Chapter 1 Finance 450

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

legal

Which of the following is NOT one of the basic areas of finance?

personal finance

What is the primary objective of an auction market?

to bring buyers and sellers together

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

general partnership

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

1.) Enron 2.) World Com 3.) Tyco

Which of the following are considered non-owner stakeholders in a company?

1.) Government 2.) suppliers 3.) employees

A good financial decision will do which of the following?

1.) Increase Value of Shareholder Equity 2.) increase value of the firms existing stock

When a corporation is formed, it is granted which of the following rights?

1.) Legal right to sue 2.) ability to issue stock

The threat of ______ motivates managers to make good decisions.

a takeover

In a shareholder-manager relationship, who is the agent?

Manager

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.

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 and Bonds

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

Working Capital

The relationship between stockholders and management can best be described as a(n) ______ relationship.

agency

If you hire a real estate company to sell your house, you are most apt to encounter which one of the following

agency problem

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

corporate finance

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

false

One of the important questions in the area of investments includes the potential risks and reward associated with investing in

financial assets

A limited liability company's owners have ______ liability.

limited

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

limited

Agency costs occur when _________ and stockholder interests are not in line with one another.

management

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

secondary

A corporation borrows money in its own name.

true

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

the value of stock in a corporation

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

unlimited

Who elects the board of directors, and ultimately maintains control of the firm?

stockholders

he goal of the financial management is to increase the value of _____.

the existing shares of stock.

"Increasing shareholder wealth" means increasing the _________.

Current common stock

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

False

What is the main goal of financial management?

To maximize current share value

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

1.) It is the market where initial public offerings are made 2.) Proceeds from the sale of securities goes to the issuing firm

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

1.) Long term debt 2.) Equity

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

1.) What are the risks and rewards associated with investing? 2.)What is the best mixture of financial assets to hold? 3.) What determines the price of a financial asset?

The Sarbanes-Oxley Act requires corporate officers to:

1.) confirm the validity of the financial statement 2.) be responsible for the errors in annual report

The goal of a "for profit" business is to ______ the value of shareholder wealth.

Maximize

_______ ______ can be used to encourage managers to maximize the value of the stock.

Stock Options

A(n) ______ is someone other than an owner or a creditor who potentially has a claim on the cash flows of the firm.

stakeholder