FUNDAMENTALS OF FINANCIAL MANAGEMENT FIRST QUIZ Aug.

2020
Multiple Choice. Identify the letter of the choice that best completes the statements or answers the questions.

1. Which of the following statements is most correct? Statement 1. As finance emerged as a new field, much emphasis
was placed on mergers and acquisitions. Statement 2. Inflation is assumed to be a temporary problem that does not
affect financial decisions. [A] Statement 1 only. [B] Statement 2 only. [C] Both statements.
2. Which of the following statements is most correct? Statement 1. Financial Capital is composed of long-term plant and
equipment, as well as other tangible investments. Statement 2. Real Capital is composed of long-term plant and
equipment. [A] Statement 1 only. [B] Statement 2 only. [C] Both statements. [D] None of the above.
3. Which of the following statements is most correct? Statement 1. During the 1930s, financial practice revolved around
such topics as the preservation of capital, maintenance of liquidity, reorganization of financially troubled corporations
and bankruptcy. Statement 2. In the mid 1950s, finance began to change to a more analytical, decision-oriented
approach. [A] Statement 1 only. [B] Statement 2 only. [C] Both statements. [D] None of the above.
4. Which of the following statements is most correct? Statement 1. Recently, the emphasis of financial management has
been on the relationship between risk and return. Statement 2. The first Nobel Prizes given to finance professors were
for their contributions to capital structure theory and portfolio theories of risk and return. [A] Statement 1 only. [B]
Statement 2 only. [C] Both statements. [D] None of the above.
5. Which of the following statements is most correct? Statement 1. The Internet impacts e-commerce by creating a
mechanism for improved communications between a business, its customers, and its suppliers. Statement 2. The
Internet has accounted for an acceleration of productivity for "old economy" firms. [A] Statement 1 only. [B]
Statement 2 only. [C] Both statements. [D] None of the above.
6. Which of the following statements is most correct? Statement 1. The Internet is responsible for many new business
models. Statement 2. Businesses will increasingly rely on business to business internet applications to speed up the
cash flows through their firms. [A] Statement 1 only. [B] Statement 2 only. [C] Both statements. [D] None of the above.
7. Which of the following statements is most correct? Statement 1. In terms of revenues and profits, the corporation is
by far the most important form of business organization in the Philippines. Statement 2. The issues of corporate
governance are really agency problems. [A] Statement 1 only. [B] Statement 2 only. [C] Both statements. [D] None of
the above.
8. Which of the following statements is most correct? Statement 1. Agency Theory examines the relationship between
companies and their customers. Statement 2. Institutional investors have had increasing influence over corporations
with their ability to vote large blocks of stock and replace poor performing boards of directors. [A] Statement 1 only.
[B] Statement 2 only. [C] Both statements. [D] None of the above.
9. Which of the following statement is most correct? Statement 1. Agency theory assumes that corporate managers act
to increase the wealth of corporate shareholders. Statement 2. Timing is not a particularly important consideration in
financial decisions. [A] Statement 1 only. [B] Statement 2 only. [C] Both statements. [D] None of the above.
10. Which of the following statements is most correct? Statement 1. The higher the profit of a firm, the higher the value
the firm is assured of receiving in the market. Statement 2. There are some serious problems with the financial goal
of maximizing the earnings of the firm. [A] Statement 1 only. [B] Statement 2 only. [C] Both statements. [D] None of
the above.
11. Which of the following statement is not correct? Statement 1. Maximizing the earnings of the firm is the goal of
financial management. Statement 2. Because socially desirable goals can impede profitability in many instances,
managers should not try to operate under the assumption of wealth maximization. [A] Statement 1 only. [B] Statement
2 only. [C] Both statements. [D] None of the above.
12. Which of the following statements is not correct? Statement 1. Social responsibility and profit maximization are
synonymous. Statement 2. Financial markets exist as a vast global network of individuals and financial institutions that
may be lenders, borrowers, or owners of public companies worldwide. [A] Statement 1 only. [B] Statement 2 only. [C]
Both statements. [D] None of the above.
13. Which of the following statements is not correct? Statement 1. Money markets refer to those markets dealing with
short-term securities having a life of one year or less. Statement 2. Capital markets refer to those markets dealing with
short-term securities having a life of one year or less. [A] Statement 1 only. [B] Statement 2 only. [C] Both statements.
