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Chapter 1: The Role of Financial Management

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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) would be an example of an agent.

shareholder; manager

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

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