Question:

1.A corporation is a legal entity that is generally created by a state; its life and existence is separate from the lives of its individual owners and managers.

a.Limited liability of its stockholders is an advantage of the corporate form of organization, but corporations have more trouble raising money in financial markets because of the complexity of this form of organization.

b.Although its stockholders are insulated by limited legal liability, the corporation's legal status does not protect the firm's managers in the same way; i.e., bondholders can sue its managers if the firm defaults on its debt, even if the default is the result of poor economic conditions.

c.The main method of transferring ownership interest in a corporation is by means of a hostile takeover.

d.Two key advantages of the corporate form over other forms of business organization are unlimited liability and limited life.

2.Wide-spread adherence to ethical standards in an advanced market economy tends to result in all of the following EXCEPT: *

a.Higher quality goods and services.

b.Greater variety of goods and services available for sale.

c.Safer products.

d.Higher prices.

3.Money markets are markets for *

a.Long-term bonds.

b.Domestic shares of stocks.

c.Short-term debt securities.

d.Consumer automobile loans.

e.Foreign shares of stock.

4.Agency costs refer to *

a.None of the choices.

b.The costs associated with managing the demands of federal agencies.

c.The costs involved when converting an entity from a proprietorship to a corporation.

d.The costs that arise due to conflicts of interest between shareholders and managers.

5.Justine is an accountant in the accounting department of Modern Industries, Inc. Justine has just discovered evidence that some of the corporation's marketing managers have been wrongfully inflating their expense reports in order to obtain higher reimbursements from the firm. According to the understanding and acceptance of the basic principles and concepts of ethical conduct, what should Justine do upon discovering this evidence? *

a.Notify the president of the corporation.

b.Notify the controller.

c.Notify the marketing managers involved.

d.Ignore the evidence because she is not part of the Marketing Department.

6.Agency theory deals with the issue of *

a.The limitations placed on an employee acting as the firm's agent to obligate or bind the firm.

b.The conflicts that can arise between the viewpoints and motivations of a firm's owners and managers.

c.When to hire an agent to represent the firm in negotiations.

d.The legal liabilities of a firm if an employee, acting as the firm's agent, injures someone.

7.A financial manager's goal of maximizing current or short-term earnings may not be appropriate because *

a.All of the choices.

b.Earnings are subjective; they can be defined in various ways such as accounting or economic earnings.

c.It fails to consider the timing of the benefits.

d.Increased earnings may be accompanied by unacceptably higher levels of risk.

8.Maximization of shareholder wealth is a concept in which *

a.Profits are maximized on a quarterly basis.

b.Virtually all earnings are paid as dividends to common stockholders.

c.Optimally increasing the long-term value of the firm is emphasized.

d.Increased earnings is of primary importance.

9.As mergers, acquisitions, and restructuring have increased in importance, agency theory has become more important in assessing whether *

a.A stock repurchase should be undertaken.

b.Managers are actually agents or only employees of the firm.

c.Shareholder goals are truly being achieved by managers in the long run.

d.Managers and owners are actually the same people with the same interests.

10.Insider trading occurs when *

a.Someone has information not available to the public which they use to profit from trading in stocks.

b.Lawyers, investment bankers, and others buy common stock in companies represented by their firms.

c.Any stock transactions occur in violation of the Securities and Exchange Commission's restrictions on monopolies.

d.Corporate officers buy stock in their company.

11. Future financial managers will need to understand *

a.All of the choices.

b.Computerized funds transfers.

c.International cash flows.

d.International currency hedging strategies.

12. Benefits of social responsibility often include *

a.All of the choices

b.Lower expenses

c.Better reputation

d.Higher short-term earnings

13. Which of the following statements is CORRECT? Statement 1. The difference between the PV of an annuity due and the PV of an ordinary annuity is that each of the payments of the annuity due is discounted by one more year (period). Statement 2. The difference between an ordinary annuity and an annuity due is that each of the payments of the annuity due earns interest for one additional year (period). Statement 3. An annuity is a series of equal payments made at fixed equal-length intervals for a specified number of periods. *

a.All of the statements are correct.

b.None of the statement is correct.

c.Statement 2 only.

d.Statement 1 only.

e.Statement 3 only.

14.Given some amount to be received several years in the future, if the interest rate increases, the present value of the future amount will *

a.Be variable.

b.Cannot tell.

c.Be higher.

d.Be lower.

e.Stay the same.

