Skip to ContentGo to accessibility pageKeyboard shortcuts menu
OpenStax Logo
Principles of Finance

Multiple Choice

Principles of FinanceMultiple Choice

Menu
Table of contents
  1. Preface
  2. 1 Introduction to Finance
    1. Why It Matters
    2. 1.1 What Is Finance?
    3. 1.2 The Role of Finance in an Organization
    4. 1.3 Importance of Data and Technology
    5. 1.4 Careers in Finance
    6. 1.5 Markets and Participants
    7. 1.6 Microeconomic and Macroeconomic Matters
    8. 1.7 Financial Instruments
    9. 1.8 Concepts of Time and Value
    10. Summary
    11. Key Terms
    12. Multiple Choice
    13. Review Questions
    14. Video Activity
  3. 2 Corporate Structure and Governance
    1. Why It Matters
    2. 2.1 Business Structures
    3. 2.2 Relationship between Shareholders and Company Management
    4. 2.3 Role of the Board of Directors
    5. 2.4 Agency Issues: Shareholders and Corporate Boards
    6. 2.5 Interacting with Investors, Intermediaries, and Other Market Participants
    7. 2.6 Companies in Domestic and Global Markets
    8. Summary
    9. Key Terms
    10. CFA Institute
    11. Multiple Choice
    12. Review Questions
    13. Video Activity
  4. 3 Economic Foundations: Money and Rates
    1. Why It Matters
    2. 3.1 Microeconomics
    3. 3.2 Macroeconomics
    4. 3.3 Business Cycles and Economic Activity
    5. 3.4 Interest Rates
    6. 3.5 Foreign Exchange Rates
    7. 3.6 Sources and Characteristics of Economic Data
    8. Summary
    9. Key Terms
    10. CFA Institute
    11. Multiple Choice
    12. Review Questions
    13. Problems
    14. Video Activity
  5. 4 Accrual Accounting Process
    1. Why It Matters
    2. 4.1 Cash versus Accrual Accounting
    3. 4.2 Economic Basis for Accrual Accounting
    4. 4.3 How Does a Company Recognize a Sale and an Expense?
    5. 4.4 When Should a Company Capitalize or Expense an Item?
    6. 4.5 What Is “Profit” versus “Loss” for the Company?
    7. Summary
    8. Key Terms
    9. Multiple Choice
    10. Review Questions
    11. Problems
    12. Video Activity
  6. 5 Financial Statements
    1. Why It Matters
    2. 5.1 The Income Statement
    3. 5.2 The Balance Sheet
    4. 5.3 The Relationship between the Balance Sheet and the Income Statement
    5. 5.4 The Statement of Owner’s Equity
    6. 5.5 The Statement of Cash Flows
    7. 5.6 Operating Cash Flow and Free Cash Flow to the Firm (FCFF)
    8. 5.7 Common-Size Statements
    9. 5.8 Reporting Financial Activity
    10. Summary
    11. Key Terms
    12. CFA Institute
    13. Multiple Choice
    14. Review Questions
    15. Problems
    16. Video Activity
  7. 6 Measures of Financial Health
    1. Why It Matters
    2. 6.1 Ratios: Condensing Information into Smaller Pieces
    3. 6.2 Operating Efficiency Ratios
    4. 6.3 Liquidity Ratios
    5. 6.4 Solvency Ratios
    6. 6.5 Market Value Ratios
    7. 6.6 Profitability Ratios and the DuPont Method
    8. Summary
    9. Key Terms
    10. CFA Institute
    11. Multiple Choice
    12. Review Questions
    13. Problems
    14. Video Activity
  8. 7 Time Value of Money I: Single Payment Value
    1. Why It Matters
    2. 7.1 Now versus Later Concepts
    3. 7.2 Time Value of Money (TVM) Basics
    4. 7.3 Methods for Solving Time Value of Money Problems
    5. 7.4 Applications of TVM in Finance
    6. Summary
    7. Key Terms
    8. CFA Institute
    9. Multiple Choice
    10. Review Questions
    11. Problems
    12. Video Activity
  9. 8 Time Value of Money II: Equal Multiple Payments
    1. Why It Matters
    2. 8.1 Perpetuities
    3. 8.2 Annuities
    4. 8.3 Loan Amortization
    5. 8.4 Stated versus Effective Rates
    6. 8.5 Equal Payments with a Financial Calculator and Excel
    7. Summary
    8. Key Terms
    9. CFA Institute
    10. Multiple Choice
    11. Problems
    12. Video Activity
  10. 9 Time Value of Money III: Unequal Multiple Payment Values
    1. Why It Matters
    2. 9.1 Timing of Cash Flows
