they are primarily concerned with making decisions that should
positively affect profits.
increase the market value of the firm's common stock.
either increase or have no effect on the value of the firm's common stock.
accomplish all of the above.
What does the agency problem refer to?
The conflict that exists between the board of directors and the employees of the firm
The problem associated with financial managers and Internal Revenue agents.
The conflict that exists between stockbrokers and investors.
The problem that results from potential conflicts of interest between the manager of a business and the stockholders.
Managers of corporations need to act in an ethical manner
because ethics violations will be punished by the law.
because a business must be trusted by investors, customer and the public if it is to succeed.
because business managers must answer to a higher authority.
because ethical behavior is its own justification.
In regard to the agency problem, ________ are the principal owners of a corporation.
shareholders
managers
employees
suppliers
One of the problems associated with profit maximization is that it ignores the timing of a project's return.
True
False
A reputation for unethical behavior can negatively affect the value of a company's stock.
True
False
The agency problem arises due to the separation of ownership and control in a corporation.
True
False
The principal savers in the financial markets are
businesses.
businesses.
individuals.
governments.
Firms that wish to raise funds for investment purposes issue securities in the
primary and secondary markets.
primary markets.
secondary markets
intermediary markets.
Secondary markets
function as a place for smaller, less well-known firms to issue securities.
are an important vehicle for established firms to raise additional money for expansion.
are a means by which funds are cycled from savers to borrowers.
are concerned with the trading of previously issued securities between investors
All of the following operate as financial intermediaries EXCEPT
commercial banks
mutual funds.
insurance companies.
the U. S. Treasury
Insurance companies have a great deal of money to invest because
there profit margins are so high.
because they are reluctant to cover insurable losses.
because they must hold large reserves to pay potential claims.
insurance do not actually have large sums to invest
Commercial banks in the U.S. often own the corporations they lend to.
True
False
All financial intermediaries are banks
True
False
Capital markets are markets for short term debt instruments maturing in less than one year, and money markets are markets for long term debt instruments maturing in more than one year.
True
False
ABC Corporation issued and sold 10 shares of stock to Irene Investor, a private individual. This represents a secondary market transaction.
True
False
The principal participants in in the financial markets are
businesses, banks, government.
borrowers, savers, financial institutions.
borrowers, savers, financial institutions.
dealers, brokers, regulators
Financial intermediaries help bring savers and borrowers together.
True
False
Individuals are often savers because they wish to save for such things as retirement, a down payment on a home or graduate school.
True
False
All of the following are classified as non-bank financial intermediaries except
stock brokerages.
investment banks.
insurance companies.
insurance companies.
Mutual Funds and ETFs provide the investor a chance to diversify without having to buy shares in numerous corporations.
True
False
Banks that are financial intermediaries generate earnings when they facilitate the transfer of money from savers to borrowers by paying savers a smaller return than they demand from borrowers.
True
False
Banking regulations are essentially the same in all developed nations.
True
False
