Chapter 1

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CHAPTER 1

AN OVERVIEW OF FINANCIAL MANAGEMENT

General Directions: Encircle the letter of the correct answer on the space provided for.

1. The primary goal of a publicly owned corporation is to ________. a. maximize dividends per share
b. maximize shareholder wealth
c. maximize earnings per share after taxes
d. minimize shareholder risk

2. A financial manager is considering two projects, A and B. A is expected to add P5 million to profits this year while B is expected to add P3 million to profits this year. Which of the following statements is most correct?

a. The manager should select project A because it maximizes profits. b. The manager should select the project that maximizes long-term profits, not just one year of profits. c. The manager should select project A or he is irrational. d. The manager should select the project that causes the stock price to increase the most, which could be A or B.

3. Shareholder wealth maximization means ________.
a. maximizing earnings per share
b. maximizing dividends per share
c. maximizing the price of existing common stock
d. maximizing stockholders equity

4. A limited partnership provides limited liability to ________. a. all general partners
b. only limited partners responsible for day to day management of the firm c. only to limited partners who do not participate in the management of the business d. all partners

5. Pie is deciding whether or not to invest P50,000 in a business that has pending lawsuits against it. If Pie invests and the business loses the lawsuits, the most Joe can lose is __________.

a. P50,000 if Joe is a general partner
b. P50,000 is Joe is a sole proprietor
c. P50,000 if Joe is a limited partner
d. P50,000 plus his share of the lawsuits if Joe is a limited partner

6. All of the following business organizations provide limited liability to their owners except: a. general partnership
b. S-type corporation
c. corporation
d. limited liability company

7. Nica, a local inventor, developed a diet pill that she believes will solve the obesity problem in the Philippines. Nica wants to create a new company, 50% owned by Nica and 50% owned by a major drug company. Although she believes the pills are safe, Nica is concerned about liability if someone becomes sick or dies. The best form of business organization for the new company is ________.

a. sole proprietorship with Bill as owner and the drug company as creditor b. general partnership with Bill and the drug company as equal partners c. S-type corporation with Bill and the drug company owning equal shares d. limited liability company with Bill and the drug company owning equal shares

8. The financial manager most directly responsible for producing the company’s financial statements and directing its cost accounting functions is the _________. a. chief financial officer
b. controller
c. treasurer
d. vice president – financer

9. A corporate treasurer is typically responsible for each of the following duties except: a. cash management
b. credit management
c. capital expenditures
d. cost accounting

10. Deli Inc. had P 15 million of gross income, operating expenses of P8 million, paid P3 million of interest on borrowing of P10 million, and paid a dividend of P0.50 million. Emery Inc.’s taxable income is _________. a. P3 million

b. P2.5 million
c. P4 million
d. P3.5 million

11. Which of the following statements about depreciation is true?

a. Depreciation is a non-cash expense, but it is important because it affects a corporation’s tax liability. b. Depreciation must be calculated the same way for financial reporting and tax purposes. c. The choice of depreciation method has no impact...
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