FINA 3313 TEST 1 REVIEW EXAM
QUESTIONS AND ANSWERS 100% PASS
2026/2027
Compound interest pays interest for each time period on the original investment plus the
accumulated interest. - ANS TRUE
For a given amount, the lower the discount rate, the less the present value. - ANS FALSE
Converting an annuity to an annuity due decreases the present value. - ANS FALSE
An effective annual rate must be greater than an annual percentage rate. - ANS FALSE
You should never compare cash flows occurring at different times without first discounting them
to a common date. - ANS TRUE
An annuity due must have a present value at least as large as an equivalent ordinary annuity. -
ANS
Given a set future value, which of the following will contribute to a lower present value? -
ANS HIGHER DISCOUNT RATE
@2026 ALLRIGHTS RESERVED 1
,What are the advantages of the corporate form of business organization? - ANS -easy transfer
of ownership
-perpetual life
-limited liability
-ease of raising additional funds
Limited liability means that owners of a business are not personally liable for all of its debts -
owners can only lose the lessor of the value of their investment or $100,000. - ANS false
Shareholders get any assets or cash flows of the corporation that remain after all other debts
have been paid. - ANS true
We can think of equity as a degree of ownership in any asset after subtracting all debts
associated with that asset. Shareholder equity is calculated as Total Assets minus Total Liabilities
- ANS assets
By law, the board of directors makes decisions as a fiduciary on behalf of company executives. -
ANS false
The board makes decisions concerning the hiring and firing of personnel, dividend policies and
payouts, and executive compensation. - ANS true
The separation of ownership (shareholders) and control (managers) in larger corporations with
many shareholders can lead to conflicts of interest between managers and owners. -
ANS true
@2026 ALLRIGHTS RESERVED 2
, According to the video - it took Enron 16 years to grow from a $10 billion company to a $64
billion company and 24 days to go bankrupt. - ANS 24
According to the video - The other thing about people at Enron is a lot of them were former
nerds . - ANS nerds
The CEO of Audi was arrested in connection with the investigation Audi cheated on emissions
tests. After viewing the three videos, what would you tell your daughter? - ANS Conflicts of
interest can lead managers to act in ways that can destroy shareholder value.
Tyco CEO Dennis Kozlowski spent $2 million on his wife's 40th birthday party. Tyco paid 1/2 of
the bill, which is an example of an agency cost. Future President of the United States Donald
trump called his behavior - ANS tacky
Amazon and Walmart are examples of corporations because - ANS they are controlled by
managers acting as agents for shareholders who have limited liability
The goal of maximizing shareholder wealthcan be expressed in several equivalent ways (select
all correct answers) - ANS -Maximizing the long-term value of stock
-Maximizing the market capitalization of the firm
-Maximizing shareholder returns
Profit maximization may not lead to the highest possible share price because (check all correct)
- ANS -Timing is important—the receipt of funds sooner rather than later is preferred. Time is
money!
-Profit maximization fails to account for risk - extremely profitable opportunities may be too
risky.
-Profits do not necessarily result in cash flows available to stockholders. There is a difference in
accounting values and cash flows.
@2026 ALLRIGHTS RESERVED 3
QUESTIONS AND ANSWERS 100% PASS
2026/2027
Compound interest pays interest for each time period on the original investment plus the
accumulated interest. - ANS TRUE
For a given amount, the lower the discount rate, the less the present value. - ANS FALSE
Converting an annuity to an annuity due decreases the present value. - ANS FALSE
An effective annual rate must be greater than an annual percentage rate. - ANS FALSE
You should never compare cash flows occurring at different times without first discounting them
to a common date. - ANS TRUE
An annuity due must have a present value at least as large as an equivalent ordinary annuity. -
ANS
Given a set future value, which of the following will contribute to a lower present value? -
ANS HIGHER DISCOUNT RATE
@2026 ALLRIGHTS RESERVED 1
,What are the advantages of the corporate form of business organization? - ANS -easy transfer
of ownership
-perpetual life
-limited liability
-ease of raising additional funds
Limited liability means that owners of a business are not personally liable for all of its debts -
owners can only lose the lessor of the value of their investment or $100,000. - ANS false
Shareholders get any assets or cash flows of the corporation that remain after all other debts
have been paid. - ANS true
We can think of equity as a degree of ownership in any asset after subtracting all debts
associated with that asset. Shareholder equity is calculated as Total Assets minus Total Liabilities
- ANS assets
By law, the board of directors makes decisions as a fiduciary on behalf of company executives. -
ANS false
The board makes decisions concerning the hiring and firing of personnel, dividend policies and
payouts, and executive compensation. - ANS true
The separation of ownership (shareholders) and control (managers) in larger corporations with
many shareholders can lead to conflicts of interest between managers and owners. -
ANS true
@2026 ALLRIGHTS RESERVED 2
, According to the video - it took Enron 16 years to grow from a $10 billion company to a $64
billion company and 24 days to go bankrupt. - ANS 24
According to the video - The other thing about people at Enron is a lot of them were former
nerds . - ANS nerds
The CEO of Audi was arrested in connection with the investigation Audi cheated on emissions
tests. After viewing the three videos, what would you tell your daughter? - ANS Conflicts of
interest can lead managers to act in ways that can destroy shareholder value.
Tyco CEO Dennis Kozlowski spent $2 million on his wife's 40th birthday party. Tyco paid 1/2 of
the bill, which is an example of an agency cost. Future President of the United States Donald
trump called his behavior - ANS tacky
Amazon and Walmart are examples of corporations because - ANS they are controlled by
managers acting as agents for shareholders who have limited liability
The goal of maximizing shareholder wealthcan be expressed in several equivalent ways (select
all correct answers) - ANS -Maximizing the long-term value of stock
-Maximizing the market capitalization of the firm
-Maximizing shareholder returns
Profit maximization may not lead to the highest possible share price because (check all correct)
- ANS -Timing is important—the receipt of funds sooner rather than later is preferred. Time is
money!
-Profit maximization fails to account for risk - extremely profitable opportunities may be too
risky.
-Profits do not necessarily result in cash flows available to stockholders. There is a difference in
accounting values and cash flows.
@2026 ALLRIGHTS RESERVED 3
