CFIN Chapter 1 & 2 Exam Questions and Answers All Correct
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Course
CFIN
Institution
CFIN
CFIN Chapter 1 & 2 Exam Questions and Answers All Correct
Which of the following statements about the corporate form of business organization is incorrect?
The corporation is the easiest form of business organization to establish.
In the United States, corporations generate a significantl...
CFIN Chapter 1 & 2 Exam Questions
and Answers All Correct
Which of the following statements about the corporate form of business organization is
incorrect?
The corporation is the easiest form of business organization to establish.
In the United States, corporations generate a significantly greater percentage of total
annual sales than either partnerships or proprietorships.
Corporations generally are larger than either partnerships or proprietorships.
One of the most important features of the corporate form of business organization is
that stockholders have limited liability.
None of the above. - Answer- The corporation is the easiest form of business
organization to establish.
Given the following information, calculate the market price per share of WAM Inc.
Earnings after interest and taxes = $200,000
Earnings per share = $2.00
Stockholders' equity = $2,000,000
Market/Book ratio = 0.20
$20.00
$8.00
$4.00
$2.00
$1.00 - Answer- $4
Cannon Company has enjoyed a rapid increase in sales in recent years, following a
decision to sell on credit. However, the firm has noticed a recent increase in its
collection period. Last year, total sales were $1 million, and $250,000 of these sales
were on credit. During the year, the accounts receivable account averaged $41,664. It is
expected that sales will increase in the forthcoming year by 50 percent, and, while credit
sales should continue to be the same proportion of total sales, it is expected that the
days sales outstanding will also increase by 50 percent. If the resulting increase in
accounts receivable must be financed by external funds, how much external funding will
Cannon need?
$41,664
$52,086
$47,359
$106,471
$93,750 - Answer- 52,086
, Which of the following statements concerning "agency problems" is most correct?
Regardless of economic conditions, if a firm's stock price falls during the year, this
indicates that the firm's managers must not be acting in the best interests of the
shareholders.
One method of controlling agency problems is to engage in the taking of "poison pills."
One of the best means to control agency problems is to require the managers and
other important decision makers of the firm to also be owners of the firm.
Agency problems probably would not exist if the important decisions of a firm were
made by persons who have no vested interests, such as ownership, in the firm.
None of the above is a correct statement. - Answer- One of the best means to control
agency problems is to require the managers and other important decision makers of the
firm to also be owners of the firm.
Which of the following statements is correct?
Given the multi-owner nature of most large corporations, agency costs associated with
perquisite consumption are not really a problem.
Managers may operate in the stockholders' best interests, but they may also operate in
their own personal best interests. As long as managers stay within the law, there simply
are not any effective controls that stockholders can implement to control managerial
decision making.
Shareholder agency costs include the opportunity costs associated with constraining
managerial freedom but do not include managerial salaries.
An agency relationship exists when one or more persons hire another person to
perform some service but withhold decision-making authority from that person.
All of the above statements are false. - Answer- Shareholder agency costs include the
opportunity costs associated with constraining managerial freedom but do not include
managerial salaries.
The annual report contains all of the following financial statements except
income statement.
statement of changes in long-term financing.
statement of cash flows.
balance sheet.
statement of retained earnings. - Answer- statement of changes in long-term financing.
Which of the following statements is correct?
The optimal dividend policy is the one that satisfies the shareholders because they
supply the firm's capital.
The use of debt financing has no effect on earnings per share (EPS) or stock price.
The riskiness of projected EPS depends upon how the firm is financed.
Stock price is dependent on the projected EPS and the use of debt but not on the
timing of the earnings stream.
Dividend policy is one aspect of the firm's financial policy that is determined directly by
the shareholders. - Answer- The riskiness of projected EPS depends upon how the firm
is financed.
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