Test Bank for Principles of Managerial Finance, Arab World Edition

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ExamName___________________________________TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.1)Finance can be defined as the science and art of managing money.1)2)Financial services are concerned with the duties of the financial manager.2)3)Financial managers actively manage the financial affairs of many types of business-financial andnon-financial, private and public, for-profit and not-for-profit.3)4)A partnership is a business owned by two or more people and operated for profit.4)5)More businesses are organized as corporations than any other legal form. However, soleproprietorships are overwhelmingly dominant with respect to business receipts and net profits.5)6)The board of directors is responsible for managing day-to-day operations and carrying out thepolicies established by the chief executive officer.6)7)The sole proprietor has unlimited liability; his or her total investment in the business, but not his orher personal assets, can be taken to satisfy creditors.7)8)In limited partnerships, only one partner may assume limited liability. All other partners have tohave unlimited liability.8)9)The president or chief executive officer is elected by the firm's stockholders and has ultimateauthority to guide corporate affairs and make general policy.9)10)A financial analyst is responsible for maintaining and controlling the firm's daily cash balances.Frequently manages the firm's short-term investments and coordinates short-term borrowing andbanking relationships.10)11)The capital expenditures analyst/manager is responsible for the evaluation and recommendation ofproposed asset investments and may be involved in the financial aspects of implementation ofapproved investments.11)12)The financial analyst administers the firm's credit policy by analyzing or managing the evaluationof credit applications, extending credit, and monitoring and collecting accounts receivable.12)13)In large companies, the project finance manager is responsible for coordinating the assets andliabilities of the employees' pension fund.13)1

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.14)Finance can be defined as14)A)the system of debits and credits.B)the art of merchandising products and services.C)the science of the production, distribution, and consumption of wealth.D)the art and science of managing money.15)________is concerned with the duties of the financial manager in the business firm.15)A)Managerial FinanceB)Financial ManagerC)Financial ServicesD)None of the above16)The part of finance concerned with design and delivery of advice and financial products toindividuals, business, and government is called16)A)Financial Services.B)Financial Manager.C)Managerial Finance.D)none of the above.17)Managerial finance17)A)involves the design and delivery of advice and financial products.B)devotes the majority of its attention to the collection and presentation of financial data.C)involves tasks such as budgeting, financial forecasting, cash management, and fundsprocurement.D)recognizes funds on an accrual basis.18)Financial service18)A)is concerned with the duties of the financial manager.B)handles accounting activities related to data processing.C)involves the design and delivery of advice and financial products.D)provides guidelines for the efficient operation of the business.19)Career opportunities in financial services include all of the following EXCEPT19)A)personal financial planning.B)capital expenditures management.C)investments.D)real estate and insurance.20)Which of the following is a career opportunity in managerial finance?20)A)Capital Expenditures Management.B)Personal Financial Planning.C)Real Estate and Insurance.D)Investment.21)The dominant form of organization with respect to receipts and net profits is the21)A)partnership.B)S-corporation.C)corporation.D)sole proprietorship.22)Which of the following has the legal powers of an individual?22)A)A corporation.B)A limited partnership.C)A partnership.D)A sole proprietorship.23)Which of the following has stockholders who elect a board of directors?23)A)Partnerships.B)Sole proprietorships.C)Limited partnership.D)Corporation.2

24)The true owner(s) of the corporation is (are) the________.24)A)stockholdersB)creditorsC)board of directorsD)chief executive officer25)The________has/have the ultimate responsibility in guiding corporate affairs and carrying outpolicies.25)A)creditorsB)stockholdersC)board of directorsD)chief executive officer26)The responsibility for managing day-to-day operations and carrying out corporate policiesbelongs to the________.26)A)chief executive officerB)board of directorsC)stockholdersD)creditors27)In a corporation, the members of the board of directors are elected by the27)A)creditors.B)chief executive officer.C)stockholders.D)employees.28)More businesses are organized as ________ than any other legal form.28)A)partnerships.B)sole proprietorships.C)corporations.D)S-corporations.29)All of the following are key strengths of a corporation EXCEPT29)A)readily transferable ownership.B)access to capital markets.C)limited liability.D)low organization costs.30)Which of the following legal forms of organization is characterized by limited liability?30)A)Partnership.B)Corporation.C)Professional partnership.D)Sole proprietorship.31)The________is responsible for evaluating and recommending proposed asset investments.31)A)Capital Expenditures AnalystB)Financial AnalystC)Pension Fund ManagerD)Credit Analyst32)The ________ primarily prepares the firm's financial plans and budgets.32)A)Cash managersB)Project finance managerC)Financial analystD)Capital expenditures managersTRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.33)The size and importance of the managerial finance function depend on the size of the firm.33)34)The firm's controller (or chief accountant) typically handles the accounting activities, such as taxmanagement, corporate accounting, and cost and financial accounting.34)35)The corporate treasurer typically handles the both cost accounting and financial accounting.35)36)The corporate treasurer is the officer responsible for the firm's accounting activities, such ascorporate accounting, tax management, financial accounting, and cost accounting.36)3

