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FIN 370 Final Exam (3rd Set) 63 Questions with ANSWERS.doc

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Business

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FIN 370 Final Exam.
True/False
1. The financial manager should examine available risk-return trade-offs and make his
decision based upon the greatest expected return.
True
False
2. Only a few financial decisions involve some sort of risk-return tradeoff.
True
False
3. The sole proprietorship can be described as the absence of any legal business structure.
True
False
4. In a general partnership, all partners have unlimited liability for the actions of any one
partner when that partner is conducting business for the firm.
True
False
5. There is no legal distinction made between the assets of the business and the personal
assets of the owners in the limited partnership.
True
False
6. General partners have unrestricted transferability of ownership, while limited partners
must have the consent of all partners to transfer their ownership.
True
False
7. Ultimate control in a corporation is vested in the board of directors.
True
False
8. There are a significant number of legal requirements to follow when establishing a sole
proprietorship.
True
False
9. Limited partners may actively manage the business.
True
False

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10. The life of a corporation is not dependent upon the status of the investors.
True
False
11. A sole proprietorship is the most desirable business form in all circumstances.
True
False
12. In a sole proprietorship, the owner is personally responsible without limitation for the
liabilities incurred.
True
False
13. In a limited partnership, at least one general partner must remain in the association;
the privilege of limited liability still applies to this partner.
True
False
14. In a general partnership, there is a distinction between business and personal assets.
True
False
15. In order to maximize shareholder wealth, a firm must consider historical costs as an
integral part of their decision-making.
True
False
16. Financial management is concerned with the maintenance and creation of wealth. True
True
False
17. Shareholder wealth is measured by the market value of the firm's common stock. True
True
False
18. The agency problem arises due to the separation of ownership and control in a firm.
True
False
19. There is little, if any, difference between a business error and an ethical error.
True
False
20. For markets to be efficient, price adjustments to new information must be correct.
True
False

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21. Ethical dilemmas frequently exist in finance.
True
False
22. Even though diversification can eliminate risk, it also makes it more difficult to
measure a project's or an asset's risk.
True
False
23 Consider the following equally likely project outcomes: Profit XY Pessimistic
prediction$0$500 Expected outcome$ 500$500 Optimistic prediction$1000 $500
a. Project Y has less uncertainty than Project X.
b. Project X has more variability than Project Y.
c. a and b.
d. Since Projects X and Y have the same expected outcomes of $500, investors will view them as
identical in value.
24. Maximization of shareholder wealth as a goal is superior to profit maximization
because:
a. it considers the time value of the money.
b. following the shareholder wealth maximization goal will ensure high stock prices.
c. it considers uncertainty.
d. a and c.
25. Why is maximizing shareholder wealth a better goal than maximizing profits?
a. Maximizing shareholder wealth places greater emphasis on the short term.
b. Maximizing profits ignores the uncertainty that is related to expected profits.
c. Maximizing shareholder wealth gives superior consideration to the entire portfolio of
shareholder investments.
d. Maximizing profits gives too much weight to the tax position of shareholders.
26. Profit maximization does not adequately describe the goal of the firm because:
a. profit maximization does not require the consideration of risk.
b. profit maximization ignores the timing of a project's return.
c. maximization of dividend payout ratio is a better description of the goal of the firm.
d. a and b.
27. Consider cash flows for Projects X and Y such as: Project X Project Y Year 1$3000 $0
Year 2$0$3000 A rational person would prefer receiving cash flows sooner because:
a. the money can be reinvested.
b. the money is nice to have around.
c. the investor may be tired of a particular investment.
d. the investor is indifferent to either proposal.
28. What is the chief disadvantage of the sole proprietorship as a form of business
organization when compared to the corporate form?

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