Question 1

Which of the following best describes the primary financial goal of a firm according to the study materials?

Accepted Answer

To maximize the long-term wealth of the firm's owners

Question 2

Which formula is used to calculate the present value (PV) of a future cash flow (FV) received in $$n$$ periods at a discount rate $$r$$?

Accepted Answer

$$PV = \dfrac{FV}{(1 + r)^n}$$

Question 3

Which of the following is NOT a core corporate finance decision?

Accepted Answer

Marketing strategy decision

Question 4

Why is profit maximization considered an inappropriate goal for a firm?

Accepted Answer

It ignores the timing of benefits and risk

Question 5

Which of the following best describes an agency problem?

Accepted Answer

When managers (agents) act in their own interests rather than those of shareholders (principals)

Question 6

Which of the following is an example of an internal corporate governance mechanism?

Accepted Answer

Stock options for managers

Question 7

A company’s value is most directly affected by which of the following factors?

Accepted Answer

Expected cash flows, their timing, and risk

Question 8

Which of the following is a plausible consequence of poor ethical standards in a firm?

Accepted Answer

Reputational damage and increased cost of capital

Question 9

If a manager breaks contracts with suppliers to increase shareholder wealth in the short term, what is a likely long-term consequence?

Accepted Answer

Lawsuits, reputational damage, and increased costs

Question 10

Which of the following is NOT a way to reduce agency costs?

Accepted Answer

Allowing managers to act without oversight

Question 11

Which of the following best explains why ethical behaviour is important for firm value?

Accepted Answer

It ensures accurate, reliable, and timely information for investors

Question 12

A firm is considering paying a 'living wage' to its staff, which would reduce dividends to shareholders. Which argument supports this decision from an ethical perspective?

Accepted Answer

It may improve the firm's reputation and employee relations

Question 13

Which of the following is an example of an external corporate governance mechanism?

Accepted Answer

Threat of takeover

Question 14

Which of the following best describes the relationship between ethics, agency problems, and related costs?

Accepted Answer

Ethical behaviour reduces agency problems and related costs

Question 15

Which of the following is a plausible reason for differences in ethical perceptions between countries?

Accepted Answer

Culture, religion, politics, income, education, and law enforcement

Question 16

If a firm’s management is found guilty of insider trading, what is a likely impact on the firm’s stock price?

Accepted Answer

The stock price will likely decrease due to loss of trust

Question 17

Which of the following is a multi-step process to align managers’ interests with those of shareholders?

Accepted Answer

Implementing ethical guidelines, performance evaluation, and compensation systems

Question 18

Which of the following is a direct result of information asymmetry in financial markets?

Accepted Answer

Investors demand a higher risk premium

Question 19

A company founder retains a large shareholding after going public. What is the most likely reason for this?

Accepted Answer

To align their interests with those of new shareholders

Question 20

Which of the following is a likely effect of a major ethical scandal (such as the Volkswagen emissions case) on a company’s market value?

Accepted Answer

A sudden and significant drop in stock price

Core Concepts and Ethics in Financial Management: Study Notes for Financial Accounting Students

Study Guide - Practice Questions

Study Guide - Flashcards