37)The corporate controller is the officer responsible for the firm's financial activities such as financialplanning and fund raising, making capital expenditure decisions, and managing cash, credit, thepension fund, and foreign exchange.37)38)The corporate treasurer's focus tends to be more external, while the controller's focus is moreinternal.38)39)Marginal cost-benefit analysis states that financial decisions should be made and actions takenonly when added benefits exceed added costs.39)40)The accrual method recognizes revenue at the point of sale and recognizes expenses whenincurred.40)41)Using certain standardized and generally accepted principles, the accountant prepares financialstatements that recognize revenue at the point of sale and expenses when incurred.41)42)The financial manager places primary emphasis on cash flows, the inflow and outflow of cash.42)43)The financial manager prepares financial statements that recognize revenue at the point of sale andexpenses when incurred.43)44)The accountant evaluates financial statements, develops additional data, and makes decisionsbased on his or her assessment of the associated returns and risks.44)45)The financial manager must look beyond financial statements to obtain insight into developing orexisting problems since the accrual accounting data do not fully describe the circumstances of afirm.45)MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.46)The controller is commonly responsible for46)A)managing credit activities.B)managing cash.C)financial accounting.D)financial planning.47)The treasurer is commonly responsible for47)A)taxes.B)data processing.C)cost accounting.D)making capital expenditure decisions.48)The officer responsible for the firm's accounting activities, such as corporate accounting, taxmanagement, financial accounting, and cost accounting is the48)A)treasurer.B)controller.C)foreign exchange manager.D)none of the above.49)The officer responsible for the firm's financial activities such as financial planning and fund raising,making capital expenditure decisions, and managing cash, credit, the pension fund, and foreignexchange is49)A)controller.B)foreign exchange manager.C)treasurer.D)none of the above.4

50)The accountant's primary function is50)A)making decisions based on financial data.B)planning cash flows.C)evaluating the financial statements.D)the collection and presentation of financial data.51)The accountant recognizes revenues and expenses on51)A)a revenue basis.B)a cash basis.C)an expense basis.D)an accrual basis.52)Economic theories that the financial manager must be able to utilize for efficient businessoperations, include52)A)supply-and-demand analysis.B)price theory.C)profit-maximizing strategies.D)marginal analysis.E)all of the above.53)The primary economic principle used in managerial finance is53)A)the liquidity trap.B)supply and demand.C)the crowding out effect.D)marginal analysis.54)Marginal analysis states that financial decisions should be made and actions taken only when54)A)added benefits are greater than zero.B)demand equals supply.C)added benefits exceed added costs.D)benefits equal costs.55)The financial manager recognizes revenues and expenses utilizing55)A)the standardized, generally accepted, accounting principles.B)the accrual method.C)the revenue method.D)the actual inflows and outflows of cash.56)The financial manager is interested in the cash inflows and outflows of the firm, rather than theaccounting data, in order to ensure56)A)profitability.B)solvency.C)the ability to pay dividends.D)the ability to acquire new assets.57)The accountant may be responsible for any of the following EXCEPT57)A)analyzing the mix of current to fixed assets.B)preparing the monthly income statement.C)ensuring accounts payable are paid on time.D)processing purchase orders and invoices.58)Johnson, Inc. has just ended the calendar year making a sale in the amount of US$10,000 ofmerchandise purchased during the year at a total cost of US$7,000. Although the firm paid in fullfor the merchandise during the year, it has yet to collect at year end from the customer. The netprofit and cash flow from this sale for the year are58)A)US$7,000 and-US$3,000, respectively.B)US$3,000 and US$7,000, respectively.C)US$3,000 and US$10,000, respectively.D)US$3,000 and-US$7,000, respectively.5

