1.
Which of the following concerning the relationship between risk and return is correct?
 A) A risk taking investor would prefer a stock with an expected 10% return and a standard deviation of 10% to a stock with an expected return of 10% with a standard deviation of 20%
 B) Investors generally demand higher return for less risky investments
 C) Riskier investments tend to have higher returns
 D) A risk averse investor would prefer a stock with an expected 10% return and a standard deviation of 20% to a stock with an expected return of 10% with a standard deviation of 10%
 E) Safer investments historically provide the highest returns
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2.
Calculate the stock return from the following information:
Beginning Price: $50.00
Ending Price: $43.00
Annual dividend: $1.00
 A) 16.0%
 B) 14.0%
 C) -14.0%
 D) 12.0%
 E) -12.0%
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3.
A company that decides to invest to expand its factory for a new product line is an example of which of the following corporate financial decisions:
 A) Capital Budgeting
 B) Risk Management
 C) Working Capital Management
 D) Capital Structure
 E) Growth and Acquisition Strategy
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4.
Which of the following is part of the treasurer's function?
 A) Monitoring accounting systems
 B) Auditing the company’s financials
 C) Making capital expenditures
 D) Filing the company’s taxes
 E) Publishing financial statements
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5.
According to the Theory of Efficient Capital Markets:
 A) Investors can easily beat the market
 B) Stock prices adjust to new information slowly over time
 C) Current stock prices reflect all publicly available information
 D) Stock prices are not affected by new information
 E) Stock prices only react instantly to positive financial information
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6.
Given the following information, a rational investor would most likely invest in which stock?
Stock A: Mean Return – 15%; Standard Deviation – 10%
Stock B: Mean Return – 15%; Standard Deviation – 14%
 A) No difference because they have the same rate of return
 B) Stock B because it is riskier than Stock A
 C) Stock A because it is riskier than Stock B
 D) Stock A because it is not as risky as Stock B
 E) Stock B because it is not as risky as Stock A
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7.
Which of the following statements about Business Organizational Forms is true?
 A) Partnerships are double taxed
 B) Corporations are less difficult to start than partnerships
 C) Transfer of ownership is more difficult for corporations than for sole proprietorships
 D) Sole proprietorships have limited liability
 E) Raising capital is easier for corporations than for sole proprietorships
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8.
The time value of money implies that:
 A) A dollar tomorrow is worth LESS than a dollar today
 B) Investors are indifferent to receiving a dollar today vs. a dollar in the future
 C) A dollar today is worth the SAME as a dollar tomorrow
 D) The value of money does not change over time
 E) A dollar today is worth LESS than a dollar tomorrow
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11.
Which of the following is a principle held by Gordon Gekko?
 A) A company’s stakeholders are more important than its stockholders
 B) Managers that have a stake in the company create a greater potential for the agency problem
 C) Management should not have a stake in the company
 D) Management must be accountable to the shareholders
 E) Managerial efficiency is not important
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12.
Given the following information for University Park Inc., compute its market capitalization:
Stock price: $20.00
Earnings per share: $4.00
Price/Earnings ratio: 9
Shares outstanding: 50 million
 A) $1.8 billion
 B) $0.2 billion
 C) $1.2 billion
 D) $4.0 billion
 E) $1.0 billion
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13.
Which activity is most likely to increase shareholder value?
 A) Minimizing the amount of projects the company spends money on
 B) Minimizing the company’s cost of capital
 C) Investing in projects that are always the least risky
 D) Maximizing the amount of corporate assets
 E) Financing the company’s business with expensive debt
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14.
In the event of a liquidation of a company, which stakeholders are not protected by contracts?
 A) Debt holders
 B) Employees
 C) Government
 D) Stockholders
 E) Suppliers
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15.
Which of the following is an example of the agency problem?
 A) Management allocates corporate resources in a way that increases the value of the company’s shares
 B) Management has stock options in the company, potentially providing large payouts if the company does well
 C) Management pursues strategies that maximize shareholder value
 D) The objectives of shareholders and management are aligned
 E) Management invests in a project that serves the interests of management more than shareholders
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16.
Which of the following is an example of an internal control mechanism used to ensure that management acts in shareholder interests?
 A) Managerial Labor Market
 B) Shareholder Activism
 C) Market for Corporate Control
 D) Audited Financial Statements
 E) Threat of Takeover by Private Equity Investors
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17.
Which of the following responsibilities fall under the CFO’s role as the company’s treasurer?
 A) Tax Manager
 B) Cost Accounting manager
 C) Data Processing Manager
 D) reporting to the head Controller
 E) Capital Expenditures
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18.
Which one of the following is an element of the new corporate finance environment?
 A) Decrease in international trade
 B) Institutionalization of markets
 C) Increased regulation
 D) Increase in indirect investment
 E) Lower economic volatility
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19.
Which of the following drives stock price in the long run?
 A) Supply and Demand
 B) Rationality
 C) Earnings
 D) Insider Trading
 E) Treasurer Predictions
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20.
Which of the following is not a principle used in investment decisions by Warren Buffett?
 A) Invest in businesses that you understand
 B) Invest in companies with high and increasing profit margins
 C) Invest in high growth companies
 D) Invest in companies with management teams that create shareholder value
 E) Invest in companies you are comfortable owning long term
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21.
According to Traditional Finance, which of the following statements are true?
 A) Decisions are based on emotions and biases
 B) There are flaws in utility functions
 C) Prices reflect expected outcomes
 D) Markets are never efficient
 E) Arbitrageurs will not correct the market
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22.
Which is the primary reason that corporations are the most prevalent organization form?
 A) None of the above
 B) Beneficial corporate governance features
 C) The ease of raising capital
 D) Limited tax liability
 E) Anyone can form a corporation
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23.
A management team that creates shareholder value:
 A) Ensures cost of capital exceeds return on investment
 B) Generates return on investment greater than the cost of capital
 C) Maximizes executive compensation
 D) Grows EPS over time
 E) Generates positive net income
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24.
Which of the following is true about financial markets?
 A) Markets only bring together buyers and sellers in common stocks
 B) The alternative to allocating capital through markets is for the government to allocate capital
 C) The U.S. is viewed as having the most free markets in the world
 D) The pricing efficiency of the markets is not an issue if managers are to pursue shareholder value creation
 E) Companies and their CFOs today do not place much emphasis on capital markets
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25.
Which of the following is true about creating shareholder value?
 A) The pricing efficiency of the markets is not an issue if managers are to pursue shareholder value creation
 B) Activist investors such as Carl Icahn attempt to force companies to create shareholder value
 C) Paying dividends to shareholders is a form of agency costs
 D) Danny Devito in ‘Other People’s Money’ promotes the Stakeholder Approach
 E) The interests of stakeholders can be ignored in pursuing the creation of shareholder value
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