Review of Lecture 1 Test and Quiz Questions
1. FF2 What are the three sources of financial value?
a. financial accounting, risk & insurance, and real estate
b. time value, transformation value, and arbitrage
c. investments, corporate finance, and institutions
d. time value, investments, and financial planning
e. arbitrage, hedging, and speculating
2. FF32 Which statement most accurately describes the members on the Board of Directors?
a. They usually are not employees of the company
b. They often are successful outsiders with careers unrelated to the mission of the
company
c. They are elected to the Board by senior management
d. Two choices, A and B, are correct
e. None of the A-B-C choices are correct
3. FF29 The typical management hierarchy is a pyramid headed by the Board of Directors.
Underneath that are senior management, including the Chief Executive Office (CEO) and
Chief Financial Officer (CFO). Which statement is most consistent with the textbook
discussion.
a. The Office of the Controller typically administers the accounting functions of the
firm.
b. The Office of the Treasurer typically administers the accounting functions of the
firm.
c. Besides the CEO, the next single-most important member of the senior
management team is the CFO.
d. Two choices, B and C, are correct
e. The three A-B-C choices are all correct
4. FF25 Choose the one statement that most correctly describes categorization schemes of
the financial markets.
a. the primary market includes stocks and bonds issued by the company to investors
b. the money market includes financial securities repayable in more than one year
c. the length of the financial contract is the distinguishing criterion when categorizing
markets as either credit market or equity market
d. the credit market includes stocks that do not specify repayment schedules but
instead represent a claim on residual cash flows
e. the length of the financial contract is the distinguishing criterion when categorizing
markets as either primary market or secondary market
5. FF20 Which statement is most consistent with one or more of the principal-agent
relationships that exist in corporate finance?
a. shareholders are principals, management is the agent, and the contested wealth is
equity
b. creditor/bondholders are the principals, management/shareholders are the agents,
and the contested wealth is loans and debt
c. management/shareholders are the principals, employees are the agents, and the
contested wealth is pension contributions
d. Two choices, A and B, are correct
e. The three A-B-C choices are all correct
6. FF4 Which of the following mechanisms does not provide managers with an incentive to
act in shareholders' best interests?
a. management contracts that link compensation to the share price
b. threat of firing by Board of Directors
c. a leveraged buyout of shares by managers
d. threat of corporate take-over by raiders
e. concentration of equity ownership by institutional investors
7. FF31 According to the new view of corporate finance which statement provides the best
description for the proper goal of the company?
a. maximize employee wages
b. maximize profit
c. maximize Total assets
d. maximize sales revenue
e. maximize wealth creation