MULTIPLE CHOICE QUESTIONS

Multiple Choice. Identify the choice that best completes the statement or answers the question.

Justine is an accountant in the accounting department of Modern Industries, Inc.

Justine has just discovered evidence that some of the corporation's marketing
managers have been wrongfully inflating their expense reports in order to obtain
higher reimbursements from the firm. According to the understanding and acceptance
of the basic principles and concepts of ethical conduct, what should Justine do upon
discovering this evidence? *
1 point

Ignore the evidence because she is not part of the Marketing Department.
Notify the marketing managers involved.
Notify the president of the corporation.
Notify the controller.

Which of the following statements is NOT TRUE? Statement 1. The present value of a
future sum decreases as the number of periods per year increases, other things held
constant. Statement 2. The present value of a future sum decreases as the discount
rate increases, other things held constant. Statement 3. All other things held constant,
the present value of a given annual annuity decreases as the number of periods per
year increases. *
1 point

All of the statements are true.

Statement 1 only.
Statement 3 only.
Statement 2 only.
All of the statements are not true.

Benefits of social responsibility often include *

1 point

All of the choices

Higher short-term earnings
Better reputation
Lower expenses

If you hold the annual percentage rate constant while increasing the number of
compounding periods per year, then *
1 point

The effective interest rate will not change.

The effective interest rate will decrease.
None of the choices.
The effective interest rate will increase.
Which of the following statements is CORRECT? *
1 point

The future value of an annuity table is most useful in the short-cut calculation of the future value of uneven
cash flows.
The formula or equation for the calculation of the future value can be used also in regular annuity and
subject to a fluctuating rate of return.
The present value of an annuity table is most useful in the short-cut calculation of the present value of
uneven cash flows.
The formula or equation for the calculation of the present value can be used only in even cash flows that
are paid or received at regular time intervals and subject to a constant discount rate.

*
1 point

=1 ÷(1.06 x 1.06 x 1.06 x 1.06 x 1.06)

=1.06 x 1.06 x 1.06 x 1.06 x 1.06
=1÷1.06÷1.06÷1.06÷1.06÷1.06
=1.06÷1.06÷1.06÷1.06÷1.06

Which of the following statements is CORRECT? *

1 point

The cash flows for an annuity due must all occur at the ends of the periods.
The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.
If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by
definition an annuity.
If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what
the textbook defines as a variable annuity.
The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a
year or once a month.

Which of the following statements is CORRECT? *

1 point

The main method of transferring ownership interest in a corporation is by means of a hostile takeover.
Although its stockholders are insulated by limited legal liability, the corporation’s legal status does not
protect the firm’s managers in the same way; i.e., bondholders can sue its managers if the firm defaults on
its debt, even if the default is the result of poor economic conditions.
Two key advantages of the corporate form over other forms of business organization are unlimited liability
and limited life.
Limited liability of its stockholders is an advantage of the corporate form of organization, but corporations
have more trouble raising money in financial markets because of the complexity of this form of
organization.
A corporation is a legal entity that is generally created by a state; its life and existence is separate from the
lives of its individual owners and managers.
If the rate of interest that your investment can earn on a 2-year investment is zero,
which of the following statements is NOT CORRECT? *
1 point

The payment for the use of your money for two years is zero.
The future value of your investment is higher than your present value at the end of the investment period.
You will receive the same amount you invested at the beginning of the 2-year period at the conclusion or
maturity of the investment.
All of the statements are correct.

Which of the following statements is CORRECT? Statement 1. Time lines cannot be

constructed for annuities unless all the payments occur at the end of the periods.
Statement 2. Some of the cash flows shown on a time line can be in the form of
annuity payments while others can be uneven amounts. Statement 3. Some of the
cash flows shown on a time line can be in the form of annuity payments but none can
be uneven amounts. *
1 point

Statement 2 only.
None of the statement is correct.
All of the statements are correct.
Statement 1 only.
Statement 3 only.

