Corporation finance exam 1

What is the main goal of financial management? 1) to maximise expenses 2) to raise as much capital as possible 3) to maximise the current share value 4) to make sure the manager holds the majority of the shares in the company

3) to maximise the current share value the main goal of "financial management" is to maximise the current value per share of existing stock.

A shareholder's liability is limited to which of these? the corporation's current liabilities the corporation's outstanding long-term debt the percentage of corporate debt that equals the shareholder's ownership percentage the amount the shareholder invested in the corporation

the amount the shareholder invested in the corporation

The goal of the financial management is to increase the value of Blank______. future profits the existing shares of the stock current earnings their total compensation package.

the existing shares of the stock

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

true

A sole proprietor has _____ personal liability for all business debts and obligations. no limited unlimited little

unlimited

Chapter 1

yes

Chapter 2

yes

Corporation borrow money in its own name. True or False.

TRUE

A sole proprietorship is a business that Blank______. provides limited personal liability to its owner is owned by one person is similar to a limited partnership is organized with bylaws

owned by one person

Which of the following are defining features of the primary market? Multiple select question. It is the market where shareholders and bondholders buy and sell to each other. Proceeds from the sale of securities go to the issuing firm. It is the market where initial public offerings are made. It only involves seasoned equity offerings.

proceeds from the sale of securities go to the issuing firm market where initial public offerings are made

Which one of these is an important mechanism used by unhappy stockholders to replace current management? proxy fight perpetual debt Ponzi scheme prospectus

proxy fight

How is ownership of a corporation represented? shares of stock bonds buying a company's products

shares of stock

When one owner or creditor sells to another, the transaction takes place in the______ market. primary underwriting secondary rudimentary

secondary market

Managerial compensation is often tied to financial performance. One way to make this tie explicit is to offer payment in terms of: stock options. high salaries. monthly bonuses.

stock options

When are corporate profits taxed? Multiple select question. Corporations pay taxes on all money coming in. Corporations pay taxes on corporate profits. Corporations don't pay taxes. Individuals pay taxes on corporate dividends.

Corporation pay taxes on corporate profits. Individuals pay taxes on corporate dividends.

How is ownership transferred in a corporation? Ownership in a corporation cannot be transferred. Ownership is transferred by gifting or selling shares of stock. Ownership can be transferred only if the firm is sold. Ownership is transferred only with prior approval from the board of directors.

Ownership is transferred by gifting or selling shares of stock

Which of the following are true of a sole proprietorship? Multiple select question. The owner has limited liability for business debts. A sole proprietor can issue stock to raise capital. A proprietorship has a limited life. It is one of the simplest types of businesses to form.

a proprietorship has a limited life it is one of the simplest types of businesses to form

The costs incurred due to a conflict of interest between stockholders and management are called ______ costs. agency hidden sunk opportunity

agency costs

If you hire a real estate company to sell your house, you are most apt to encounter which one of the following? agency problem Securities Act of 1933 violation Securities Exchange Act of 1934 violation capital structure problem

agency problem

The relationship between stockholders and management can best be described as a(n) _____ relationship. agency contradictory mentoring irrelevant

agency relationship

A general partnership has which of the following characteristics? Multiple select question. It is always regulated by a formal partnership agreement. All the partners share in gains or losses of the partnership. Large amounts of cash can be raised easily. Each owner has unlimited liability for all firm debts

all the partners share in gains or losses of the partnership. Each owner has unlimited liability for all firm debts.

The federal government taxes which of the following? shareholder dividends but not corporate earnings neither corporate earnings nor shareholder dividends corporate earnings and shareholder dividends corporate earnings but not shareholder dividends

corporate earnings and shareholder's dividends

Which of the following are reasons that the corporation is the most important form of business? Multiple select question. Corporations can vote in general elections. Corporations can enter contracts. Corporations are separate legal entities. Corporations can sue and be sued.

corporation can enter contracts. corporation are separate legal entities. corporations can sue and be sued.

Which of the following is a disadvantage of sole proprietorships and partnerships? separation of ownership and management double taxation unlimited life of the business difficulty of transferring ownership

difficulty of transferring ownership

A partnership in which partners share in gains or losses and carry unlimited liability for all partnership debts is called a ______. corporation general partnership limited liability partnership proprietorship

general partnership

"Increasing shareholder wealth" means increasing the _____. book value of liabilities current bond value current common stock value market value of liabilities

increasing current common stock value

Why don't large businesses organize as sole proprietorships or partnerships? Businesses want to maximize their liability. It can be difficult to raise cash for investment in these forms, and that limits the ability of the business to grow. These forms of business organization are too complicated to manage on a large scale. It is too easy to transfer ownership from one party to another.

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

Current assets are classified as relatively ______; these assets can be converted to cash within the next 12 months. illiquid liquid

liquid

Since ______ and ownership are separated, a corporation's life is unlimited. debt management profitability taxation

management

n a shareholder-manager relationship, who is the agent? Neither shareholders nor managers shareholders managers both shareholders and managers

managers

_____ can be used to encourage managers to maximize the value of the stock. Green mail Stock options Poison pills Stock splits

stock options

Who elects the board of directors and ultimately maintains control of the firm? the board of directors management stockholders workers

stockholders