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59)A firm has just ended its calendar year making a sale in the amount of US$150,000 of merchandisepurchased during the year at a total cost of US$112,500. Although the firm paid in full for themerchandise during the year, it has yet to collect at year end from the customer. The net profit andcash flow from this sale for the year are59)A)US$0 and US$150,000, respectively.B)US$37,500 and-US$112,500, respectively.C)US$37,500 and-US$150,000, respectively.D)US$150,000 and US$112,500, respectively.60)The primary emphasis of the financial manager is the use of60)A)cash flow.B)profit incentives.C)accrued earnings.D)organization charts.61)By concentrating on cash flows within the firm the financial manager should be able to61)A)avoid insolvency.B)control expenses.C)speak authoritatively to stockholders.D)prepare tax returns.62)A firm has just ended its calendar year making a sale in the amount of US$200,000 of merchandisepurchased during the year at a total cost of US$150,500. Although the firm paid in full for themerchandise during the year, it has yet to collect at year end from the customer. The possibleproblem this firm may face is62)A)low profitability.B)inability to receive credit.C)high leverage.D)lack of cash flow.TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.63)When considering each financial decision alternative or possible action in terms of its impact on theshare price of the firm's stock, financial managers should accept only those actions that areexpected to increase the firm's profitability.63)64)Financial analysis and planning is concerned with analyzing the mix of assets and liabilities.64)65)Financing decisions deal with the left-hand side of the firm's balance sheet and involve the mostappropriate mix of current and fixed assets.65)MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.66)The key role of the financial manager is66)A)the presentation of financial statements.B)the collection of financial data.C)the preparation of data for future evaluation.D)decision making.67)The key activities of the financial manager include all of the following EXCEPT67)A)making financing decisions.B)making investment decisions.C)managing financial accounting.D)financial analysis and planning.6

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68)Included in the primary activities of the financial manager are68)A)analyzing and planning cash flows.B)making investment decisions.C)making financing decisions.D)financial analysis and planning.E)all of the above.69)The financial manager may be responsible for any of the following EXCEPT69)A)analyzing the effects of more debt on the firm's capital structure.B)monitoring of quarterly tax payments.C)determining whether to accept or reject a capital asset acquisition.D)analyzing budget and performance reports.70)Making investment decisions includes all of the following EXCEPT70)A)notes payable.B)accounts receivable.C)fixed assets.D)inventory.71)Making financing decisions includes all of the following EXCEPT71)A)analyzing quarterly budget and performance reports.B)deciding which individual long-term sources are best at a given point in time.C)determining the appropriate mix of short-term and long-term financing.D)deciding which individual short-term sources are best at a given point in time.72)The financial manager may be responsible for any of the following EXCEPT72)A)determining whether to accept or reject a capital asset acquisition.B)analyzing quarterly budget and performance reports.C)analyzing the effects of more debt on the firm's capital structure.D)keeping track of quarterly tax payments.73)Financial analysis and planning involve all of the following EXCEPT73)A)evaluating the need for increased or reduced productive capacity.B)controlling the data processing activities.C)transforming data into a form that can be used to monitor the firm's financial position.D)determining the additional financing needs.74)The financial manager's investment decisions determine74)A)both the mix and the type of short-term and long-term financing.B)both the mix and the type of assets found on the firm's balance sheet.C)both the mix and the type of assets and liabilities found on the firm's balance sheet.D)both the mix and the type of liabilities found on the firm's balance sheet.75)In planning and managing the requirements of the firm, the financial manager is concerned with75)A)the type of financing utilized, but not the mix and type of assets.B)the acquisition of fixed assets, allowing someone else to plan the level of current assetsrequired.C)

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76)The financial manager's financing decisions determine76)A)both the mix and the type of assets and liabilities found on the firm's balance sheet.B)the proportion of the firm's earnings to be paid as dividend.C)both the mix and the type of assets found on the firm's balance sheet.D)the most appropriate mix of short-term and long-term financing.TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.77)To achieve the goal of profit maximization for each alternative being considered, the financialmanager would select the one that is expected to result in the highest monetary return.77)78)The wealth of corporate owners is measured by the share price of the stock.78)79)A high earnings per share (EPS) does not necessarily translate into a high stock price.79)80)The profit maximization goal ignores the timing of returns, does not directly consider cash flows,and ignores risk.80)81)When considering each financial decision alternative or possible action in terms of its impact on theshare price of the firm's stock, financial managers should accept only those actions that areexpected to maximize shareholder value.81)82)Dividend payments change directly with changes in earnings per share.82)83)Risk and the magnitude and timing of cash flows are the key determinants of share price, whichrepresents the wealth of the owners in the firm.83)84)High cash flow is generally associated with a higher share price whereas higher risk tends to resultin a lower share price.84)85)An increase in firm risk tends to result in a higher share price since the stockholder must becompensated for the greater risk.85)86)Stockholders expect to earn higher rates of return on investments of lower risk and lower rates ofreturn on investments of higher risk.86)87)The goal of ethics is to motivate business and market participants to adhere to both the letter andthe spirit of laws and regulations in all aspects of business and professional practice.87)88)Agents of corporate owners are themselves owners of the firm and have been elected by all thecorporate owners to represent them in decision-making and management of the firm.88)89)Institutional investors are professional investors who work on behalf of national governments toensure fairness in the financial markets.89)90)The likelihood that managers may place personal goals ahead of corporate goals is called theagency problem.90)8

