Name: 
 

Chapter 1: Foundations



Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 

The price of securities is impacted by all except
a.
future financial performance.
b.
perceptions of management.
c.
expectations about the issuing company.
d.
The number of employees.
 

 2. 

Which of the following is not a common method used by corporations when raising  money?
a.
Borrowing
b.
Cutting costs
c.
Selling shares
d.
Using corporate earnings
 

 3. 

Which of the following are not present in financial markets?
a.
Stock exchanges
b.
Stockbroker
c.
Guaranteed returns
d.
Stock market
 

 4. 

The duties of a financial manager include:
a.
generating financial statements and declaring dividends.
b.
raising funds in financial markets and investing funds in assets.
c.
producing the lowest cost products and services.
d.
only managing the cash inflows and outflows of the company.
 

 5. 

The goal of the financial manager is to
a.
limit the amount of debt in the business.
b.
to maximize this year's profits.
c.
to maximize the long-run value of the common shares.
d.
to grow the business as fast as possible.
 

 6. 

A proprietorship is best associated with:
a.
limited liability.
b.
shared risk with other owners.
c.
one tax return for owner and business.
d.
ability to raise funds in financial markets.
 

 7. 

The corporate form of organization dominates the business community because
a.
the corporation is easy to originate compared to other forms of business organization.
b.
managers do not want to be shareholders.
c.
both shareholders and the corporation pay taxes on their earnings
d.
shareholders have limited liability for the debts incurred by the corporation.
 

 8. 

Which of the following stakeholders in a corporation must always be considered when a decision is to be made by managers?
a.
Employees.
b.
The local community.
c.
Shareholders.
d.
Creditors.
 

 9. 

Agency problems can be reduced by
a.
Providing bonus or stock-option plans for managers
b.
Monitoring managers’ decisions
c.
Establishing parameters or constraints in which managers can make decisions.
d.
all of the above
 

 10. 

Corporate managers
a.
ignore the desires of the shareholders
b.
may make decisions that are not in the interests of the shareholders.
c.
are more independent in smaller companies than larger companies
d.
both (b) and (c) are correct
 



 
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