[D] None of the above.
14. Which of the following statements is not correct? Statement 1. Higher return always induces stockholders to invest in
a company. Statement 2. Social responsibility is an expense and thus should be avoided by financial managers because
it will lead to loss of income. [A] Statement 1 only. [B] Statement 2 only. [C] Both statements. [D] None of the above.
15. Which of the following statements is not correct? Statement 1. Financial management requires both short-term
activities as well as long-term planning such as raising funds. Statement 2. One of the primary disadvantages of
maximizing shareholder value is that it only provides a short-term perspective. Statement 3. If a company has a written
code of ethics, they will generally avoid ethical problems. [A] Statement 1 only. [B] Statement 2 only. [C] Statement
3 only. [D] All of the statements.
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16. What is the primary goal of financial management? [A] Increased earnings. [B] Maximizing cash flow. [C] Maximizing
shareholder wealth. [D] Minimizing risk of the firm.
17. In the past, the study of finance has included [A] Mergers and acquisitions. [B] Raising capital. [C] Bankruptcy. [D] All
of these.
18. Proper risk-return management means that [A] The firm should take as few risks as possible. [B] The firm must
determine an appropriate trade-off between risk and return. [C] The firm should earn the highest return possible. [D]
The firm should value future profits more highly than current profits.
19. Agency theory examines the relationship between the [A] Shareholders of the firm and the firm's investment banker.
[B] Owners of the firm and the managers of the firm. [C] Board of directors and large institutional investors. [D]
Shareholders and the firm's transfer agent.
20. Agency theory would imply that conflicts are more likely to occur between management and shareholders when [A]
The company is owned and operated by the same person. [B] Management acts in the best interests of maximizing
shareholder wealth. [C] The chairman of the board is also the chief executive officer (CEO). [D] The board of directors
exerts strong and involved oversight of management.
21. Agency theory deals with the issue of [A] When to hire an agent to represent the firm in negotiations. [B] The legal
liabilities of a firm if an employee, acting as the firm's agent, injures someone. [C] The limitations placed on an
employee acting as the firm's agent to obligate or bind the firm. [D] The conflicts that can arise between the viewpoints
and motivations of a firm's owners and managers.
22. A financial manager's goal of maximizing current or short-term earnings may not be appropriate because [A] It fails to
consider the timing of the benefits. [B] Increased earnings may be accompanied by unacceptably higher levels of risk.
[C] Earnings are subjective; they can be defined in various ways such as accounting or economic earnings. [D] All of
these.
23. Maximization of shareholder wealth is a concept in which [A] Increased earnings is of primary importance. [B] Profits
are maximized on a quarterly basis. [C] Virtually all earnings are paid as dividends to common stockholders. [D]
Optimally increasing the long-term value of the firm is emphasized.
24. Which of the following is not a true statement about the goal of maximizing shareholder wealth? [A] It takes into
account the timing of cash-flows. [B] It is a short-run point of view which takes risk into account. [C] It considers risk
as a factor. [D] None of these.
25. As mergers, acquisitions, and restructuring have increased in importance, agency theory has become more important
in assessing whether [A] a stock repurchase should be undertaken. [B] Shareholder goals are truly being achieved by
managers in the long run. [C] Managers are actually agents or only employees of the firm. [D] Managers and owners
are actually the same people with the same interests.
26. Companies that have higher risk than a competitor in the same industry will generally have [A] to pay a higher interest
rate than its competitors. [B] a lower relative stock price than its competitors. [C] A higher cost of funds than its
competitors. [D] All of these.
27. Future financial managers will need to understand [A] International cash flows. [B] Computerized funds transfers. [C]
International currency hedging strategies. [D] all of these.
28. The internationalization of the financial markets has [A] Allowed firms such as McDonalds to raise capital around the
world. [B] Raised the cost of capital. [C] Forced companies to price everything in U.S. dollars. [D] All of these.
29. The Internet has affected the financial markets by [A] Creating more competition between markets. [B] Pushing the
cost of trading down. [C] Forcing brokerage companies to consolidate. [D] All of these.
30. Benefits of social responsibility often include [A] Better reputation. [B] Higher short-term earnings. [C] Lower
expenses. [D] Two of the above.