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91)The agency problem occurs when the firm selects an ineffective marketing advertising and PR firmto represent them.91)92)Market forces and incurring agency costs such as bonding and insurance help to prevent orminimize agency problems.92)93)Recent studies on executive compensation have failed to find a strong relationship between CEOcompensation and share price.93)MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.94)The primary goal of the financial manager is94)A)minimizing return.B)maximizing wealth.C)minimizing risk.D)maximizing profit.95)Corporate owner's receive realizable return through95)A)earnings per share and cash dividends.B)increase in share price and earnings per share.C)profit and earnings per share.D)increase in share price and cash dividends.96)The wealth of the owners of a corporation is represented by96)A)share value.B)cash flow.C)profits.D)earnings per share.97)Wealth maximization as the goal of the firm implies enhancing the wealth of97)A)the firm's stockholders.B)the firm's employees.C)the Board of Directors.D)the federal government.98)The amount earned during the accounting period on each outstanding share of common stock iscalled98)A)net income.B)net profits after taxes.C)earnings per share.D)common stock dividend.99)The goal of profit maximization would result in priority for99)A)earnings per share.B)risk of the investment.C)timing of the returns.D)cash flows available to stockholders.100)Profit maximization as a goal is not ideal because it does NOT directly consider100)A)risk and EPS.B)risk and cash flow.C)cash flow and stock price.D)EPS and stock price.9

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138)The________is created by a financial relationship between suppliers and demanders of short-termfunds.138)A)money marketB)financial marketC)capital marketD)stock market139)By definition, the money market involves the buying and selling of139)A)funds that mature in more than one year.B)stocks and bonds.C)short-term funds.D)flows of funds.140)Firms that require funds from external sources can obtain them from140)A)financial markets.B)private placement.C)financial institutions.D)all of the above.141)Most money market transactions are made in141)A)stocks and bonds.B)common stock.C)marketable securities.D)preferred stock.142)A competitive market that allocates funds to their most productive use is called a(n)142)A)efficient market.B)liquid market.C)middleman's market.D)investor's market.143)The________is created by a number of institutions and arrangements that allow the suppliers anddemanders of long-term funds to make transactions.143)A)financial marketB)credit marketC)money marketD)capital market14

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ExamName___________________________________TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.1)Accounting standards vary around the world, and that makes comparing the financial results offirms located in different countries quite challenging.1)2)GAAP refers to the generally accepted accounting principles used by all international publiccompanies for the reporting of financial results.2)3)Many countries have adopted a system of accounting principles known as international financialreporting standards (IFRS).3)4)Financial statements are accounting reports issued by a firm periodically (usually quarterly andannually) that present past information and a snapshot of the firm's financial position.4)5)The Securities and Exchange Commission (SEC) is the federal regulatory body in the United Statesthat requires publicly listed companies to provide their stockholders with an annual stockholders'report. Similar listing authorities exist around the world.5)6)The income statement is a financial summary of the firm's operating results during a specifiedperiod while the balance sheet is a summary statement of the firm's financial position at a givenpoint in time.6)7)Common stock dividends paid to stockholders are equal to the earnings available for commonstockholders divided by the number of shares of common stock outstanding.7)8)Earnings per share represents amount earned during the period on each outstanding share ofcommon stock.8)9)Earnings per share results from dividing earnings available for common stockholders by thenumber of shares of common stock authorized.9)10)Paid-in capital in excess of par refers to the amount of proceeds in excess of the par value receivedfrom the original sale of common stock.10)11)Paid-in capital in excess of par represents the firm's book value received from the original sale ofcommon stock.11)12)Net fixed assets represent the difference between gross fixed assets and the total expense recordedfor the depreciation over then entire lives of the firm's fixed assets.12)13)Retained earnings represent the cumulative total of all earnings retained and reinvested in the firmsince its inception.13)14)The balance sheet is a statement which balances the firm's assets (what it owns) against itsfinancing (debt or equity).14)1

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