    3. 9.2 Unequal Payments Using a Financial Calculator or Microsoft Excel
    4. Summary
    5. Key Terms
    6. CFA Institute
    7. Multiple Choice
    8. Review Questions
    9. Problems
    10. Video Activity
  11. 10 Bonds and Bond Valuation
    1. Why It Matters
    2. 10.1 Characteristics of Bonds
    3. 10.2 Bond Valuation
    4. 10.3 Using the Yield Curve
    5. 10.4 Risks of Interest Rates and Default
    6. 10.5 Using Spreadsheets to Solve Bond Problems
    7. Summary
    8. Key Terms
    9. CFA Institute
    10. Multiple Choice
    11. Review Questions
    12. Problems
    13. Video Activity
  12. 11 Stocks and Stock Valuation
    1. Why It Matters
    2. 11.1 Multiple Approaches to Stock Valuation
    3. 11.2 Dividend Discount Models (DDMs)
    4. 11.3 Discounted Cash Flow (DCF) Model
    5. 11.4 Preferred Stock
    6. 11.5 Efficient Markets
    7. Summary
    8. Key Terms
    9. CFA Institute
    10. Multiple Choice
    11. Review Questions
    12. Problems
    13. Video Activity
  13. 12 Historical Performance of US Markets
    1. Why It Matters
    2. 12.1 Overview of US Financial Markets
    3. 12.2 Historical Picture of Inflation
    4. 12.3 Historical Picture of Returns to Bonds
    5. 12.4 Historical Picture of Returns to Stocks
    6. Summary
    7. Key Terms
    8. Multiple Choice
    9. Review Questions
    10. Video Activity
  14. 13 Statistical Analysis in Finance
    1. Why It Matters
    2. 13.1 Measures of Center
    3. 13.2 Measures of Spread
    4. 13.3 Measures of Position
    5. 13.4 Statistical Distributions
    6. 13.5 Probability Distributions
    7. 13.6 Data Visualization and Graphical Displays
    8. 13.7 The R Statistical Analysis Tool
    9. Summary
    10. Key Terms
    11. CFA Institute
    12. Multiple Choice
    13. Review Questions
    14. Problems
    15. Video Activity
  15. 14 Regression Analysis in Finance
    1. Why It Matters
    2. 14.1 Correlation Analysis
    3. 14.2 Linear Regression Analysis
    4. 14.3 Best-Fit Linear Model
    5. 14.4 Regression Applications in Finance
    6. 14.5 Predictions and Prediction Intervals
    7. 14.6 Use of R Statistical Analysis Tool for Regression Analysis
    8. Summary
    9. Key Terms
    10. Multiple Choice
    11. Review Questions
    12. Problems
    13. Video Activity
  16. 15 How to Think about Investing
    1. Why It Matters
    2. 15.1 Risk and Return to an Individual Asset
    3. 15.2 Risk and Return to Multiple Assets
    4. 15.3 The Capital Asset Pricing Model (CAPM)
    5. 15.4 Applications in Performance Measurement
    6. 15.5 Using Excel to Make Investment Decisions
    7. Summary
    8. Key Terms
    9. CFA Institute
    10. Multiple Choice
    11. Review Questions
    12. Problems
    13. Video Activity
  17. 16 How Companies Think about Investing
    1. Why It Matters
    2. 16.1 Payback Period Method
    3. 16.2 Net Present Value (NPV) Method
    4. 16.3 Internal Rate of Return (IRR) Method
    5. 16.4 Alternative Methods
    6. 16.5 Choosing between Projects
    7. 16.6 Using Excel to Make Company Investment Decisions
    8. Summary
    9. Key Terms
    10. CFA Institute
    11. Multiple Choice
    12. Review Questions
    13. Problems
    14. Video Activity
  18. 17 How Firms Raise Capital
    1. Why It Matters
    2. 17.1 The Concept of Capital Structure
    3. 17.2 The Costs of Debt and Equity Capital
    4. 17.3 Calculating the Weighted Average Cost of Capital
    5. 17.4 Capital Structure Choices
    6. 17.5 Optimal Capital Structure
    7. 17.6 Alternative Sources of Funds
    8. Summary
    9. Key Terms
    10. CFA Institute
    11. Multiple Choice
    12. Review Questions
    13. Problems
    14. Video Activity
  19. 18 Financial Forecasting
    1. Why It Matters
    2. 18.1 The Importance of Forecasting
    3. 18.2 Forecasting Sales
    4. 18.3 Pro Forma Financials
    5. 18.4 Generating the Complete Forecast
    6. 18.5 Forecasting Cash Flow and Assessing the Value of Growth
