A. TRUE / FALSE QUESTIONS

Enter "True" or "False" on the blank preceding each question.

___T___ 1. "Financial Services" is the area of Finance concerned with the design and delivery of advice and

financial products to individuals, businesses, a nd government.

______ 2. Increasing globalization has simplified the Finance function, particularly due to the use of multiple

world currencies.

______ 3. In Finance, the focus when making financial decisions is typically on the accrual method of

accounting.

______ 4. "Stakeholders" include all groups of individuals who have a direct economic link to the firm.

______ 5. Whenever a manager owns less than 100% of the corporation's stock, a potential agency

problem exists.

______ 6. The great majority of all firms in the United States are organized as corporations.

______ 7. "Shareholders' Equity" listed on a corporation's Balance Sheet represents the amount that the

firm has borrowed and must repay.

______ 8. A firm's liquidity ratios can provide early warning signs of cash flow problems for the firm.

______ 9. The goal of the "Inventory Turnover Ratio" and the "Accounts Receivable Turnover Ratio"

is to have as low of a turnover rate value as possible.

______ 10. The more debt that a firm uses in relation to its "Total Assets," the greater its financial

leverage.

______ 11. On a "common-size" Income Statement, each account is expressed as a percentage of the

firm's "Net Income" for the year.

______ 12. The stocks of firms that are expected to perform well typically sell at a higher "Market/Book Ratio."

______ 13. Historically, U.S. Treasury Bonds have been the most risky investment, as measured by

their higher standard deviation of returns vs. the standard deviation of other securities.

______ 14. For a "normal probability distribution," 95% of the outcomes lie +/- one standard deviation

from the expected return value.

______ 15. An "efficient portfolio" provides the maximum level of return for a given level of risk.

______ 16. Over long periods of time, the returns earned on internationally-diversified portfolios tend to

be superior to returns on portfolios that contain only domestic (i.e., one country) investments.

B. MULTIPLE CHOICE QUESTIONS

For each question, enter the letter of the best response on the blank preceding the question.

______ 17. Finance is concerned with

how firms raise money from investors.

how firms invest money to seek a profit.

whether to re-invest profits into the firm or distribute them as dividends to shareholders.

A and B and C.

______ 18. A key decision rule for Financial Managers is to only take actions that are expected to

increase the firm's "Net Income."

increase the firm's Cash Flow.

increase the firm's dividend per share.

increase the market value of the firm's stock price per share.

______ 19. __________________ is the system of rules, processes, and laws used to direct and

control a corporation.

Corporate Governance

Breakeven Analysis

Shareholders' Equity

Accrual Accounting

______ 20. A security that represents ownership interest in a corporation is

corporate bonds.

stock.

commercial paper.

Treasury bills.

______ 21. Each of the following is a weakness of the "Partnership" form of business

ownership EXCEPT

owners have unlimited liability and may have to cover the debts of the other partners.

the Partnership is dissolved when a partner dies.

the firm's borrowing power is enhanced by having more than one owner.

it is difficult to liquidate or transfer a partnership.

______ 22. After January 1, 2018, per the Tax Cuts and Jobs Act:

proprietorships and partnerships are still taxed according to a revised progressive tax rate

structure.

corporations are taxed at a flat rate of 21%.

corporations with "Pre-Tax Earnings of $100,000 or less are exempt from federal taxes.

A and B and C.

A and B.

______ 23. The _______________________ presents a summary of the firm's financial position as of a

specific date.

Income Statement

Balance Sheet

Statement of Cash Flows

Statement of Retained Earnings

______ 24. "Cross-sectional ratio analysis" is used to compare

the performance of different competitive firms during the same time-span.

the performance of a single firm over time (i.e., several years).

the performance of a single firm relative to Securities & Exchange Commission {SEC) standards.

none of the above.

______ 25. The "Quick Ratio" is similar to the "Current Ratio," except that the "Quick Ratio" excludes

the __________________ account(s) in the numerator of the formula.

Cash

Inventory

Accounts Receivable

A and C.

______ 26. A collection or group of assets is a

Corporate By-Law.

Warranty

Portfolio.

Guarantee.

______ 27. Most managers are _________________________, as for a given increase in risk, they require

an increase in return.

risk-averse

risk neutral

risk-seeking

none of the above.

______ 28. The ______________________ is a measure of relative dispersion that is useful in comparing

the risks of assets with differing expected returns.

Range

Earnings Per Share (EPS)

Dividend Pay-Out Ratio

Co-efficient of Variation (C.V.)

______ 29. If two series of numbers move in the same direction, but by differing amounts, they are

positively correlated.

negatively correlated.

perfectly positively correlated.

perfectly negatively correlated.

______ 30. In general, the _______________ the correlation between asset returns within a given industry, the

___________ the risk reduction that investors can achieve by diversifying their portfolios across

multiple industries.

higher; greater

lower; greater

______ 31. Each of the following is a type of systematic or non-diversifiable risk EXCEPT

the rate of inflation.

the market interest rate.

a strike at the Amazon warehouse in Seattle, WA.

the potential for an economic recession.

______ 32. A measure of the systematic risk that a corporation has is its ______________ .

"Earnings Per Share" (EPS)

"Dividend Per Share" (DPS)

"Debt Ratio" percentage

beta