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1. Creditors are considered investors in a company since they have a claim on the firm's cash flows.
A. True
B. False

2. Net working capital is the

A. difference between current assets and current liabilities

B. difference between shareholders' equity and long-term debt

C. difference between total assets and total liabilities
D. difference between total assets and current assets

3. Cash flows to stakeholders of a firm include all of the following except

A. dividends
B. interest and principal payments
C. sales of goods and services
D. wages and salaries

4. Only 15 percent of the businesses in the U.S. are incorporated, but they generate approximately 90% of all revenues.
A. True
B. False

5. A _________ is not a form of business organization.

A. corporation
B. mutual fund
C. partnership

D. sole proprietorship

6. A benefit of the corporate form of business is.

A. double taxation
B. easy to start

C. limited liability of owners

D. separation of ownership from management

7. Which manager reports directly to a company's CEO?

A. External Auditor
B. Internal Auditor
C. Treasurer

D. V.P. Marketing

8. The audit committee reports directly to the

A. Board of Directors
B. Chief Executive Officer
C. External auditor

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D. Internal auditor

9. The treasurer of a company is responsible for

A. caring for a firm's treasury stock

B. identifying areas where a firm might incur substantial losses

C. making sure a firm has adequate cash available

D. preparing financial statements for the annual report

10. The primary goal of any firm should be to minimize expenses.

A. True
B. False

11. Profit maximization accounts for the

A. difference between profit and cash flows
B. risk associated with future cash flows
C. taxes paid on revenue generated
D. time value of money

12. Investors determine the value of a firm's stock based on the firm's
A. expected cash flows
B. industry status
C. market share
D. net profit

13. Which of the following is likely to reduce agency costs?

A. guaranteeing managers a large base salary
B. few qualified managers to consider hiring

C. a board of directors comprised mostly of insiders

D. the threat of the firm being a takeover target

14. Inside directors are effective at minimizing a firm's agency costs.

A. True
B. False

15. Conflicts of interest may result from an agency relationship.

A. True
B. False

16. The main responsibility of the financial manager is

A. to manage the wealth of shareholders.

B. to assist the marketing department in making sales projections.

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C. to make decisions that are in the best interests of the firm's owners.
D. to keep the firm's debt-holders happy.

17. Deciding whether or not to spend $5 million to purchase a new piece of equipment is an example of a working capital
decision faced by a financial manager.
A. True
B. False

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100% (17 out of 17 correct)

1. Creditors are considered investors in a company since they have a claim on the firm's cash flows.
A. True

B. False

2. Net working capital is the

A. difference between current assets and current liabilities

B. difference between shareholders' equity and long-term debt

C. difference between total assets and total liabilities
D. difference between total assets and current assets

3. Cash flows to stakeholders of a firm include all of the following except

A. dividends

B. interest and principal payments

C. sales of goods and services
D. wages and salaries

4. Only 15 percent of the businesses in the U.S. are incorporated, but they generate approximately 90% of all revenues.
A. True

B. False

5. A _________ is not a form of business organization.

A. corporation

B. mutual fund
C. partnership

D. sole proprietorship

6. A benefit of the corporate form of business is.

A. double taxation
B. easy to start

C. limited liability of owners

D. separation of ownership from management

7. Which manager reports directly to a company's CEO?

A. External Auditor

2 of 3

B. Internal Auditor
C. Treasurer

D. V.P. Marketing

8. The audit committee reports directly to the

A. Board of Directors

B. Chief Executive Officer

C. External auditor
D. Internal auditor

9. The treasurer of a company is responsible for

A. caring for a firm's treasury stock

B. identifying areas where a firm might incur substantial losses

C. making sure a firm has adequate cash available

D. preparing financial statements for the annual report

10. The primary goal of any firm should be to minimize expenses.

A. True

B. False

11. Profit maximization accounts for the

A. difference between profit and cash flows
B. risk associated with future cash flows
C. taxes paid on revenue generated
D. time value of money

12. Investors determine the value of a firm's stock based on the firm's
A. expected cash flows
B. industry status
C. market share
D. net profit

13. Which of the following is likely to reduce agency costs?

A. guaranteeing managers a large base salary
B. few qualified managers to consider hiring

C. a board of directors comprised mostly of insiders

D. the threat of the firm being a takeover target

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14. Inside directors are effective at minimizing a firm's agency costs.

A. True

B. False

15. Conflicts of interest may result from an agency relationship.

A. True

B. False

16. The main responsibility of the financial manager is

A. to manage the wealth of shareholders.

B. to assist the marketing department in making sales projections.

C. to make decisions that are in the best interests of the firm's owners.
D. to keep the firm's debt-holders happy.

17. Deciding whether or not to spend $5 million to purchase a new piece of equipment is an example of a working capital
decision faced by a financial manager.
A. True

B. False

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