    7. 18.6 Using Excel to Create the Long-Term Forecast
    8. Summary
    9. Key Terms
    10. Multiple Choice
    11. Review Questions
    12. Problems
    13. Video Activity
  20. 19 The Importance of Trade Credit and Working Capital in Planning
    1. Why It Matters
    2. 19.1 What Is Working Capital?
    3. 19.2 What Is Trade Credit?
    4. 19.3 Cash Management
    5. 19.4 Receivables Management
    6. 19.5 Inventory Management
    7. 19.6 Using Excel to Create the Short-Term Plan
    8. Summary
    9. Key Terms
    10. Multiple Choice
    11. Review Questions
    12. Video Activity
  21. 20 Risk Management and the Financial Manager
    1. Why It Matters
    2. 20.1 The Importance of Risk Management
    3. 20.2 Commodity Price Risk
    4. 20.3 Exchange Rates and Risk
    5. 20.4 Interest Rate Risk
    6. Summary
    7. Key Terms
    8. CFA Institute
    9. Multiple Choice
    10. Review Questions
    11. Problems
    12. Video Activity
  22. Index
1 .
An S corporation _______________.
  1. is taxed in the same manner as a C corporation
  2. is eligible for more efficient financing in the face of company growth than a C corporation
  3. is usually more difficult to form than a C corporation
  4. is not taxed at the corporate level, unlike a C corporation
2 .
An important advantage of a sole proprietorship is that _______________.
  1. it is easier to raise capital under such a structure than under other organizational forms
  2. it allows for an unlimited life of the business
  3. it is relatively easy to create
  4. Both a and b are correct.
3 .
A shareholder is someone who _______________.
  1. sits on the audit committee of a firm
  2. is an ex-employee of a company
  3. profits from the favorable results of a company
  4. follows the company for an investment firm
4 .
Effective corporate governance includes all of the following EXCEPT _______________.
  1. fairness
  2. accountability
  3. objectivity
  4. higher share price
5 .
A stakeholder is someone who _______________.
  1. is required to read a company’s annual report
  2. answers to a board of directors
  3. has a vested interest in a company’s success
  4. is hired to do a specific job
6 .
“An effective business leader will recognize the social and environmental responsibilities of their business as well as the eventual goal of achieving long-term, sustainable global development.” This statement refers to _______________.
  1. employing an experienced environmental consulting firm
  2. the advantages of having an audit committee
  3. having a diversified and well-experienced board of directors
  4. practicing strong corporate governance
7 .
An important component of a strong board of directors (BOD) is having members who are _______________.
  1. former employees of the company
  2. able to write a strong corporate press release
  3. culturally diverse and experienced in the industry
  4. new to the industry and without preconceptions
8 .
Which of the following is NOT a reason why a company needs good corporate governance?
  1. to avoid mismanagement of the company
  2. to enable the company to raise capital more efficiently and mitigate financial and operational risk to stakeholders
  3. to analyze the company’s operations and systems of internal control in order to detect and prevent various forms of fraud and other accounting irregularities
  4. to increase the company’s overall accountability and prevent significant organizational problems
9 .
Who ultimately runs the company operations for a large corporation?
  1. shareholders
  2. board of directors
  3. external auditors
  4. stakeholders
10 .
One of the ways in which companies attempt to mitigate short-term managerial focus is by offering managers _______________.
  1. increased vacation time
  2. increased paid sick leave
  3. stock options
  4. comprehensive health insurance
11 .
Which of the following are used to ensure fiduciary responsibility?
  1. audits
