Chapter 1

Which one of these best defines a general partnership?

A brother and sister form a business. Both share jointly unlimited personal liability for the debts of the firm.

What is the definition of a general partnership?

A general partnership involves multiple business owners who are each personally responsible for all of the partnership's debts.

Which is the best definition of a hybrid organization?

A hybrid organization is a business form that has some attributes of a corporation and some of proprietorships/partnerships.

How is a public corporation defined?

A public corporation is a firm owned by a large number of stockholders from the general public.

What is the definition of a sole proprietorship?

A sole proprietorship is a business entity that is not legally separate from its owner.

Which of these provides the best description of the difference between accounting and finance?

Accounting records past activities of a firm while finance helps with decisions regarding the firm's future.

What is the definition of an agency problem?

An agency problem is defined as the difficulties that arise when a principal hires an agent and cannot fully monitor the agent's actions.

Which one of these best defines corporate governance?

Corporate governance is the ongoing process of monitoring managers and aligning their incentives with shareholder goals.

Which of the following are the well-developed viewpoints that have arisen regarding the goal of a firm?

Emphasize social responsibility Maximize shareholder wealth

Which of these best defines ethics?

Ethics is the study of values, morals, and morality.

Which of these factors are credited for providing financial institutions with high profit margins?

Expertise and unique assets

Which one of the following statements correctly identifies a group that supplies money to the financial markets?

Individuals saving for retirement

Which of the following are finance functions that fall under the supervision of the treasurer?

Interest rate hedging Capital spending Managing cash

Which of these correctly defines a role of investments?

Investments address the timing of cash flows most desired by investors.

Which one of these functions is a treasury function?

Managing the firm's pension plan

Which group has individual investors as participants and is a lender of funds to the financial markets?

People with money and no ideas lend funds to the financial markets.

How is risk defined?

Risk is a potential future negative impact to value and/or cash flows.

A discussion of risk in which of the following terms best serves as an overall definition of risk?

Risk is best defined in terms of the probability of a loss and the expected magnitude of that loss.

Which of these features could accurately be included in the definition of a corporation?

Separate legal entity Division of ownership and control Double taxation

Corporate governance is the set of laws, policies, incentives, and monitors designed to handle issues arising from which one of these?

Separation of ownership and control

An agency problem is defined as a situation where a firm's managers fail to put the interests of which one of these parties first when making decisions?

Shareholders

What are the two key characteristics of a hybrid organization?

Single taxation and limited liability

The profitability of financial market intermediaries depends upon which of these?

Successful execution of unique professional services

Which one of these is an investments activity?

Sue has $200 a month deposited into a stock mutual fund.

Which of these is an example of a personal financial decision?

Sue opted to increase her company retirement plan contribution to 6 percent of her salary.

Which one of the following best illustrates the definition of a sole proprietorship?

Ted was forced to sell his personal home in order to pay the debts of a business he owned in entirety.

Travis owns a bakery and Mia is a baker. How could an agency relationship exist between these two individuals?

Travis could hire Mia to work for him. Travis would be the principal and Mia would be the agent.

What result should you expect from firms that make wise financial decisions?

You should expect the wealth of individuals to increase in the future.

what result should you expect from firms that make wise financial decisions?

You should expect the wealth of individuals to increase in the future.

A person who works for a firm, but is not necessarily an owner, is called

an agent

These individuals examine the firm's accounting systems and comment on whether financial statements fairly represent the firm's financial position.

auditors

Which of the following personal decisions is impacted by finance?

borrowing money to purchase cars or homes making credit card payments making retirement decisions

The practice generally known as double taxation is due to

corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends.

Agency problems exist in which forms of business ownership?

corporation

Not all cash a company generates will be returned to the investors. Which of the following will NOT reduce the amount of capital returned to the investors?

dividends

All of the following are advantages to organizing as a corporation EXCEPT

double taxation

True or false: Ethics is the study of values, morals, and business judgments.

false

This should be the primary objective of a firm as it may actually be the most beneficial for society in the long run.

maximizing shareholder value

Which of the following managers use finance?

operational marketing human resource

a special type of stock that is not transferable from the current holder to others until specific conditions are satisfied.

restricted stock

Putting the interests of which party first should be the primary goal of a corporation?

shareholders

This type of business organization is relatively easy to start, and it is subject to much lighter regulatory and paperwork burden than other business forms.

sole proprietorship

True or false: Managerial finance helps managers make decisions related to cash management, capital investments, and risk reduction.

true