31. Regarding risk levels, financial managers should [A] Pursue higher risk projects because they increase value. [B] Avoid
higher risk projects because they destroy value. [C] Focus primarily on market fluctuations. [D] Evaluate investor's
desire for risk.
32. The development of just-in-time (JIT) methods of production focused on (A) Increasing sales revenue. (B) Reducing
inventories. (C) Increasing customer service. (D) Reducing operating expenses. (E) Increasing product quality.
33. The field of accounting that depends on generally accepted accounting principles (GAAP) is called (A) Cost Accounting.
(B) Financial Accounting. (C) Managerial Accounting. (D) Responsibility Accounting. (E) International Accounting.
34. The primary reason for adopting total quality management (TQM) is to achieve (A) Reduced delivery time. (B) Reduced
delivery charges. (C) Greater customer satisfaction. (D) Greater employee participation. (E) Better managerial
decisions.
35. According to the Institute of Management Accountants (IMA), the final step in resolving an ethical dilemma is to (A)
Resign from the organization. (B) Call the IMA's ethics hotline. (C) Report the circumstances to a local newspaper. (D)
Consult with an objective, independent advisor. (E) Discuss the situation with an immediate supervisor.
36. The management of a business organization performs several broad functions. They are: [A] Planning, Directing,
Organizing, and Selling. [B] Planning, Directing, Organizing, and Controlling. [C] Planning, Producing, Organizing, and
Directing. [D] Planning, Manufacturing, Producing, Organizing, and Controlling.
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37. The day-to-day work of management teams will typically comprise all of the following activities except: (A) Decision
making. (B) Planning. (C) Cost minimizing. (D) Directing operational activities. (E) Controlling.
38. Which of the following functions is best described as choosing among available alternatives? (A) Decision making. (B)
Planning. (C) Directing operational activities. (D) Controlling. (E) Budgeting.
39. Which of the following is not an objective of managerial accounting? (A) Providing information for decision making
and planning. (B) Assisting in directing and controlling operations. (C) Maximizing profits and minimizing costs. (D)
Measuring the performance of managers and subunits. (E) Motivating managers toward the organization's goals.
40. The role of managerial accounting information in assisting management is a(n): (A) Financial-directing role. (B)
Attention-directing role. (C) Planning and controlling role. (D) Organizational role. (E) Problem-solving role.
41. Managerial accounting: (A) Is unregulated. (B) Produces information that is useful only for manufacturing
organizations. (C) Is based exclusively on historical data. (D) Is regulated by the Securities and Exchange Commission
(SEC). (E) Generally focuses on reporting information about the enterprise in its entirety rather than by subunits.
42. Which of the following would likely be considered an internal user of accounting information rather than an external
user? (A) Stockholders. (B) Consumer groups. (C) Lenders. (D) Middle-level managers. (E) Government agencies.
43. Financial accounting focuses primarily on reporting: (A) To parties outside of an organization. (B) To parties within an
organization. (C) To an organization's board of directors. (D) To financial institutions. (E) For financial institutions.
44. Which of the following statements represents a similarity between financial and managerial accounting? (A) Both are
useful in providing information for external users. (B) Both are governed by GAAP. (C) Both draw upon data from an
organization's accounting system. (D) Both rely heavily on published financial statements. (E) Both are solely
concerned with historical transactions.
45. Which of the following statements typically relates to the role of a controller? [A] A controller supervises the
accounting department. [B] A controller safeguards an organization's assets. [C] A controller oversees the preparation
of reports required by governmental authorities. [D] A controller normally assumes a narrow role within the
organization, often preventing the individual's rise to top management ranks.
46. Which of the following statement(s) about just-in-time (JIT) inventory management is (are) true? Statement 1. The
emphasis of JIT is on "pull" manufacturing. Statement 2. Raw materials are purchased just in time to be used in
production. Statement 3. JIT is an inventory technique that focuses on reduction of both inventory and related
inventory costs. (A) Statement 1 only. (B) Statement 2 only. (C) Statement 3 only. (D) All of the statement.
47. Which of the following can be linked to the relatively recent wave of corporate scandals? (A) Greedy corporate
executives. (B) Managers who make over-reaching business deals. (C) Lack of oversight by companies' audit boards
and boards of directors. (D) All of the above.
48. Which of the following is not an ethical standard of managerial accounting? (A) Competence. (B) Confidentiality. (C)
Efficiency. (D) Integrity. (E) Credibility.