  2. press releases
  3. end-of-year financial ledgers
  4. a letter from the board of directors
12 .
Which of the following is NOT one of the roles of an audit committee?
  1. reviewing the work of the internal audit
  2. reviewing systems of internal control.
  3. ensuring that appropriate resources are used in company operations
  4. launching special investigations of employees, company practices, or procedures
13 .
Which of the following is a major issue addressed in corporate governance?
  1. improving banking relations
  2. ethics and its implementation
  3. improving profits for shareholders
  4. expanding operations internationally
14 .
Agency problems are essentially _______________.
  1. conflicts of interest
  2. problems with the IRS
  3. fraudulent business activities
  4. nepotism
15 .
The term ESG, when used in the context of corporate governance, refers to which of the following?
  1. earnings, shareholders, and governance
  2. earnings, social, and general profit
  3. environmental, social, and goals
  4. environmental, social, and governance
16 .
Which of the following is the best method to ensure that shareholders are well informed of corporate policies and financial results?
  1. self-evaluation and training for members of the board of directors
  2. hiring a prestigious independent public accounting firm
  3. ensuring cultural diversity and public speaking eloquence of the senior management team
  4. conducting well-organized shareholder meetings and conference calls with the investment community
17 .
The Securities and Exchange Commission (SEC) requires that public corporations file which of the following financial reports on a quarterly basis?
  1. Form 10-K
  2. Form 8-Q
  3. Form 10-Q
  4. Form Q
18 .
Investor relations has substantially more _______________.
  1. regulatory obligations than standard public relations because of government-mandated financial and legal requirements
  2. personnel within a company dedicated to its function compared to other corporate departments
  3. interpretations regarding its effective implementation and use than other managerial and financial disciplines
  4. documented historical cases of corporate failure than other managerial and financial disciplines
19 .
The corporate press release is _______________.
  1. no longer an important component of modern investor relations strategy
  2. not yet a thing of the past, though it is highly likely to be replaced by social media in the near future
  3. written by the chief financial officer in conjunction with the audit committee
  4. best written to be easy to understand, free of corporate jargon, and as concise as possible
20 .
International firms are _______________.
  1. headquartered in a non-US country but have homogeneous profit centers with little differentiation in product or service
  2. based in the United States but operate through the use of heavy investments outside the country via multinational profit centers
  3. larger and more complex than their domestic counterparts
  4. more likely to be formed as partnerships or sole proprietorships than as corporations
Order a print copy

As an Amazon Associate we earn from qualifying purchases.

Citation/Attribution

Want to cite, share, or modify this book? This book uses the Creative Commons Attribution License and you must attribute OpenStax.

Attribution information
  • If you are redistributing all or part of this book in a print format, then you must include on every physical page the following attribution:
    Access for free at https://openstax.org/books/principles-finance/pages/1-why-it-matters
  • If you are redistributing all or part of this book in a digital format, then you must include on every digital page view the following attribution:
    Access for free at https://openstax.org/books/principles-finance/pages/1-why-it-matters
Citation information

© Jun 8, 2023 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.