Quiz for Corporate Finance Foundation

FM - Foundation of Corporate Financial Management

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Question 1

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 1 Explanation:

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

Question 2

Which document represents the rules by which corporations govern themselves?

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

Question 2 Explanation:

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

Question 3

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

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

Question 3 Explanation:

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

Question 4

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

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

Question 4 Explanation:

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

Question 5

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

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

Question 5 Explanation:

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

Question 6

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	Liability for firm debts limited to the capital invested.
D	Entitlement to a larger portion of the partnership’s income.

Question 6 Explanation:

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

Question 7

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

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

Question 7 Explanation:

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

Question 8

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

Question 8 Explanation:

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

Question 9

Which one of the following is a capital budgeting decision?

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

Question 9 Explanation:

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

Question 10

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

Question 10 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 11

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

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

Question 11 Explanation:

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

Question 12

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

Question 12 Explanation:

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

Question 13

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 13 Explanation:

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

Question 14

Working capital management _____:

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

Question 14 Explanation:

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

Question 15

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

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

Question 15 Explanation:

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

Question 16

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

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

Question 16 Explanation:

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

Question 17

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

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

Question 17 Explanation:

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

Question 18

What is the primary goal of financial management?

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

Question 18 Explanation:

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

Question 19

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

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

Question 19 Explanation:

Secondary market supports transactions directly between shareholders.

Question 20

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

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

Question 20 Explanation:

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

Question 21

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

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

Question 21 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 22

A general partner _____.

A	Has less legal liability 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 more management responsibility than a limited partner.

Question 22 Explanation:

Has more management responsibility than a limited partner.

Question 23

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

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

Question 23 Explanation:

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

Question 24

What an agency costs refers to?

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

Question 24 Explanation:

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

Question 25

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

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

Question 25 Explanation:

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

Question 26

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

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

Question 26 Explanation:

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

Question 27

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

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

Question 27 Explanation:

The chief executive officer reports to the board of directors.

Question 28

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

Question 28 Explanation:

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

Question 29

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

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

Question 29 Explanation:

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

Question 30

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

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

Question 30 Explanation:

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

Question 31

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

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

Question 31 Explanation:

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

Question 32

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

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

Question 32 Explanation:

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

Question 33

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

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

Question 33 Explanation:

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

Question 34

A partnership _____.

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

Question 34 Explanation:

A partnership terminates at the death of any general partner.

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