Principles of Corporate Finance Introduction Quiz

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What is the primary concern of managerial finance?

Designing and delivering financial products

Selling insurance products

Providing financial advice to individuals

Making investment decisions for the business firm (correct)

Which area of finance involves activities related to banking, investments, real estate, and insurance?

Managerial Finance

Financial Services (correct)

Capital Markets

Personal Finance

What distinguishes shareholder wealth from profit as a goal of the firm?

Shareholder wealth focuses on increasing the stock price.

Profit refers to revenue minus expenses.

Shareholder wealth considers long-term value creation. (correct)

Profit is the amount of money a company made in a period.

In what way is finance relevant to personal decisions?

Many personal decisions have financial implications. Signup and view all the answers

What does the term 'agency problem' refer to in the context of finance?

The conflict of interest between shareholders and managers. Signup and view all the answers

How does managerial finance differ from personal finance?

Managerial finance focuses on business financial decision-making. Signup and view all the answers

What is the primary difference between Accounting and Finance?

Accounting records transactions, while Finance analyzes alternative investment opportunities. Signup and view all the answers

In terms of recognizing revenue and expenses, which approach does Accounting follow?

Accrual basis Signup and view all the answers

Which financial statements recognize revenue at the time of sale?

Profit and Loss Statement Signup and view all the answers

What is the primary focus of the financial manager (FM) when it comes to cash flows?

Actual cash flows Signup and view all the answers

In the example provided, why does Nassau Corporation's financial manager emphasize cash flows?

To satisfy current obligations Signup and view all the answers

What is the main difference in focus between Accounting and Finance in terms of costs and revenues?

Accounting estimates costs and revenues, while Finance looks at historical costs. Signup and view all the answers

What legal powers does a corporation have?

Sue and be sued, make and be party to contracts, acquire or sell property Signup and view all the answers

What is the form of ownership that stockholders have in a corporation?

Stocks Signup and view all the answers

What is a disadvantage of a corporation in terms of taxation?

Double taxation (corporate income tax & personal income tax) Signup and view all the answers

What should be the primary goal of managers in a corporation?

Maximize shareholder wealth Signup and view all the answers

What is the simplest and best measure of stockholder wealth according to the text?

The firm's share price Signup and view all the answers

What advantage does a corporation have in terms of ownership transferability?

Easily transferred ownership Signup and view all the answers

What is the net cash flow for October?

$215 Signup and view all the answers

Which legal form of business organization is characterized by unlimited liability and potential risks to the owner's personal assets?

Partnership Signup and view all the answers

What is a disadvantage of a sole proprietorship related to fund-raising?

Limited fund-raising power Signup and view all the answers

What does a corporation typically pay in terms of taxes?

Only corporation tax Signup and view all the answers

Which legal form of business organization is characterized by minimal regulation and reporting requirements?

Sole proprietorship Signup and view all the answers

What is a disadvantage of a partnership in terms of ownership continuity?

Difficult to liquidate or transfer ownership Signup and view all the answers

Why does profit maximization not necessarily lead to the highest possible share price?

Profits do not always translate into cash flows available to stockholders. Signup and view all the answers

What is the major difference between profit maximization and shareholder wealth maximization?

Shareholder wealth maximization considers risk and return. Signup and view all the answers

Which factor is a key determinant of share price according to the text?

Risk and return Signup and view all the answers

How does Valve compare to Rotor in terms of total earnings per share over a 3-year period?

$3.00 EPS compared to $2.80 EPS Signup and view all the answers

Why is there a trade-off between return and risk in managerial finance?

To balance the interests of owners Signup and view all the answers

How do cash flows relate to stockholders according to the text?

Cash flows may not always be available to stockholders despite profits Signup and view all the answers