49. Which of the following is not an element of competency? (A) To develop appropriate knowledge about a particular
subject. (B) To perform duties in accordance with relevant laws. (C) To perform duties in accordance with relevant
technical standards. (D) To refrain from engaging in an activity that would discredit the accounting profession. (E) To
prepare clear reports after an analysis of relevant and reliable information.
50. The primary goal of a publicly-owned firm interested in serving its stockholders should be to (A) Maximize expected
total corporate profit. (B) Maximize expected EPS. (C) Minimize the chances of losses. (D) Maximize the stock price
per share. (E) Maximize expected net income.
51. Which of the following statements is most correct? (A) Compensating managers with stock can reduce the agency
problem between stockholders and managers. (B) Restrictions are included in credit agreements to protect
bondholders from the agency problem that exists between bondholders and stockholders. (C) The threat of a takeover
can reduce the agency problem between bondholders and stockholders. (D) Statements A and B are correct. (E) All of
the statements above are correct.
52. Which of the following work to reduce agency conflicts between stockholders and bondholders? (A) Including
restrictive covenants in the company's bond contract. (B) Providing managers with a large number of stock options.
(C) The passage of laws that make it easier for companies to resist hostile takeovers. (D) Statements B and C are
correct. (E) All of the statements above are correct.
53. Which of the following actions are likely to reduce agency conflicts between stockholders and managers? (A) Paying
managers a large fixed salary. (B) Increasing the threat of corporate takeover. (C) Placing restrictive covenants in debt
agreements. (D) All of the statements above are correct. (E) Statements B and C are correct.
54. Which of the following actions are likely to reduce the agency problem between stockholders and managers? (A)
Congress passes a law that severely restricts hostile takeovers. (B) A manager receives a lower salary but receives
additional shares of the company's stock. (C) The board of directors has become more vigilant in its oversight of the
company's management. (D) Statements B and C are correct.
55. Which of the following statements is most correct? (A) A good goal for a corporate manager is maximization of
expected EPS. (B) Most micro-business in the Philippines is conducted by corporations; corporations' popularity results
primarily from their favorable tax treatment. (C) A good example of an agency relationship is the one between
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 stockholders and managers. (D) Corporations and partnerships have an advantage over proprietorships because a sole
proprietor is subject to unlimited liability, but investors in the other types of businesses are not. (E) Firms in highly
competitive industries find it easier to exercise "social responsibility" than do firms in oligopolistic industries.
56. Which of the following statements is most correct? (A) Hostile takeovers are most likely to occur when a firm's stock
is undervalued, relative to its potential, because of poor management. (B) One advantage to remaining a sole
proprietor is that you have limited liability. (C) In general, bondholders have a greater preference for riskier projects
than do stockholders. (D) Statements B and C are correct. (E) All of the statements above are correct.
57. Which of the following statements is most correct? (A) The ability of firms to engage in socially beneficial projects that
involve voluntary costs is constrained by competition and the need of firms to attract capital at low cost. (B) The
actions that maximize a firm's stock price are inconsistent with maximizing social welfare. (C) The concepts of social
responsibility and ethical responsibility on the part of corporations are completely different and neither is relevant in
maximizing stock price. (D) In a competitive market, if a group of firms do not spend resources making social welfare
improvements, but another group does, in general, this will not affect the second group's ability to attract capital. (E)
If government did not mandate socially responsible corporate actions, such as those relating to product safety and
fair hiring practices, most firms in competitive markets would still pursue such policies voluntarily.
58. Which of the following statements is most correct? (A) The corporate bylaws are the set of rules drawn up by the state
to enable managers to run the firm in accordance with state laws. (B) Procedures for electing corporate directors are
contained in bylaws, while the declaration of the activities that the firm will pursue and the number of directors are
included in the corporate charter. (C) Procedures that govern changes in the bylaws of the corporation are contained
in the corporate charter. (D) Although most companies design a charter, only the bylaws are legally required to be
filed with the secretary of state in order for a corporation to be in official existence. (E) None of the statements above
is correct.
59. Which of the following statements is most correct? (A) A hostile takeover is the main method of transferring ownership
interest in a corporation. (B) The corporation is a legal entity created by the state and is a direct extension of the legal
status of its owners and managers, that is, the owners and managers are the corporation. (C) Unlimited liability and
limited life are two key advantages of the corporate form over other forms of business organization. (D) In part due
to limited liability and ease of ownership transfer, corporations have less trouble raising money in financial markets
than other organizational forms. (E) Although stockholders of the corporation are insulated by limited legal liability,
the legal status of the corporation does not protect the firm's managers in the same way.
