Business Finance Ch. 1

A general partnership has which of the following characteristics?

All the partners share in gains or losses of the partnership, each owner has unlimited liability for all firm debts

___ Budgeting is the process of planning and managing a firm's long-term assets

Capital

Which of the following are defining features of the primary market?

Proceeds from the sales of securities goes to the issuing firm; it is the market where initial public offerings are made

The controller is responsible for which of the following tasks?

Tax reporting and payments, financial accounting

An organization must prepare ___ and bylaws when forming a corporation

articles of incorporation

The New York Stock Exchange is a(n)

auction market

The Sarbanes-Oxley Act requires corporate officers to

be responsible for errors in the annual report, confirm the validity of the financial statements

Which term applies to the mixture of debt and equity maintained by a firm

capital structure

In large firms, financial activity is usually associated with which top officer?

chief financial officer

A partnership in which partners share in gains or losses, and carry unlimited liability for all partnership debts, is called a

general partnership

Working capital includes which of the following?

inventory, cash, short-term assets

A sole proprietorship is a business that

is owned by one person

A corporation is a distinct ____ entity and as such can have a name and take advantage of the legal powers of natural persons

legal

A limited liability company's owners have ____ liability

limited

Since____ and ownership are separated, a corporation's life is unlimited

management

The goal of a "for-profit" business is to ___ the value of shareholder wealth

maximize

A business without separate legal authority formed by two or more people is known as a

partnership

A limited liability company is taxed like a _____ but retains ____ for owners

partnership; limited liability

A corporation receives cash from financial markets by selling ________ and _________.

stocks; bonds

The goal of financial management is to increase the value of

the existing shares of stock

In a for-profit business, owners' equity is equivalent to

the total value of stock in a corporation

What is the primary objective of an auction market?

to bring buyers and sellers together

What is the main goal of financial management?

to maximize current share value

According to Figure 1.2, where does cash generated by a corporation typically go?

to pay corporate taxes, reinvested in the firm, paid to shareholders and creditors

A bad financial decision is defined as a decision that ___ shareholder wealth

decreases

The ____ office is responsible for corporate tax reporting

controllers

The Sarbanes-Oxley Act is intended to strengthen protection against

corporate accounting fraud and financial malpractice

Businesses are motivated to organize as corporations because stockholders in a corporation have ___ liability for corporate debts

limited

Corporations in other countries are often called

limited liability company, joint stock companies, public limited companies

What type of partnership involves both general and limited partners to run the business?

limited partnership

In a limited partnership, a limited partner's liability for business debts is

limited to their cash contribution to the partnership

Capital budgeting is concerned with making and managing expenditures on

long-term assets

Which of these have been noted as unintended consequences of the Sarbanes-Oxley Act?

public firms "going dark" and leaving the stock market; firms going public, outside of the U.S. market; eliminating public disclosure for many firms

When one owner or creditor sells to another, the transaction takes place in the _________ market.

secondary

The owners of a corporation are called

shareholders

A partnership must have at least ___ owners

two

Which of the following positions generally report to the chief financial officer (CFO)?

Controller and treasurer

The federal government taxes which of the following?

Corporate earnings and shareholder dividends

Which of the following are included in a firm's capital structure?

Equity and long-term debt

True or false: "Profit maximization" is the goal for the management of a corporation in short-run only

False

True or false: The Sarbanes-Oxley Act provides incentives for companies to go public in U.S. markets

False

According to the textbook, which of the following is NOT one of the three main questions to be addressed if you wanted to start your own business?

How many employees will I need?

The officer responsible for managing the firm's cash flows is the

treasurer

A corporation borrows money in its own name

true

True or false: In a large corporation, stockholders and managers are usually separate groups

true

A sole proprietor has _____ personal liability for all business debts and obligations

unlimited

Ensuring that the firm has sufficient funds to continue operations on a day-to-day basis comes under the heading of ____ management

working capital

What three subjects is the financial manager concerned with?

working capital management, capital structure and capital budgeting

Which of the following are reasons that the corporation is the most important form of business?

Corporations can enter into contracts, corporations are separate legal entities, corporations can sue and be sued

A good financial decision will do which of the following?

Increase the value of the firm's existing stock; Increase market value of shareholders' equity

When are corporate profits taxed?

Individuals pay taxes on corporate dividends; corporations pay taxes on corporate profits

Why don't large businesses organize as sole proprietorships or partnerships?

It can be difficult to raise cash for investment in these forms, and that limits the ability of the business to grow

How does the Sarbanes-Oxley Act primarily work to make sure that companies tell the truth in financial statements?

It makes management personally responsible for the accuracy of a company's financial statements

In an over-the-counter market, which of the following is true?

Most of the buying and selling is done by the dealer, many dealers are also connected electronically

Is profit maximization the primary objective of a business?

No; profit maximization may not take into account other strategic objectives necessary to maximize shareholder value

How is ownership transferred in a corporation?

Ownership is transferred by gifting or selling shares of stock

Which corporate officer is responsible for managing the firm's cash?

Treasurer

The four basic areas of finance include investments, financial institutions, international finance and

corporate finance

Public limited companies and joint stock companies are other names for

corporations

Which of these topics is not of especial interest to a financial manager?

debt

Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley ?

Tyco, WorldCom and Enron

Which of the following are key questions for investments? Select all that apply

What are the risks and rewards associated with investing? What is the best mixture of financial assets to hold? What determines the price of a financial asset?

Which of the following is a disadvantage of sole proprietorship and partnerships?

difficulty of transferring ownership

How is ownership if a corporation represented?

shares of stock

How is ownership of a corporation represented?

shares of stock

Working capital includes which of the following?

short-term assets, inventory and cash