Which of the following statements is CORRECT? Statement 1. The difference

between the PV of an annuity due and the PV of an ordinary annuity is that each of
the payments of the annuity due is discounted by one more year (period). Statement
2. The difference between an ordinary annuity and an annuity due is that each of the
payments of the annuity due earns interest for one additional year (period). Statement
3. An annuity is a series of equal payments made at fixed equal-length intervals for a
specified number of periods. *
1 point

Statement 1 only.
None of the statement is correct.
All of the statements are correct.
Statement 3 only.
Statement 2 only.

As mergers, acquisitions, and restructuring have increased in importance, agency

theory has become more important in assessing whether *
1 point

Managers and owners are actually the same people with the same interests.
Shareholder goals are truly being achieved by managers in the long run.
A stock repurchase should be undertaken.
Managers are actually agents or only employees of the firm.

Which of the following typically does NOT relate to the role of a controller? *
1 point

A controller supervises the accounting department.

A controller oversees the preparation of reports required by governmental authorities.
All of the choices.
A controller normally assumes a narrow role within the organization, often preventing the individual's rise
to top management ranks.
A controller ensures compliance with financial reporting standards.

Agency theory deals with the issue of *

1 point

The limitations placed on an employee acting as the firm's agent to obligate or bind the firm.
The conflicts that can arise between the viewpoints and motivations of a firm's owners and managers.
When to hire an agent to represent the firm in negotiations.
The legal liabilities of a firm if an employee, acting as the firm's agent, injures someone.

A financial manager's goal of maximizing current or short-term earnings may not be

appropriate because *
1 point

Increased earnings may be accompanied by unacceptably higher levels of risk.

It fails to consider the timing of the benefits.
All of the choices.
Earnings are subjective; they can be defined in various ways such as accounting or economic earnings.

Why is the present value of an amount lesser than its value that is to be received
(paid) in the future? *
1 point

Because investors are taxed on the income received from investments they never will buy an investment
for the amount expected to be received in the future.
Investments generally are not as good as those who sell them suggest, so investors usually are not willing
to pay full face value for such investments, thus the price is discounted.
Deflation causes investors to lose purchasing power when their pesos are invested for greater than one
year.
Investors have the opportunity to earn positive rates of return, so any amount invested today should grow
to a larger amount in the future.
None of the choices is a correct answer.

Which investment will you choose from the following investment opportunities: *
A one-year investment that pays 12%, compounding annually.
All the choices will provide the same future value.
A one-year investment that pays 12%, compounding quarterly.
A one-year investment that pays 12%, compounding monthly.
Cash flows are not automatically considered as annuities due to their following
characteristics, EXCEPT *
1 point

The cash flows are payments or receipts at future period of time.

The cash flows may be received or paid intermittently.
The cash flows may be of uneven amounts.
The cash flows may be inflows and outflows all together at a common interval over the life of the receipts
and payments.

Financial structure refers to ________________. *

1 point

Long-term resources.
All of the choices.
Short-term resources.
All the financial resources.

Which of the following statements is CORRECT? Statement 1. Time lines can be

constructed in situations where some of the cash flows occur annually but others
occur quarterly. Statement 2. Time lines cannot be constructed in situations where
some of the cash flows occur annually but others occur quarterly. Statement 3. Time
lines can be constructed for annuities where the payments occur at either the
beginning or the end of the periods. *
1 point

Statement 2 only.
Statement 1 only.
All of the statements are correct.
None of the statement is correct.
Statement 3 only.

Agency costs refer to *

1 point

The costs associated with managing the demands of federal agencies.

None of the choices.
The costs involved when converting an entity from a proprietorship to a corporation.
The costs that arise due to conflicts of interest between shareholders and managers.

Maximization of shareholder wealth is a concept in which *

1 point

Optimally increasing the long-term value of the firm is emphasized.

Increased earnings is of primary importance.
Virtually all earnings are paid as dividends to common stockholders.
Profits are maximized on a quarterly basis.
Financial accounting focuses primarily on reporting: *
1 point

To an organization's board of directors.

To parties within an organization.
To parties outside of an organization.
To financial institutions.
For internal control.

