1. ch01-001
Financial management provides the theories, concepts, and tools
necessary to help managers make better financial decisions.
*a. True
b. False
2. ch01-002
Which of following factors make the health services industry unique
(different from other industries)?
a. It has many not-for-profit organizations.
b. Most revenues do not come from the beneficiary of the
services.
c. The government is highly involved.
d. Answers a. and b. are both correct.
*e. Answers a., b., and c. are all correct.
3. ch01-003
Which of the following is not a finance activity?
a. Evaluation and planning
b. Financing decisions
c. Long-term investment decisions
d. Financial risk management
*e. Facilities management
4. ch01-004
Which of the following statements about organizational goals is most
correct?
a. In proprietorships and partnerships, the owners’ goals and the
business’s goals are completely separate.
b. The primary goal of investor-owned corporations is to increase
the size of the organization.
c. The primary goal of not-for-profit corporations is to increase
the size of the organization.
*d. The primary goal of investor-owned corporations is
shareholder wealth (stock price) maximization.
e. Because not-for-profit corporations have a charitable purpose,
they typically do not establish an organizational goal.
5. ch01-005
Because for-profit and not-for-profit organizations have different
financial goals, the finance function is totally different between
these two forms of ownership.
a. True
*b. False
6. ch01-006
Which of the following statements about organizational stakeholders is
most correct?
*a. All businesses have stakeholders.
b. Only for-profit businesses have stakeholders.
c. Only not-for-businesses have stakeholders.
d. Not-for-profit and for-profit businesses each have
stakeholders, but they are completely different parties.
e. In for-profit businesses, the only stakeholders are owners.
7. ch01-007
Which of the following statements about the agency problem is most
correct?
a. The problem only occurs at not-for-profit corporations.
*b. The problem can be reduced by creating proper managerial
incentives.
c. The problem can be reduced by giving managers long-term
contracts.
d. Answers a. and b. are both correct.
e. Answers a., b., and c. are all correct.
8. ch01-008
Which of the following statements about the legal forms of for-profit
business organization is most correct?
a. Corporations are easier to form than are proprietorships.
b. Partnerships are applicable when there are more the three
owners, while proprietorships are used when there are three or
less owners.
*c. Corporations have the advantage of limited liability to
owners.
d. Hybrid forms of business cannot be used by healthcare
organizations.
e. With corporations, income is taxed only once and hence they
typically are more tax efficient than proprietorships or
partnerships.
9. ch01-009
Which of the following statements about not-for-profit corporations is
most correct?
*a. They can issue tax-exempt (municipal) debt.
b. They typically pay federal income taxes.
c. They typically pay local and state taxes.
d. Community residents exercise control of such corporations by
voting for the board of directors (trustees).
e. They pay dividends to owners.
10. ch01-010
The primary goal of not-for-profit corporations generally is expressed
in a mission statement that often involves service to the community.
*a. True
b. False
11. ch01-011
Which of the following individuals (or groups) are not
stakeholders in not-for-profit corporations?
a. Suppliers
b. Patients
c. Managers
*d. Stockholders
e. Employees
12. ch01-012
Because the organizational and financial goals of for-profit and notfor-profit provider organizations differ, their financial decision
making processes usually lead to very different decisions.
a. True
*b. False
13. ch01-013
Assume that Jane Adams pays income taxes at a 35 percent rate. What
would be the after-tax dollar amount on $100 of interest income that
she receives?
a. $100
b. $75
*c. $65
d. $35
e. $15
14. ch01-014
Assume that John Richards pays income taxes at a 30 percent rate. He
currently owns a not-for-profit (municipal) bond that pays 5 percent
interest. What interest rate would have to be set on a for-profit
(corporate) bond to produce the same amount of usable (after-tax)
income?
a. 5.0 percent
b. 5.7 percent
c. 6.6 percent
*d. 7.1 percent
e. 8.4 percent
15. ch01-015
Which of the following tax-related benefits are generally granted to
not-for-profit corporations?
a. Exemption from federal and state income taxes
b. Exemption from local property taxes
c. Ability to issue tax-exempt (municipal) debt
d. Ability to accept contributions that are tax-deductible to the
donor
*e. All of the above benefits are generally granted.
16. ch01-016
For an individual who pays personal income taxes at a 30 percent rate,
which of the following statements is most correct?
a. An investment in a tax-exempt (municipal) bond will always be
preferred to an investment in a taxable (corporate) bond.
b. An investment in a tax-exempt (municipal) bond will never be
preferred to an investment in a taxable (corporate) bond.
*c. An investment in a tax-exempt (municipal) bond with an
interest rate of 8 percent will be preferred over an investment
in a taxable (corporate) bond with an interest rate of 10
percent.
d. An investment in a tax-exempt (municipal) bond with an
interest rate of 5 percent will be preferred over an investment
in a taxable (corporate) bond with an interest rate of 10
percent.
e. The individual will always be indifferent between an
investment in a tax-exempt (municipal) bond and an investment in
a taxable (corporate) bond.
17. ch01-017
If the personal income tax rate is greater than zero, which of the
following statements is false?
a. In general, the interest rate on taxable (corporate) bonds
must be set higher than the interest rate on tax-exempt
(municipal) bonds to produce the same amount of usable (aftertax) income for the investor.
b. In general, not-for-profit corporations will be able to issue
debt for a lower cost than for-profit corporations.
c. The after-tax cost to an individual of a $1,000 donation to a
not-for-profit hospital will be less than $1,000.
*d. The after-tax yield from an investment in a tax-exempt
(municipal) bond paying 7 percent will be less than 7 percent.
e. The after-tax yield from an investment in a taxable
(corporate) bond paying 7 percent will be less than 7 percent.