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1. MASBATE POLYTECHNIC AND DEVELOPMENT COLLEGE, INC.
SHS Department
Quiz Number 1
Business Finance
Multiple Choice. Encircle the letter
of the correct answer.
1. The primary goal of the financial
manager is
A. minimizing risk.
B. maximizing profit.
C. maximizing wealth.
D. minimizing return.
2. Corporate owner's receive realizable
return through
A. earningsper share and cash
dividends.
B. increase in share price and cash
dividends.
C. increase in share price and earnings
per share.
D. profit and earningsper share.
3. The wealth of the owners of a
corporation is represented by
A. profits.
B. earningsper share.
C. share value.
D. cash flow.
4. Wealth maximization as the goal of
the firm implies enhancing the wealth
of
A. the Board of Directors.
B. the firm's employees.
C. the federal government.
D. the firm's stockholders.
5. The goal of profit maximization would
result in priority for
A. cash flows available to stockholders.
B. risk of the investment.
C. earningsper share.
D. timing of the returns.
6. Profit maximization as a goal is not
ideal because it does NOT directly
consider
A. risk and cash flow.
B. cash flow and stock price.
C. risk and EPS.
D. EPS and stock price.
7. Profit maximization as the goal of the
firm is not ideal because
A. profits are only accounting
measures.
B. cash flows are more representative of
financial strength.
C. profit maximization does not
consider risk.
D. profits today are lessdesirable than
profits earned in future years.
8. Profit maximization failsbecause it
ignores all EXCEPT
A. the timing of returns.
B. earningsper share.
C. cash flows available to stockholders.
D. risk.
9. The key variables in the owner
wealthmaximizationprocess are
A. earningsper share and risk.
B. cash flows and risk.
C. earnings per share and share price.
D. profits and risk.
10. Cash flow and risk are the key
determinants in share price. Increased
cash flow results in ________, other
things remaining the same.
A. a lower share price
B. a higher share price
C. an unchanged share price
D. an undetermined share price
11. Cash flow and risk are the key
determinants in share price. Increased
risk, other things remaining the same,
resultsin
A. a lower share price.
B. a higher share price.
C. an unchanged share price.
D. an undetermined share price.
12. Financial managers evaluating
decision alternatives or potential
actions must consider
A. only risk.
B. only return.
C. both risk and return.
D. risk, return, and the impact on
share price.
13. A ______ is one financial
intermediary handling individual
savings. It receives premium payments
that are placed in loans or investments
to accumulate funds to cover future
benefits.
A. life insurance company
B. commercial bank
C. savings bank
D. credit union

2. MASBATE POLYTECHNIC AND DEVELOPMENT COLLEGE, INC.
SHS Department
14. IPO stands for Interest and
Principal Obligation.
The key participants in financial
transactions are individuals,
businesses, and governments.
Individuals are net ______ of funds, and
businesses are net ______ of funds.
A. suppliers; users
B. purchasers; sellers
C. users; suppliers
D. users; providers
15. Which of the following is not a
financial institution?
A. A pension fund
B. A newspaper publisher
C. A commercial bank
D. An insurance company
4. A ______ is set up so that employees
of corporations or governments can
receive income after retirement.
A. life insurance company
B. pension fund
C. savings bank
D. credit union
16. A ______ is a type of financial
intermediary that pools savings of
individuals and makes them available
to business and government users.
Funds are obtained through the sale of
shares.
A. mutual fund
B. savings and loans
C. savings bank
D. credit union
17. Most businessesraise money by
selling their securitiesin a.
A. a direct placement.
B. a stock exchange.
C. a public offering.
D. a private placement.
18. Which of the following is not a
service provided by financial
institutions?
A. Buying the businessesof customers
B. Investing customers’ savings in
stocks and bonds
C. Paying savers’ interest on deposited
funds
D. Lending money to customers
19. Government usually
A. borrows funds directlyfrom financial
institutions.
B. maintainspermanent deposits with
financial institutions.
C. is a net supplier of funds.
D. is a net demander of funds.
20. By definition, the money market
involves the buying and selling of
A. funds that mature in more than one
year.
B. flows of funds.
C. stocks and bonds.
D. short-term funds.
21. The ______ is created by a financial
relationshipbetween suppliers and
users of short-term funds.
A. financial market
B. money market
C. stock market
D. capital market
22. Firms that require funds from
external sources can obtain them from
A. financial markets.
B. private placement.
C. financial institutions.
D. All of the above.
23. The major securities traded in the
capital markets are
A. stocks and bonds.
B. bonds and commercial paper.
C. commercial paper and Treasury bills.
D. Treasury bills and certificates of
deposit.
24. Long-term debt instrumentsused
by both government and business are
known as
A. bonds.
B. equities.
C. stocks.
D. bills.

3. MASBATE POLYTECHNIC AND DEVELOPMENT COLLEGE, INC.
SHS Department
Test II-True/False. Write TRUE if the
statement is correct and FALSE if it’s
not. Write your answer in the space
provided before each number.
___________________1. High cash flow is
generally associated with a higher share
price whereas higher risk tendsto result
in a lower share price.
___________________2. When considering
each financial decision alternative or
possible action in terms of its impact on
the
share price of the firm's stock, financial
managers should accept only those
actions that are
expected to increase the firm's
profitability.
___________________3. To achieve the
goal of profit maximization for each
alternative being considered, the
financial
manager would select the one that is
expected to result in the highest
monetary return.
___________________4. Dividend
payments change directly with changes
in earnings per share.
5. The wealth of corporate owners is
measured by the share price of the
stock.
___________________6. Risk and the
magnitude and timing of cash flows are
the key determinants of share price,
which
represents the wealth of the owners in
the firm.
___________________7. _When
considering each financial decision
alternative or possible action in terms of
its impact on
the share price of the firm's stock,
financial managers should accept only
those actions that are
expected to maximize shareholder value.
____________________8. An increase in
firm risk tends to result in a higher share
price since the stockholder must be
compensated for the greater risk.
____________________9. Stockholders
expect to earn higher rates of return on
investments of lower risk and lower rates
of returnon investments of higher risk.
Prepared by:
MS. ROBELYN F. VERANO
Subject Teacher