Chapter 1: The Role of Financial Management

1. "Shareholder wealth" in a firm is represented by:

the number of people employed in the firm.
the book value of the firm's assets less the book value of its liabilities.
the amount of salary paid to its employees.
the market price per share of the firm's common stock.

2. The long-run objective of financial management is to:

maximize earnings per share.
maximize the value of the firm's common stock.
maximize return on investment.
maximize market share.

3. What are the earnings per share (EPS) for a company that earned $100,000 last
year in after-tax profits, has 200,000 common shares outstanding and $1.2 million in
retained earning at the year end?
$100,000
$6.00
$0.50
$6.50

4. A(n)

would be an example of a principal, while a(n)

example of an agent.
shareholder; manager

would be an

manager; owner
accountant; bondholder
shareholder; bondholder

5. The market price of a share of common stock is determined by:

the board of directors of the firm.
the stock exchange on which the stock is listed.
the president of the company.
individuals buying and selling the stock.

6. The focal point of financial management in a firm is:

the number and types of products or services provided by the firm.
the minimization of the amount of taxes paid by the firm.
the creation of value for shareholders.
the dollars profits earned by the firm.

7. The decision function of financial management can be broken down into

the

decisions.
financing and investment
investment, financing, and asset management
financing and dividend
capital budgeting, cash management, and credit management

8. The controller's responsibilities are primarily

in nature, while the treasurer's

responsibilities are primarily related to

.
operational; financial management
financial management; accounting
accounting; financial management
financial management; operations

9. In the US, the

has been given the power to adopt auditing, quality control,

ethics, and disclosure standards for public companies and their auditors as well as
investigate and discipline those involved.
American Institute of Certified Public Accountants (AICPA)
Financial Accounting Standards Board (FASB)
Public Company Accounting Oversight Board (PCAOB)

Securities and Exchange Commission (SEC)

10. A company's

is (are) potentially the most effective instrument of good

corporate governance.
common stock shareholders
board of directors
top executive officers

11. The Sarbanes-Oxley Act of 2002 (SOX) was largely a response to:
a series of corporate scandals involving Enron, WorldCom, Global
Crossing, Tyco and numerous others.
a dramatic rise in the US trade deficit.
charges of excessive compensation to top corporate executives.
rising complaints by investors and security analysts over the financial
accounting for stock options.
The following item is NEW to the 13th edition.

12. ___________ refers to meeting the needs of the present without compromising
the ability of future generations to meet their own needs.
Corporate Social Responsibility (CSR)
Sustainability
Convergence

Green Economics

Clear Answers