Quiz for Corporate Finance Foundation

FM - Foundation of Corporate Financial Management

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Question 1

Who is generally directly responsible for overseeing the tax management, cost accounting, financial accounting, and appropriate data processing functions?

A	Controller.
B	Auditor.
C	Treasurer.
D	Director.

Question 1 Explanation:

Controller is the role that normally directly responsible for overseeing the tax management, cost accounting, financial accounting, and appropriate data processing functions.

Question 2

What is the type of a market where dealers buy and sell securities for themselves, at their own risk?

A	Liquidation market.
B	Primary market.
C	Secondary market.
D	Dealer market.

Question 2 Explanation:

A market where dealers buy and sell securities for themselves, at their own risk called dealer market.

Question 3

What document formalizes the division of profits and losses among the members of a partnership?

A	Financial plan.
B	Articles of incorporation.
C	Partnership agreement.
D	Business plan.

Question 3 Explanation:

Partnership agreement is the document that formalized the division of profits and losses among the members of a partnership.

Question 4

What is the primary goal of financial management?

A	Maintain steady growth in both sales and net earnings.
B	Maximize current dividends per share of the existing stock.
C	Minimize operational costs and maximize firm efficiency.
D	Maximize the current value per share of the existing stock.

Question 4 Explanation:

Maximizing the current value per share of the existing stock is the primary goal of financial management

Question 5

The process of planning and managing a firm’s long-term investments is called:

A	Capital structure.
B	Working capital management.
C	Capital budgeting.
D	Financial modeling.

Question 5 Explanation:

Capital budgeting is the process of planning and managing a firm’s long-term investments.

Question 6

What type of business entities is operated and taxed like a partnership, but with limited liability for the owners?

A	Corporation.
B	Limited liability company.
C	General partnership.
D	Sole proprietorship.

Question 6 Explanation:

Limited liability company is the business entity that is operated and taxed like a partnership, but with limited liability for the owners.

Question 7

Which one of the following is a capital budgeting decision?

A	Deciding whether or not to open a new store.
B	Determining how much money should be kept in the checking account.
C	Determining how much debt should be borrowed from a particular lender.
D	Deciding when to repay a long-term debt.

Question 7 Explanation:

Whether or not to open a new store is a capital budgeting decision.

Question 8

A partnership _____.

A	is taxed the same as a corporation.
B	terminates at the death of any general partner.
C	agreement defines whether the business income will be taxed like a partnership or a corporation.
D	allows for easy transfer of interest from one general partner to another.

Question 8 Explanation:

A partnership terminates at the death of any general partner.

Question 9

When considering a capital budgeting project the financial manager should consider _____.

A	The size, timing, and risk of the project cash flows.
B	The risk of the project cash flows only.
C	The timing of the project cash flows only.
D	Only the size and timing of the project cash flows.

Question 9 Explanation:

As for any other projects, the size, timing, and risk of the project cash flows should be considered.

Question 10

What is the name of a market where trading takes place directly between buyers and sellers?

A	Primary market.
B	Auction market.
C	Liquidation market.
D	Dealer market.

Question 10 Explanation:

A market where trading takes place directly between buyers and sellers called auction market.

Question 11

Which one of the following statements concerning a sole proprietorship is correct?

A	The owner can generally raise large sums of capital quite easily.
B	The legal costs to form a sole proprietorship are quite substantial.
C	The life of the firm is limited to the life span of the owner.
D	The ownership of the firm is easy to transfer to another individual.

Question 11 Explanation:

The life of the firm is limited to the life span of the owner.

Question 12

Which document represents the rules by which corporations govern themselves?

A	Bylaws.
B	Articles of incorporation.
C	Charter agreement.
D	Partnership agreement.

Question 12 Explanation:

Bylaws is the document that represents the rules by which corporations govern themselves.

Question 13

Which one of the following statements is correct concerning the organizational structure of a corporation?

A	The vice president of finance reports to the chairman of the board.
B	The controller reports to the president.
C	The treasurer reports to the chief executive officer.
D	The chief executive officer reports to the board of directors.

Question 13 Explanation:

The chief executive officer reports to the board of directors.

Question 14

What type of the businesses created as a distinct legal entity composed of one or more individuals or entities?

A	Limited liability partnership.
B	Sole proprietary.
C	General partnership.
D	Corporation.

Question 14 Explanation:

Corporation is the business created as a distinct legal entity composed of one or more individuals or entities.

Question 15

The treasurer and the controller of a corporation generally report to the _____.

A	Board of Directors.
B	Chief of Executive Officer.
C	Vice President of finance.
D	Prosident.

Question 15 Explanation:

The treasurer and the controller of a corporation generally report to the Vice President of finance.

Question 16

Working capital management includes decisions concerning which of the following?

I. Accounts payable.
II. Long-term debt.
III. Accounts receivable.
IV. Inventory.

A	I, III, and IV only
B	I, II, and III only
C	II and IV only
D	I and III only

Question 16 Explanation:

Working capital management includes decisions concerning accounts payable, accounts receivable, and inventory because, which means managing the short-term assets and liabilities.

Question 17

Who is a company stakeholder?

A	Any person or entity that has voting rights based on stock ownership of a corporation.
B	Any person or entity that owns shares of stock of a corporation.
C	A person who initially started a firm and currently has management control over the cash flows of the firm due to his/her current ownership of company stock.
D	Any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of the firm.

Question 17 Explanation:

Any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of the firm.

