Chapter 1

Which of the following parties are considered stakeholders of a firm? (A) Employees and the government (B) Common stockholders (C) Long-term creditors and common stockholders (D) Long-term creditors (E) Government and common stockholders

(A) Employees and the government

Corporate dividends are: (A) tax-free because they are distributions of aftertax income. (B) taxable income of the recipient even though that income was previously taxed. (C) tax-free since the corporation pays tax on that income when it is earned. (D) taxed at both the corporate and the personal level when the dividends are paid to shareholders. (E) tax-free because the income is taxed at the personal level when earned by the firm.

(B) taxable income of the recipient even though that income was previously taxed.

Which one of the following statements concerning a sole proprietorship is correct? (A) There are very few sole proprietorships remaining in the U.S. today. (B) A sole proprietorship is structured the same as a limited liability company. (C) The owner of a sole proprietorship is personally responsible for all of the company's debts. (D) The profits of a sole proprietorship are subject to double taxation. (E) A sole proprietorship is designed to protect the personal assets of the owner.

(C) The owner of a sole proprietorship is personally responsible for all of the company's debts.

The treasurer of a corporation generally reports directly to the: (A) president. (B) chairman of the board. (C) vice president of finance. (D) board of directors. (E) chief executive officer.

(C) vice president of finance.

Public offerings of debt and equity must be registered with the: (A) New York Board of Governors. (B) Market Dealers Exchange. (C) NYSE Registration Office. (D) Securities and Exchange Commission. (E) Federal Reserve.

(D) Securities and Exchange Commission.

Which one of the following functions should be the responsibility of the controller rather than the treasurer? (A) Analyzing equipment purchases (B) Approving credit for a customer (C) Depositing cash receipts (D) Paying a vendor (E) Processing cost reports

(E) Processing cost reports

Corporate bylaws: (A) cannot be amended once adopted. (B) define the name by which the firm will operate. (C) describe the intended life and purpose of the organization. (D) must be amended should a firm decide to increase the number of shares authorized. (E) determine how a corporation regulates itself.

(E) determine how a corporation regulates itself.

Which one of the following grants an individual the right to vote on behalf of a shareholder? (A) Indenture agreement (B) Proxy (C) Stock audit (D) Stock option (E) By-laws

(B) Proxy

Which one of the following questions is a working capital management decision? (A) How much inventory should be on hand for immediate sale? (B) Should the company update or replace its older equipment? (C) How much should the company borrow to buy a new building? (D) Should the company issue new shares of stock or borrow money? (E) Should the company close one of its current stores?

(A) How much inventory should be on hand for immediate sale?

Which one of the following represents a cash outflow from a corporation? (A) Payment of dividends (B) Initial sale of common stock (C) Issuance of new securities (D) New loan proceeds (E) Receipt of tax refund

(A) Payment of dividends

Which one of the following statements is correct concerning the NYSE? (A) The listing requirements for the NYSE are more stringent than those of NASDAQ. (B) The publicly traded shares of a NYSE-listed firm must be worth at least $250 million. (C) The NYSE is an OTC market functioning as both a primary and a secondary market. (D) The NYSE is the largest dealer market for listed securities in the United States. (E) Any corporation desiring to be listed on the NYSE can do so for a fee.

(A) The listing requirements for the NYSE are more stringent than those of NASDAQ.

Which one of the following actions by a financial manager is most apt to create an agency problem? (A) Refusing to borrow money when doing so will create losses for the firm (B) Increasing current profits when doing so lowers the value of the company's equity (C) Refusing to lower selling prices if doing so will reduce the net profits (D) Agreeing to pay bonuses based on the market value of the company's stock rather than on its level of sales (E) Refusing to expand the company if doing so will lower the value of the equity

(B) Increasing current profits when doing so lowers the value of the company's equity

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes. (A) Stock option plans (B) Increasing managers' base salaries (C) Threat of a proxy fight (D) Compensation based on the value of the stock (E) Threat of a company takeover

(B) Increasing managers' base salaries

Which one of the following is a primary market transaction? (A) Sale of currently outstanding stock by a dealer to an individual investor (B) Sale of a new share of stock to an individual investor (C) Gift of stock by a shareholder to a family member (D) Stock ownership transfer from one shareholder to another shareholder (E) Gift of stock from one shareholder to another shareholder

(B) Sale of a new share of stock to an individual investor

A limited liability company: (A) is taxed similar to a C corporation. (B) is taxed similar to a partnership. (C) generates totally tax-free income. (D) is comprised of limited partners only. (E) can only have a single owner.

(B) is taxed similar to a partnership.

The Sarbanes-Oxley Act of 2002 is a governmental response to: (A) the terrorist attacks on 9/11/2001. (B) management greed and abuses. (C) decreasing corporate profits. (D) deregulation of the stock exchanges. (E) a weakening economy.

(B) management greed and abuses.

The articles of incorporation: (A) are amended periodically especially prior to corporate elections. (B) sets forth the procedures by which a firm regulates itself. (C) describe the purpose of the firm and set forth the number of shares of stock that can be issued. (D) explain how corporate directors are to be elected and the length of their terms. (E) include only the corporation's name and intended life.

(C) describe the purpose of the firm and set forth the number of shares of stock that can be issued.

When evaluating the timing of a project's projected cash flows, a financial manager is analyzing: (A) only the start-up costs that are expected to require cash resources. (B) only the date of the final cash flow related to the project. (C) when each cash flow is expected to occur. (D) the amount of each expected cash flow. (E) the amount by which cash receipts are expected to exceed cash outflows.

(C) when each cash flow is expected to occur.

Which one of the following is an unintended result of the Sarbanes-Oxley Act? (A) Increased management awareness of internal controls (B) More detailed and accurate financial reporting (C) Increased responsibility for corporate officers (D) Corporations delisting from major exchanges (E) Identification of internal control weaknesses

(D) Corporations delisting from major exchanges

Which one of the following terms is defined as the management of a firm's long-term Investments? (A) Agency cost analysis (B) Working capital management (C) Capital structure (D) Financial allocation (E) Capital budgeting

(E) Capital budgeting