15. Why is the present value of an amount lesser than its value that is to be received (paid) in the future? *

a.None of the choices is a correct answer.

b.Deflation causes investors to lose purchasing power when their pesos are invested for greater than one year.

c.Investors have the opportunity to earn positive rates of return, so any amount invested today should grow to a larger amount in the future.

d.Because investors are taxed on the income received from investments they never will buy an investment for the amount expected to be received in the future.

e.Investments generally are not as good as those who sell them suggest, so investors usually are not willing to pay full face value for such investments, thus the price is discounted.

16.Everything else equal, which of the following conditions will result in the lowest present value of an amount to be received in the future? *

a.Monthly compounding

b.Quarterly compounding

c.Daily compounding

d.Annual compounding

17. Which of the following managerial functions involves a detailed financial and operational description of anticipated operations? *

a.Measuring.

b.Decision making.

c.Controlling.

d.Directing operational activities.

e.Planning.

18.Financial accounting focuses primarily on reporting: *

a.To an organization's board of directors.

b.To parties within an organization.

c.For internal control.

d.To parties outside of an organization.

e.To financial institutions.

19.The chief managerial and financial accountant of an organization is the: *

a.Chief financial officer (CFO).

b.Treasurer.

c.Chief executive officer (CEO).

d.Internal auditor.

e.Vice-president of accounting.

20. Which of the following typically does NOT relate to the role of a controller? *

a.A controller ensures compliance with financial reporting standards.

b.A controller normally assumes a narrow role within the organization, often preventing the individual's rise to top management ranks.

c.A controller oversees the preparation of reports required by governmental authorities.

d.A controller supervises the accounting department.

e.All of the choices.

21. Jullan is starting a small business out of her home. When she accesses a business "how-to" web site, Jullan finds software downloads and printable worksheets that will help her plan and manage her business's income and expenses. The software and worksheets are types of *

a.Legal data.

b.Budgeting tools.

c.Organizational charts.

d.Statistical information.

22.Financial structure refers to ________________. *

a.Short-term resources.

b.Long-term resources.

c.All of the choices.

d.All the financial resources.

23.Which of the following is not normally a responsibility of the treasurer of the modern corporation but rather the controller? *

a.Budgets and forecasts.

b.Asset management.

c.Investment management.

d.None of the choices.

24.According to financial management authors, ___________ is the most important of the three financial management decisions. *

a.Financing decision.

b.Investment decision.

c.Asset management decision.

d.Accounting decision.

25.Which of the following statements is CORRECT? Statement 1. Time lines can be constructed in situations where some of the cash flows occur annually but others occur quarterly. Statement 2. Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly. Statement 3. Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods. *

a.Statement 3 only.

b.None of the statement is correct.

c.Statement 1 only.

d.Statement 2 only.

e.All of the statements are correct.

26.Which of the following statements is CORRECT? Statement 1. Time lines cannot be constructed for annuities unless all the payments occur at the end of the periods. Statement 2. Some of the cash flows shown on a time line can be in the form of annuity payments while others can be uneven amounts. Statement 3. Some of the cash flows shown on a time line can be in the form of annuity payments but none can be uneven amounts. *

a.Statement 1 only.

b.Statement 3 only.

c.All of the statements are correct.

d.Statement 2 only.

e.None of the statement is correct.

27.Which of the following statements is NOT TRUE? Statement 1. The present value of a future sum decreases as the number of periods per year increases, other things held constant. Statement 2. The present value of a future sum decreases as the discount rate increases, other things held constant. Statement 3. All other things held constant, the present value of a given annual annuity decreases as the number of periods per year increases. *

a.Statement 1 only.

b.Statement 3 only.

c.All of the statements are not true.

d.All of the statements are true.

e.Statement 2 only.

28.Which of the following statements is CORRECT? *

a.The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month.

b.The cash flows for an annuity due must all occur at the ends of the periods.

c.If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.

d.If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity.

e.The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.

29.Which of the following statements is CORRECT? *

a.If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.

b.The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year or once a month.

c.The cash flows for an annuity due must all occur at the beginning of the periods.

d.If some cash flows occur at the beginning of the periods while others occur at the end of the periods, then we have what the textbook defines as a variable annuity.

e.The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.

30.At the end of 10 years, which of the following investments would have the highest future value? Assume that the effective annual rate for all investments is the same and is greater than zero. *

a.Investment B pays P125 at the end of every 6-month period for the next 10 years (a total of 20 payments).

b.Investment D pays P2,500 at the end of 10 years (just one payment).

c.Investment A pays P250 at the beginning of every year for the next 10 years (a total of 10 payments).

d.Investment E pays P250 at the end of every year for the next 10 years (a total of 10 payments).

e.Investment C pays P125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).

