INTRODUCTION TO FINANCE EXAM 1
QUESTIONS & ACTUAL CORRECT
ANSWERS PASSED 100%
The limited liability protection of the corporate form is unlikely to protect entrepreneurs
who take an active role in the daily running of their businesses. - Correct Answer ✔✔
True
S-type corporations have difficulty in accumulating earnings because their profits are
subject to double taxation. - Correct Answer ✔✔ False
Investing in stock represents partial ownership of a corporation and gives the investor
the potential for future cash flows from earnings distribution and stock price appreciation
if the business prospers. - Correct Answer ✔✔ True
In firms of moderate size or larger, the finance department is typically relieved of the
"watchdog" responsibility of monitoring the efficient use of money by other departments.
- Correct Answer ✔✔ False
Accounting and finance have consistent orientations about financial results. - Correct
Answer ✔✔ False
Ethical investing involves avoiding the securities of corporations that are involved in the
sale or manufacture of products that are considered harmful or immoral. - Correct
Answer ✔✔ True
The treasurer is the person primarily responsible for raising money, analyzing results,
and handling relationships with outside investors. - Correct Answer ✔✔ True
The CFO is the person primarily responsible for judging the financial viability of projects
proposed by other executives. - Correct Answer ✔✔ True
Which of the following is an example of financing? - Correct Answer ✔✔ A company
issues stock to raise money to purchase assets
Which of the following is not a financial market? - Correct Answer ✔✔ A market in which
small business owners buy and sell their companies
The ____ is the largest stock exchange in the world. - Correct Answer ✔✔ New York
Stock Exchange
, The principal legal difference between a stockholder and a bondholder is: - Correct
Answer ✔✔ the shareholder has an ownership interest and the bondholder is a lender.
The goal of management in finance is to - Correct Answer ✔✔ maximize shareholder
wealth.
Which of the following is true of financial assets? - Correct Answer ✔✔ Investors
purchase financial assets to earn a return.
A collection of securities is called a: - Correct Answer ✔✔ portfolio.
The price that investors are willing to pay for a firm's securities can best be described by
which of the following statements? - Correct Answer ✔✔ Since the value of a
company's securities depends largely on future cash flows, investors will consider the
company's performance in estimating the future cash flows that will come from owning
its securities.
How is taxation different in the corporate and proprietorship forms of business? Explain
double taxation. - Correct Answer ✔✔ Taxation in proprietorship is considered to be
personal income to the business owner. Therefore profits for the business are only
taxed once at personal income tax rates. Taxation for corporate businesses is
considered to be a separate entity than the business owner so this means the owners
will pay separate individual taxes. The business will be taxed twice one for individual
taxes and another for corporate taxes.
Can a firm go out of business while making an accounting profit. Think about a
company that buys a lot of inventory, starts a factory running and then sells most of the
product (at a price far above cost) to a customer who is slow in paying. Exactly why may
the company fail? - Correct Answer ✔✔ Yes, a firm can go out of business while trying
to make an accounting profit. This can happen in many different ways but usually starts
with the customer not paying off their balance. If there is a lot of people who do not pay
the company will run out of money to pay their employees and vendors. This stops the
cash flow and eventually causes the company to go out of business because they don't
have enough to keep the company functioning.
Should investors be concerned about the ethics of the firms in which they invest? Why
or why not? If most of investors worry about it, how will that affect corporate behavior? -
Correct Answer ✔✔ I think investors should be concerned about the firms in which they
invest because if a company acts unethically this can mean there may be financial
issues amongst this company. If most investors are worried about the ethics of the
companies they invest in their money will only go to companies they trust causing
unethical firms' stock prices to go down.
The agency problem can seriously restrain the economic success of a company. What
avenues are available to shareholders to bring their goals and those of management
into alignment? - Correct Answer ✔✔ Some avenues that are available to shareholders
QUESTIONS & ACTUAL CORRECT
ANSWERS PASSED 100%
The limited liability protection of the corporate form is unlikely to protect entrepreneurs
who take an active role in the daily running of their businesses. - Correct Answer ✔✔
True
S-type corporations have difficulty in accumulating earnings because their profits are
subject to double taxation. - Correct Answer ✔✔ False
Investing in stock represents partial ownership of a corporation and gives the investor
the potential for future cash flows from earnings distribution and stock price appreciation
if the business prospers. - Correct Answer ✔✔ True
In firms of moderate size or larger, the finance department is typically relieved of the
"watchdog" responsibility of monitoring the efficient use of money by other departments.
- Correct Answer ✔✔ False
Accounting and finance have consistent orientations about financial results. - Correct
Answer ✔✔ False
Ethical investing involves avoiding the securities of corporations that are involved in the
sale or manufacture of products that are considered harmful or immoral. - Correct
Answer ✔✔ True
The treasurer is the person primarily responsible for raising money, analyzing results,
and handling relationships with outside investors. - Correct Answer ✔✔ True
The CFO is the person primarily responsible for judging the financial viability of projects
proposed by other executives. - Correct Answer ✔✔ True
Which of the following is an example of financing? - Correct Answer ✔✔ A company
issues stock to raise money to purchase assets
Which of the following is not a financial market? - Correct Answer ✔✔ A market in which
small business owners buy and sell their companies
The ____ is the largest stock exchange in the world. - Correct Answer ✔✔ New York
Stock Exchange
, The principal legal difference between a stockholder and a bondholder is: - Correct
Answer ✔✔ the shareholder has an ownership interest and the bondholder is a lender.
The goal of management in finance is to - Correct Answer ✔✔ maximize shareholder
wealth.
Which of the following is true of financial assets? - Correct Answer ✔✔ Investors
purchase financial assets to earn a return.
A collection of securities is called a: - Correct Answer ✔✔ portfolio.
The price that investors are willing to pay for a firm's securities can best be described by
which of the following statements? - Correct Answer ✔✔ Since the value of a
company's securities depends largely on future cash flows, investors will consider the
company's performance in estimating the future cash flows that will come from owning
its securities.
How is taxation different in the corporate and proprietorship forms of business? Explain
double taxation. - Correct Answer ✔✔ Taxation in proprietorship is considered to be
personal income to the business owner. Therefore profits for the business are only
taxed once at personal income tax rates. Taxation for corporate businesses is
considered to be a separate entity than the business owner so this means the owners
will pay separate individual taxes. The business will be taxed twice one for individual
taxes and another for corporate taxes.
Can a firm go out of business while making an accounting profit. Think about a
company that buys a lot of inventory, starts a factory running and then sells most of the
product (at a price far above cost) to a customer who is slow in paying. Exactly why may
the company fail? - Correct Answer ✔✔ Yes, a firm can go out of business while trying
to make an accounting profit. This can happen in many different ways but usually starts
with the customer not paying off their balance. If there is a lot of people who do not pay
the company will run out of money to pay their employees and vendors. This stops the
cash flow and eventually causes the company to go out of business because they don't
have enough to keep the company functioning.
Should investors be concerned about the ethics of the firms in which they invest? Why
or why not? If most of investors worry about it, how will that affect corporate behavior? -
Correct Answer ✔✔ I think investors should be concerned about the firms in which they
invest because if a company acts unethically this can mean there may be financial
issues amongst this company. If most investors are worried about the ethics of the
companies they invest in their money will only go to companies they trust causing
unethical firms' stock prices to go down.
The agency problem can seriously restrain the economic success of a company. What
avenues are available to shareholders to bring their goals and those of management
into alignment? - Correct Answer ✔✔ Some avenues that are available to shareholders