60. Which of the following statements is most correct? (A) One of the ways in which firms can mitigate or reduce agency
problems between bondholders and stockholders is by increasing the amount of debt in the capital structure. (B) The
threat of takeover is one way in which the agency problem between stockholders and managers can be alleviated. (C)
Managerial compensation can be structured to reduce agency problems between stockholders and managers. (D)
Statements B and C are correct. (E) All of the statements above are correct.
61. Management accounting focuses primarily on providing for: (A) Internal users by managers. (B) External users by
stockholders and creditors. (C) External users by the Bureau of Internal Revenue. (D) External users by the Securities
and Exchange Commission.
62. Managerial accounting (A) is more future oriented than financial accounting. (B) tends to summarize information more
than financial accounting. (C) is primarily concerned with providing information to external users. (D) is more
concerned with precision than timeliness.
63. Compared to financial accounting, managerial accounting places more emphasis on: (A) the flexibility of information.
(B) the precision of information. (C) the timeliness of information. (D) both A and C above.
64. The function of management that compares planned results to actual results is known as: (A) Planning. (B) Directing
and motivating. (C) Controlling. (D) Organizing.
65. Managerial accounting: (A) is governed by generally accepted accounting principles. (B) places emphasis on special-
purpose information. (C) Pertains to the entity as a whole and is highly aggregated. (D) is limited to cost data.
66. Which of the functions of management involves overseeing day-to-day activities? (A) Planning. (B) Directing and
motivating. (C) Controlling. (D) Organizing.
67. Which of the following is not one of the three basic activities of a manager? (A) Planning. (B) Controlling. (C) Directing
and motivating. (D) Compiling management accounting reports.
68. Ideally, how many units should be produced in a just-in-time manufacturing system? (A) Budgeted customer demand
for the current week. (B) Budgeted customer demand for the following week. (C) Actual customer demand. (D)
Maximum production capacity for the current week.
69. According to the Theory of Constraints, improvement efforts should usually be focused on: (A) Work centers that are
not constraints. (B) The work center that is the constraint. (C) The work center with the highest total cost. (D) The
work center with the most obsolete equipment.
70. Which of the following is true regarding the theory of constraints? (A) The theory of constraints does not apply to
companies with multiple products because of capacity measurement difficulties. (B) In any profit-seeking company,
there must be at least one constraint. (C) Constraints or bottlenecks stop organizations from selling an infinite number
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 of units or services. (D) Both B and C above.
71. The Standards of Ethical Conduct for Management Accountants developed by the Institute of Management
Accountants contain a policy regarding confidentiality that requires management accountants to refrain from
disclosing confidential information acquired in the course of their work: (A) Except when authorized by management.
(B) In all situations. (C) Except when authorized by management, unless legally obligated to do so. (D) in all cases not
prohibited by law.
72. Wide-spread adherence to ethical standards in an advanced market economy tends to result in all of the following
except: (A) Higher prices. (B) Higher quality goods and services. (C) Greater variety of goods and services available for
sale. (D) Safer products.
73. The Institute of Management Accountants (IMA) has developed ethical standards for management accountants. What
four categories has the IMA classified these standards into? (A) Reliability, Objectivity, Commitment, and Competence.
(B) Objectivity, Integrity, Commitment, and Confidentiality. (C) Observation, Integrity, Closure, and Competence. (D)
Competence, Objectivity, Integrity, and Confidentiality.
74. Which of the following statements is false concerning the functions of management of an economic organization?
Statement 1. Planning requires management to look ahead and to establish objectives. Statement 2. Directing and
motivation involve coordinating the diverse activities and human resources of a company to produce a smooth-
running operation. Statement 3. Controlling is the process of keeping the activities on track. (A) Statement 1 only. (B)
Statement 2 only. (C) Statement 3 only. (D) None of the above.
75. An approach used to reduce the cost associated with handling and holding inventory by reducing the amount of
inventory on hand. (A) Theory of Constraints. (B) Just-in-Time Inventory. (C) Balanced Scorecard. (D) Value Chain.

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