31. Which of the following statements is CORRECT? *

a.The formula or equation for the calculation of the present value can be used only in even cash flows that are paid or received at regular time intervals and subject to a constant discount rate.

b.The future value of an annuity table is most useful in the short-cut calculation of the future value of uneven cash flows.

c.The formula or equation for the calculation of the future value can be used also in regular annuity and subject to a fluctuating rate of return.

d.The present value of an annuity table is most useful in the short-cut calculation of the present value of uneven cash flows.

32. Which of the following statements is TRUE? Statement 1. As you increase the interest rate, the future value of an investment increases. Statement 2. As you increase the length of the investment (to receive some lump sum), the present value of the investment increases. Statement 3. The present value of an ordinary annuity is larger than the present value of an annuity due (all else equal). *

a.Statement 3 only.

b.All of the statements are true.

c.Statement 2 only.

d.Statement 1 only.

e.None of the statement is true.

33.Under what conditions must a distinction be made between money to be received today and money to be received in the future? *

a.When there is no risk of nonpayment in the future.

b.When current interest rates are different from expected future rates.

c.When idle money can earn a positive return.

d.A period of recession.

e.*

34.1 point

a.=1.061.061.061.061.06

b.=11.061.061.061.061.06

c.=1.06 x 1.06 x 1.06 x 1.06 x 1.06

d.=1 (1.06 x 1.06 x 1.06 x 1.06 x 1.06)

35.Which of the following statements is NOT TRUE? *

a.In an annuity due, payments occur at the beginning of the period.

b.A perpetuity will never mature at any point in future.

c.The present value of a perpetuity can be calculated.

d.In an ordinary annuity, payments occur at the beginning of the period.

36. If the rate of interest that your investment can earn on a 2-year investment is zero, which of the following statements is NOT CORRECT? *

a.All of the statements are correct.

b.You will receive the same amount you invested at the beginning of the 2-year period at the conclusion or maturity of the investment.

c.The future value of your investment is higher than your present value at the end of the investment period.

d.The payment for the use of your money for two years is zero.

37. Which investment will you choose from the following investment opportunities: *

a.A one-year investment that pays 12%, compounding annually.

b.All the choices will provide the same future value.

c.A one-year investment that pays 12%, compounding quarterly.

d.A one-year investment that pays 12%, compounding monthly.

38.The amount that someone is willing to pay today, for a single cash flow in the future is *

a.The future value of the stream of cash flows.

b.The future value of the cash flow.

c.The present value of the annuity of cash flows

d.The present value of the cash flow.

39.Cash flows are not automatically considered as annuities due to their following characteristics, EXCEPT *

a.The cash flows are payments or receipts at future period of time.

b.The cash flows may be of uneven amounts.

c.The cash flows may be inflows and outflows all together at a common interval over the life of the receipts and payments.

d.The cash flows may be received or paid intermittently.

40.If you hold the annual percentage rate constant while increasing the number of compounding periods per year, then *

1 point

a.The effective interest rate will increase.

b.The effective interest rate will not change.

c.The effective interest rate will decrease.

d.None of the choices.

93 Consider another set of net cash flows: FEE Cash Flow 0 $2,000 1 2,000 2 0 3 1,500 4 2,500 5 4,000 a. What is the net present value of the stream if the opportunity cost of capital is 10 percent? - b. What is the value of the stream at the end of Year 5 if the cash flows are invested in an account that pays 10 percent annually? (2- What cash ow today (Year 0), in lieu of the $2,000 cash flow, would be needed to accumulate $20,000 at the end of Year 5? (Assume that the cash flows for Years 1 through 5 remain the same.) 20. Match the engagement described to the (A) type of audit and (B) auditor that would most likely perform the engagement. Each engagement will have an answer from List-A and List-B. An answer can be used once, more than once, or not at all. List A - Type of Audit: List B - Type of Auditor: a. Financial Statement d. Internal b. Compliance e. External c. Operational f. Government g. IRS Engagement: 1. Evaluate a company's payroll processing for economy. 2. Evaluate/determine if bank covenants are being met. 3. Evaluate financial statements that are to be submitted to a bank. 4. Evaluate the promptness of materials inspection in a manufacturer's receiving department. 5. Determine if Medicare reimbursements are in accordance with the Healthcare Financing Administration (HCFA). 6. Determine if the tax return of a multinational corporation is in accordance with the tax code. 7. Determine if a public school is properly applying their reimbursement for the payment-in-kind program. 8. Determine the effectiveness of a Department of Defense project.