WorksheetsBUSINESS FINANCE FABM
Total questions: 30
Worksheet time: 16mins
If a firm's goal is to maximize its earnings per share,
this is the best way to maximize the price of the
common stock and thus shareholders' wealth.
TRUE
FALSE
Marginal analysis states that financial decisions
should be made, and actions taken only when added
benefits exceeds added costs.
TRUE
FALSE
High cash flow is generally associated with a higher
share price whereas higher risk tends to result in a
lower share price.
TRUE
FALSE
The accrual method recognizes revenue at the point of
sale and recognizes expenses when incurred.
TRUE
FALSE
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
FALSE
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.
TRUE
FALSE
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.
TRUE
FALSE
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
FALSE
The wealth of corporate owners is measured by the
share price of the stock.
TRUE
FALSE
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
FALSE
If an investor sells 100 shares of SM Investments
Corporation to his brother-in-law, this is a primary
market transaction.
TRUE
FALSE
Money markets are where short-term, liquid securities
are traded, whereas capital markets represent the
markets for long-term debt and common stock.
TRUE
FALSE
The distinguishing feature between spot markets
versus futures markets transactions is the maturity of
the investments. That is, spot market transactions
involve securities that have maturities of less than one
year whereas futures markets transactions involve
securities with maturities greater than one year.
TRUE
FALSE
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
FALSE
The agency problem is the acquisition of a firm by
another firm that is not supported by management.
TRUE
FALSE
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.
TRUE
FALSE
The threat of a takeover can reduce the agency
problem between bondholders and stockholders.
TRUE
FALSE
Financial markets are intermediaries that channel the
savings of individuals, businesses and government
into loans or investments.
TRUE
FALSE
Institutional investors are professional investors who
work on behalf of the federal government to ensure
fairness in the financial markets.
TRUE
FALSE
An option that gives the holder the right to sell a stock
at a specified price at some time in the future is called
a(n)
(a)
Which of the following statements is most correct?
A. If companies have fewer productive opportunities,
interest rates are likely to increase.
B. If individuals increase their savings rate, interest rates
are likely to increase.
C. If expected inflation increases, interest rates are likely
to increase.
D. All of the statements above are correct.
E. Statements a and c are correct.
Which of the following is likely to increase the level of interest
rates in the economy?
A. Households start saving a larger percentage of their
income.
B. Corporations step up their plans for expansion and
increase their demand for capital.
C. The level of inflation is expected to decline.
D. All of the statements above are correct.
E. None of the statements above is correct.
Which of the following factors are likely to lead to an increase
in nominal interest rates?
A. Households increase their savings rate.
B. Companies see an increase in their production
C. There is an increase in expected inflation.
D. Statements B. and C. are correct.
E. All of the statements above are correct.
Which of the following is likely to lead to an increase in the
cost of funds?
A. Companies’ production opportunities decline, leading
to a decline in the demand for funds.
B. Households save a larger portion of their income.
C. Households increase the amount of money they
borrow from their local banks.
D. Statements A. and B. are correct.
E. Statements A. and C. are correct.
If the Bangko Sentral ng Pilipinas sells P50 billion of short-
term Treasury securities to the public, other things held
constant, what will this tend to do to short-term security
prices and interest rates?
A. Prices and interest rates will both rise.
B. Prices will rise and interest rates will decline.
C. Prices and interest rates will both decline.
D. Prices will decline and interest rates will rise.
E. There will be no changes in either prices or interest
rates.
The real rate of interest is the actual rate of interest charged
by the suppliers of funds and paid by the demanders.
TRUE
FALSE
The nominal rate of interest is the rate that creates
equilibrium between the supply of savings and the demand
for investment funds in a perfect world, without inflation,
where funds suppliers and demanders have no liquidity
preference and all outcomes are certain.
TRUE
FALSE
In the valuation process, the higher the risk, the greater the
required return.
TRUE
FALSE
The level of risk associated with a given cash flow positively
affects its value.
TRUE
FALSE
The nominal rate of interest is equal to the sum of the real
rate of interest plus the risk-free rate of interest.
TRUE
FALSE
