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True or False ( explanation required)

1. Financial managers of today have fewer responsibilities than their counterparts of the early 20th century.

2. Rapid technological change and worldwide economic uncertainty are factors that may affect the job of the financial manager.

3. A goal or objective is a necessary first step for effective financial management.

4. Deciding on the total amount of assets needed by the firm is a key step in the investment decision.

5. The goal of the firm should be to maximize earnings per share.

6. In a large corporation, the firm's owners are usually also its top managers.

7. Corporate management, acting as the owners' agent, makes all decisions in the owners' best interests.

8. Maximizing the price of a share of the firm's common stock is the equivalent of maximizing the wealth of the firm's present owners.

9. Corporate Social Responsibility (CSR) is usually in conflict with the objective of shareholder wealth maximization.

10. The price of a share of common stock acts as a barometer indicating how well management is doing on behalf of shareholders.

11. The stakeholders of a corporation are all constituencies with a stake in the fortunes of the company. They include shareholders, creditors, customers, employees, suppliers, and local communities.

12. In the US, the Public Company Accounting Oversight Board (PCAOB) appoints the chairman and the members of the Securities and Exchange Commission (SEC).

13. It is much more common in the US to have a company's CEO serve as chairman of the board of directors than it is in the UK.

The following item is NEW to the 13th edition.

14. Sustainability is usually in conflict with the idea of Corporate Social Responsibility (CSR).

• . The concept of present value relates to the idea that*
  • The discount rate is always higher when you invest now than in the future
  • The discount rate is always higher when you invest in the future than now
  • The money you have now is worth less today than an identical amount you would receive in the future
  • The money you have now is worth more today than an identical amount you would receive in the future
• 2. The formula for calculating future value (FV) is*
  • FV = PV/(1+r)^n
  • FV = PV/(1+r)*n
  • FV = PV x (1+r)^n
  • FV = PV x (1+r)*n
• 3. If you were able to earn interest at 3% and you started with $100, how much would you have after 3 years?*
  • $91.51
  • $109.27
  • $291.26
  • $103.00
• 4. Based on the numbers given below, calculate the net present value (NPV) of this project.*

• 59.06
• 459.47
• 230.00
• 205.36
• 5. What is an annuity?*
  • An investment that has no definite end and a stream of cash payments that continues forever
  • A stream of cash flows that start one year from today and continue while growing by a constant growth rate
  • A series of equal payments at equal time periods and guaranteed for a fixed number of years
  • A series of unequal payments at equal time periods which are guaranteed for a fixed number of years
• 6. Calculate the price of a dividend paying stock using the following information, assuming the price is equal to the present value of all future dividends one will receive from owning the stock. (Hint: treat the stock as a growing perpetuity)*

• $37.50
• $32.14
• $42.60
• $45.00
• 7. What is a par value of a bond?*
  • The amount borrowed by the issuer of the bond and returned to the investors when the bond matures
  • The overall return earned by the bond investor when the bond matures
  • The difference between the amount borrowed by the issuer of bond and the amount returned to investors at maturity
  • The size of the coupon investors receive on an annual basis
• 8. When the price of a bond is above the face value, the bond is said to be*
  • Trading at par
  • Trading at a premium
  • Trading at a discount
  • Trading below par
• 9. Which of the following is true when a bond is trading at a discount?*
  • Coupon Rate > Current Yield > Yield to Maturity
  • Coupon Rate < Current Yield < Yield to Maturity
  • Coupon Rate = Current Yield = Yield to Maturity
  • Coupon Rate < Current Yield = Yield to Maturity
• 10. The concept of time value of money is that*
  • The cash flows that occur earlier are more valuable than cash flows that occur later
  • The cash flows that occur earlier are less valuable than cash flows that occur later
  • The longer the time cash flows are invested, the more valuable they are in the future
  • The future value of cash flows are always higher than the present value of the cash flows
• 11. What is the enterprise value of a business?*
  • The market value of equity of the business
  • The book value of equity of the business
  • The entire value of the business without giving consideration to its capital structure
  • The entire value of the business considering its capital structure
• 12. Which of the following is the formula to calculate cost of capital?*
  • Total assets/Net debt x Cost of debt + Total assets/Equity x Cost of equity
  • Net debt/Equity x Cost of debt + Equity/Net debt x Cost of equity
  • Net debt x Cost of debt + Equity x Cost of equity
  • Net debt/Total assets x Cost of debt + Equity/Total assets x Cost of equity
• 13. Company A has a capital structure of $80M debt and $20M equity. This year, the company reported a net income of $17M. What is Company A's return on equity?*
  • 117.6%
  • 21.3%
  • 85.0%
  • 28.3%
• 14. Which of the following is not an investment grade credit rating?*
  • BB+
  • BBB+
  • BBB
  • BBB-
• 15. Which of the following is not true about private equity funds?*
  • Private equity funds are pools of capital invested in companies which represent an opportunity for high rate of return
  • Exit strategies for private equity funds include Initial Public Offerings (IPOs) and leveraged buyout (LBO)
  • Venture capital is an example of private equity funds
  • Private equity funds are usually invested for unlimited time periods
• 16. ____ underwriting commitment is when the underwriter agrees to buy the entire issue and assume full financial responsibility for any unsold shares.*
  • Best efforts
  • Firm commitment
  • All-or-none
  • Full-purchase
• 17. The correct order of capital stack from the most to least secured is*
  • Equity > Subordinated debt > Senior debt
  • Suborindated debt > Senior debt > Equity
  • Senior debt > Subordinated debt > Equity
  • Senior debt > Equity > Subordinated debt
• 18. Which of the following is not a financing activity?*
  • Repayment of long-term debt
  • Issuance of equity
  • Investments in businesses
  • Payment of dividends
• 19. What is working capital?*
  • Equity Capital + Retained Earnings
  • Equity Capital - Total Liabilities
  • Total Assets - Total Liabilities
  • Current Assets - Current Liabilities
• 20. Which of the following is not true about goodwill?*
  • Goodwill needs to be evaluated for impairment yearly
  • Goodwill is treated as a tangible asset in accounting
  • Goodwill is a result of purchasing a company for a price higher than the fair market value of the target company's net assets
  • Goodwill can be comprised of things such as good reputation, loyal client base, and brand recognition