Insider trading occurs when *

Lawyers, investment bankers, and others buy common stock in companies represented by their firms.
Corporate officers buy stock in their company.
Any stock transactions occur in violation of the Securities and Exchange Commission’s restrictions on
monopolies.
Someone has information not available to the public which they use to profit from trading in stocks.

Given some amount to be received several years in the future, if the interest rate
increases, the present value of the future amount will *
1 point

Be variable.
Be lower.
Be higher.
Cannot tell.
Stay the same.

Money markets are markets for *

Foreign shares of stock.
Long-term bonds.
Domestic shares of stocks.
Consumer automobile loans.
Short-term debt securities.

Future financial managers will need to understand *

International currency hedging strategies.
All of the choices.
Computerized funds transfers.
International cash flows.

Which of the following managerial functions involves a detailed financial and

operational description of anticipated operations? *
1 point

Measuring.
Directing operational activities.
Decision making.
Planning.
Controlling.
According to financial management authors, ___________ is the most important of the
three financial management decisions. *
1 point

Investment decision.
Accounting decision.
Financing decision.
Asset management decision.

Which of the following statements is TRUE? Statement 1. As you increase the interest
rate, the future value of an investment increases. Statement 2. As you increase the
length of the investment (to receive some lump sum), the present value of the
investment increases. Statement 3. The present value of an ordinary annuity is larger
than the present value of an annuity due (all else equal). *
1 point

All of the statements are true.

Statement 3 only.
None of the statement is true.
Statement 2 only.
Statement 1 only.

The amount that someone is willing to pay today, for a single cash flow in the future
is *
1 point

The future value of the stream of cash flows.

The present value of the cash flow.
The future value of the cash flow.
The present value of the annuity of cash flows

At the end of 10 years, which of the following investments would have the highest
future value? Assume that the effective annual rate for all investments is the same and
is greater than zero. *
1 point

Investment E pays P250 at the end of every year for the next 10 years (a total of 10 payments).
Investment D pays P2,500 at the end of 10 years (just one payment).
Investment A pays P250 at the beginning of every year for the next 10 years (a total of 10 payments).
Investment C pays P125 at the beginning of every 6-month period for the next 10 years (a total of 20
payments).
Investment B pays P125 at the end of every 6-month period for the next 10 years (a total of 20 payments).

Which of the following statements is NOT TRUE? *

1 point

The present value of a perpetuity can be calculated.

In an ordinary annuity, payments occur at the beginning of the period.
A perpetuity will never mature at any point in future.
In an annuity due, payments occur at the beginning of the period.

Everything else equal, which of the following conditions will result in the lowest present
value of an amount to be received in the future? *
1 point

Quarterly compounding
Monthly compounding
Annual compounding
Daily compounding

The chief managerial and financial accountant of an organization is the: *

1 point

Chief executive officer (CEO).

Chief financial officer (CFO).
Internal auditor.
Vice-president of accounting.
Treasurer.

Which of the following statements is CORRECT? *

1 point

If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by
definition an annuity.
The cash flows for an annuity due must all occur at the beginning of the periods.
If some cash flows occur at the beginning of the periods while others occur at the end of the periods, then
we have what the textbook defines as a variable annuity.
The cash flows for an annuity may vary from period to period, but they must occur at regular intervals,
such as once a year or once a month.
The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.

Which of the following is not normally a responsibility of the treasurer of the modern
corporation but rather the controller? *
1 point

Budgets and forecasts.

Asset management.
Investment management.
None of the choices.

Jullan is starting a small business out of her home. When she accesses a business
“how-to” web site, Jullan finds software downloads and printable worksheets that will
help her plan and manage her business's income and expenses. The software and
worksheets are types of *
1 point
Budgeting tools.
Statistical information.
Legal data.
Organizational charts.

Under what conditions must a distinction be made between money to be received

today and money to be received in the future? *
1 point

A period of recession.
When idle money can earn a positive return.
When there is no risk of nonpayment in the future.
When current interest rates are different from expected future rates.

Wide-spread adherence to ethical standards in an advanced market economy tends to

result in all of the following EXCEPT: *
1 point

Safer products.
Higher quality goods and services.
Greater variety of goods and services available for sale.
Higher prices.