Financial Management Practice Test 1
Questions and Answers Graded A+
Agency Costs Refer to: - Correct answer-C) the costs that arise due to conflict of
interest between shareholders and managers
Which of the following is the best bonding expenditure to help limit agency costs?
- Correct answer-B) a contract whereby the manager will forfeit a portion of his
deferred compensation in the event of poor performance
Which of the following is FALSE regarding equity capital? - Correct answer-D)
preferred stockholders can force the firm into bankruptcy if dividend payments are
not paid
In general, the more debt a firm uses in relation to its total assets - Correct answer-
C) the greater the financial leverage it uses
The Sarbanes- Oxley Act of 2002 - Correct answer-B) requires CEO and CFOs of
all large companies to personally certify their firms' financial statements
Which of the following is NOT a strength of the Corporate form of business? -
Correct answer-C) unlimited liability
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
Questions and Answers Graded A+
Agency Costs Refer to: - Correct answer-C) the costs that arise due to conflict of
interest between shareholders and managers
Which of the following is the best bonding expenditure to help limit agency costs?
- Correct answer-B) a contract whereby the manager will forfeit a portion of his
deferred compensation in the event of poor performance
Which of the following is FALSE regarding equity capital? - Correct answer-D)
preferred stockholders can force the firm into bankruptcy if dividend payments are
not paid
In general, the more debt a firm uses in relation to its total assets - Correct answer-
C) the greater the financial leverage it uses
The Sarbanes- Oxley Act of 2002 - Correct answer-B) requires CEO and CFOs of
all large companies to personally certify their firms' financial statements
Which of the following is NOT a strength of the Corporate form of business? -
Correct answer-C) unlimited liability
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
