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Review questions for Chapter 1 of PMC 150A - Business Finance. Question Sources: http://bit.ly/1ddUoba and http://bit.ly/166ourX

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Business Finance - Chapter 1

Business Finance - Chapter 1

Question 1 of 23

1

What is the Accounting equation?

Select one of the following:

  • Assets = Liabilities + Owners' Equity

  • Liabilities = Assets + Owners' Equity

Explanation

Question 2 of 23

1

A share of stock in General Motors that your company owns would be

Select one of the following:

  • A liability

  • Owners' equity

  • An asset

  • None of the above

  • All of the above

Explanation

Question 3 of 23

1

"Shareholder wealth" in a firm is represented by:

Select one of the following:

  • the number of people employed in the firm.

  • the book value of the firm's assets less the book value of its liabilities.

  • the amount of salary paid to its employees.

  • the market price per share of the firm's common stock.

Explanation

Question 4 of 23

1

The long-run objective of financial management is to

Select one of the following:

  • maximize earnings per share.

  • maximize the value of the firm's common stock

  • maximize return on investment.

  • maximize market share

Explanation

Question 5 of 23

1

What are the earnings per share (EPS) for a company that earned $100,000 last year in after-tax profits, has 200,000 common shares outstanding and $1.2 million in retained earning at the year end?

Select one of the following:

  • $100,000

  • $6.00

  • $0.50

  • $6.50

Explanation

Question 6 of 23

1

A(n) _________ would be an example of a principal, while a(n) _______ would be an example of an agent.

Select one of the following:

  • shareholder; manager

  • manager; owner

  • accountant; bondholder

  • shareholder; bondholder

Explanation

Question 7 of 23

1

The market price of a share of common stock is determined by:

Select one of the following:

  • the board of directors of the firm.

  • the stock exchange on which the stock is listed.

  • the president of the company.

  • individuals buying and selling the stock.

Explanation

Question 8 of 23

1

The focal point of financial management in a firm is:

Select one of the following:

  • the number and types of products or services provided by the firm.

  • the minimization of the amount of taxes paid by the firm.

  • the creation of value for shareholders.

  • the dollars profits earned by the firm.

Explanation

Question 9 of 23

1

The decision function of financial management can be broken down into the decisions:

Select one of the following:

  • financing and investment

  • investment, financing, and asset management

  • financing and dividend

  • capital budgeting, cash management, and credit management

Explanation

Question 10 of 23

1

The controller's responsibilities are primarily_______ in nature, while the treasurer's responsibilities are primarily related to _________.

Select one of the following:

  • operational; financial management

  • financial management; accounting

  • accounting; financial management

  • financial management; operations

Explanation

Question 11 of 23

1

A company's ________ is (are) potentially the most effective instrument of good corporate governance.

Select one of the following:

  • common stock shareholders

  • board of directors

  • top executive officers

Explanation

Question 12 of 23

1

The Sarbanes-Oxley Act of 2002 (SOX) was largely a response to:

Select one of the following:

  • a series of corporate scandals involving Enron, WorldCom, Global Crossing, Tyco and numerous others.

  • a dramatic rise in the Canadian trade deficit.

  • charges of excessive compensation to top corporate executives.

  • rising complaints by investors and security analysts over the financial accounting for stock options.

Explanation

Question 13 of 23

1

A company has $1,000,000 Owners' Equity and $75,000 in liabilities. What are the assets for the company?

Select one of the following:

  • $1,000,000

  • $75,000

  • $925,000

  • None of the above

Explanation

Question 14 of 23

1

A company has cash in the bank of $850,000, inventory of $50,000 and a building worth $100,000. These are the only assets for the company. The company has liabilities that amount to $925,000. How much is owners' equity in this company?

Select one of the following:

  • $1,000,000

  • $75,000

  • $925,000

  • None of the above

Explanation

Question 15 of 23

1

Which of the following is not an asset:

Select one of the following:

  • Retained earnings

  • A roto-tiller

  • A stapler

  • 20 kilos of fertilizer

  • All of the above

Explanation

Question 16 of 23

1

The idea that Managers should try to provide each stakeholder group of the business with a satisfactory level of return is called:

Select one of the following:

  • Satisficing

  • Capital Markets

  • Agency Problem

  • Corporate Governance

Explanation

Question 17 of 23

1

Financial market for long-term loans, bonds and debentures, and shares is called:

Select one of the following:

  • Capital Market

  • Money Market

  • Forex Market

Explanation

Question 18 of 23

1

The conflict of interest between the shareholders (the principals) and the Managers (agents) of a business, which arises when the Managers seek to maximize their own welfare is called:

Select one of the following:

  • Wealth Maximization

  • Profit Maximazation

  • Satisficing

  • The Agency Problem

Explanation

Question 19 of 23

1

Systems for directing and controlling a business, is called:

Select one of the following:

  • Corporate Governance

  • Financial Control

Explanation

Question 20 of 23

1

A statement setting out the purpose for which a business exists, is called:

Select one of the following:

  • Mission Statement

  • Business Plan

Explanation

Question 21 of 23

1

The idea that the main purpose of a business is to maximize the wealth of its owners (shareholders). What is it called?

Select one of the following:

  • Wealth Maximization

  • Profit Maximization

Explanation

Question 22 of 23

1

Financial instruments that allow managers and employees to acquire shares in a business at some future date on favourable terms, is called:

Select one of the following:

  • Share Options

  • Loan

Explanation

Question 23 of 23

1

The formula for calculating "Earnings Per Share (EPS)" is:

Select one of the following:

  • Net Income / Number of Shares

  • Liabilities + Owners' Equity

Explanation

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