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Business Finance - Chapter 1

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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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Quiz by waynejonesjnr, updated more than 1 year ago
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Resource summary

Question 1

Question
What is the Accounting equation?
Answer
  • Assets = Liabilities + Owners' Equity
  • Liabilities = Assets + Owners' Equity

Question 2

Question
A share of stock in General Motors that your company owns would be
Answer
  • A liability
  • Owners' equity
  • An asset
  • None of the above
  • All of the above

Question 3

Question
"Shareholder wealth" in a firm is represented by:
Answer
  • 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.

Question 4

Question
The long-run objective of financial management is to
Answer
  • maximize earnings per share.
  • maximize the value of the firm's common stock
  • maximize return on investment.
  • maximize market share

Question 5

Question
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?
Answer
  • $100,000
  • $6.00
  • $0.50
  • $6.50

Question 6

Question
A(n) _________ would be an example of a principal, while a(n) _______ would be an example of an agent.
Answer
  • shareholder; manager
  • manager; owner
  • accountant; bondholder
  • shareholder; bondholder

Question 7

Question
The market price of a share of common stock is determined by:
Answer
  • 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.

Question 8

Question
The focal point of financial management in a firm is:
Answer
  • 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.

Question 9

Question
The decision function of financial management can be broken down into the decisions:
Answer
  • financing and investment
  • investment, financing, and asset management
  • financing and dividend
  • capital budgeting, cash management, and credit management

Question 10

Question
The controller's responsibilities are primarily_______ in nature, while the treasurer's responsibilities are primarily related to _________.
Answer
  • operational; financial management
  • financial management; accounting
  • accounting; financial management
  • financial management; operations

Question 11

Question
A company's ________ is (are) potentially the most effective instrument of good corporate governance.
Answer
  • common stock shareholders
  • board of directors
  • top executive officers

Question 12

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

Question 13

Question
A company has $1,000,000 Owners' Equity and $75,000 in liabilities. What are the assets for the company?
Answer
  • $1,000,000
  • $75,000
  • $925,000
  • None of the above

Question 14

Question
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?
Answer
  • $1,000,000
  • $75,000
  • $925,000
  • None of the above

Question 15

Question
Which of the following is not an asset:
Answer
  • Retained earnings
  • A roto-tiller
  • A stapler
  • 20 kilos of fertilizer
  • All of the above

Question 16

Question
The idea that Managers should try to provide each stakeholder group of the business with a satisfactory level of return is called:
Answer
  • Satisficing
  • Capital Markets
  • Agency Problem
  • Corporate Governance

Question 17

Question
Financial market for long-term loans, bonds and debentures, and shares is called:
Answer
  • Capital Market
  • Money Market
  • Forex Market

Question 18

Question
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:
Answer
  • Wealth Maximization
  • Profit Maximazation
  • Satisficing
  • The Agency Problem

Question 19

Question
Systems for directing and controlling a business, is called:
Answer
  • Corporate Governance
  • Financial Control

Question 20

Question
A statement setting out the purpose for which a business exists, is called:
Answer
  • Mission Statement
  • Business Plan

Question 21

Question
The idea that the main purpose of a business is to maximize the wealth of its owners (shareholders). What is it called?
Answer
  • Wealth Maximization
  • Profit Maximization

Question 22

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

Question 23

Question
The formula for calculating "Earnings Per Share (EPS)" is:
Answer
  • Net Income / Number of Shares
  • Liabilities + Owners' Equity
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