Question 18

What type of businesses is formed by two or more individuals who each has unlimited liability for business debts?

A	Corporation.
B	Limited partnership.
C	General partnership.
D	Limited Liability partnership.

Question 18 Explanation:

A business that formed by two or more individuals who each have unlimited liability for business debts called general partnership.

Question 19

What is the mixture of debt and equity used by a firm to finance its operations?

A	Working capital management.
B	Capital budgeting.
C	Assets and liabilities.
D	Capital structure.

Question 19 Explanation:

Capital structure is the mixture of debt and equity used by a firm to finance its operations.

Question 20

Capital structure decisions include consideration of the _____.

I. Amount of long-term debt to assume.
II. Cost of acquiring funds.
III. Current assets and liabilities.
IV. Net working capital.

A	II and III only
B	I and II only
C	I, II, and IV only
D	III and IV only

Question 20 Explanation:

Capital structure decisions include consideration of the amount of long-term debt to assume and cost of acquiring funds.

Question 21

What is the management of a firm’s short-term assets and liabilities?

A	Capital structure management.
B	Working capital management.
C	Assets management.
D	Capital budgeting.

Question 21 Explanation:

Management of a firm’s short-term assets and liabilities called working capital management.

Question 22

Which one of the following best describes the primary advantage of being a limited partner rather than a general partner?

A	Greater management responsibility.
B	Ability to manage the day-to-day affairs of the business.
C	Entitlement to a larger portion of the partnership’s income.
D	Liability for firm debts limited to the capital invested.

Question 22 Explanation:

Liability for firm debts limited to the capital invested is the primary advantage.

Question 23

Who is generally directly responsible for overseeing the cash and credit functions, financial planning, and capital expenditures?

A	Director.
B	President.
C	Controller.
D	Treasurer.

Question 23 Explanation:

Treasurer is the role generally directly responsible for overseeing the cash and credit functions, financial planning, and capital expenditures.

Question 24

A general partner _____.

A	Has more management responsibility than a limited partner.
B	Cannot lose more than the amount of his/her equity investment.
C	Is the term applied only to corporations which invest in partnerships.
D	Has less legal liability than a limited partner.

Question 24 Explanation:

Has more management responsibility than a limited partner.

Question 25

Working capital management _____:

A	Ensures that sufficient equipment is available to produce the amount of product desired on a daily basis.
B	balances the amount of company debt to the amount of available equity.
C	ensures that long-term debt is acquired at the lowest possible cost.
D	is concerned with having sufficient funds to operate the business on a daily basis.

Question 25 Explanation:

Working capital management is concerned with having sufficient funds to operate the business on a daily basis.

Question 26

Which one of the following statements concerning a sole proprietorship is correct?

A	A sole proprietorship is the least common form of business ownership.
B	The owner of a sole proprietorship may be forced to sell his/her personal assets to pay company debts.
C	A sole proprietorship is often structured as a limited liability company.
D	The owners of a sole proprietorship share profits as established by the partnership agreement.

Question 26 Explanation:

Owner of a sole proprietorship business has unlimited liability where personal assets considered as business equity.

Question 27

What type of the market supports transactions when one shareholder sells stock directly to another?

A	OTC market.
B	Dealer market.
C	Secondary market.
D	Primary market.

Question 27 Explanation:

Secondary market supports transactions directly between shareholders.

Question 28

What an agency costs refers to?

A	The costs of any conflicts of interest between stockholders and management.
B	The total dividends paid to stockholders over the lifetime of a firm.
C	Corporate income subject to double taxation.
D	The costs that result from default and bankruptcy of a firm.

Question 28 Explanation:

An agency costs refers to the costs of any conflicts of interest between stockholders and management.

Question 29

What of the following refers to the original sale of securities by governments and corporations to the general public?

A	Liquidation market.
B	Secondary market.
C	Private placement market.
D	Primary market.

Question 29 Explanation:

The original sale of securities by governments and corporations to the general public called primary market.

Question 30

The decision of which lender to use and which type of long-term loan is best for a project is part of:

A	The net working capital decision.
B	Working capital management.
C	The capital structure decision.
D	Capital budgeting.

Question 30 Explanation:

This is a capital structure decision because it is made based on analysis of the mixture of debt and equity that used by a company to finance its operations.

Question 31

Which of the following questions are addressed by financial managers?

I. How long will it take to produce a product?
II. How long should customers be given to pay for their credit purchases?
III. Should the firm borrow more money?
IV. Should the firm build a new factory?

A	I, II, III, and IV
B	II, III, and IV only
C	II and III only
D	I, II, and III only

Question 31 Explanation:

Financial managers are responsible for planning and managing financial areas of the business; time and schedule of the production is a direct responsibility of operations.

Question 32

What type of the businesses is owned by a single individual?

A	Sole proprietorship.
B	Corporation.
C	Partnership.
D	business that owned by a single individual
E	Limited liability company.

Question 32 Explanation:

A business that owned by a single individual called sole proprietorship.

Question 33

How a conflict of interest between the stockholders and management of a firm is called?

A	Corporate breakdown.
B	The agency problem.
C	Stockholders’ liability.
D	Legal liability.

Question 33 Explanation:

A conflict of interest between the stockholders and management of a firm is called the agency problem.

Question 34

What corporate document sets forth the business purpose of a firm?

A	Business plan.
B	Indenture contract.
C	Corporate bylaws.
D	Articles of incorporation.

Question 34 Explanation:

What is the corporate document that sets forth the business purpose of a firm.

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