FIN 300 - Chapter 1 Quiz

If you hire a real estate company to sell your house, you are most apt to encounter which one of the following? Securities Act of 1933 Violation Securities Exchange Act of 1934 Capital Structure Problem Agency Problem

Agency Problem

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

Chief Financial Officer

T/F: "Profit Maximization" is the goal for the management of a corporation in short-run only

False

T/F: "Profit Maximization" is the goal for the management of corporation in short-run only.

False

According to the textbook, which of the following is not one of the three main questions to be addressed if you want to start your own business? How many employees will I need? What long-term investments should be made? Where will long-term financing be obtained to pay for investments? How will everyday financial activities be handled?

How many employees will I need?

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

Managers

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

Stakeholder

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

Treasurer Controller

Which of the following companies were invovled in corporate scandals that led to Sarbanes-Oxley? Tyco Disney Enron WorldCom

Tyco Enron WorldCom

Which of the following are true of a sole proprietorship? the owner has limited liability for business debts a proprietorship has a limited life it is one of the simplest types of businesses to form 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

The relationship between stockholders and management can be best described as a ___________ relationship.

agency

The conflict of interest between an agent and a principal is called a(n) ___________ ___________.

agency problem

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

corporate

The Sarbanes-Oxley Act is intended to strengthen protection against:

corporation accounting fraud and financial malpractice

Public limited companies and joint stock companies are other names for ____________.

corporations

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

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

Which of these topics is not of especial interest to a financial manager? Working capital management capital structure debt capital budgeting

debt

A bad decision is defined as a decision that __________ shareholder wealth.

decreases

A bad financial decision is defined as a decision that ____________ shareholder wealth.

decreases

Which of the following are considered NON-STAKEHOLDERS in a company? stockholder employees suppliers government

employees suppliers government

Business finance is broadly concerned with which of the following? how to finance long term investments which long term investment to make how to set up the audit committee how to manage day to day finances of the firm

how to finance long term investments which long term investment to make how to manage day to day finances of the firm

A sole proprietorship is a business that __________.

is owned by one person

Which of the following are defining features of the primary market? it is the market where shareholders and bondholders buy and sell to each other proceeds from the sale of securities goes to the issuing firm it only invovled seasoned equity offerings it is the market where initial public offerings are made

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

Corporations in other countries are often called: re-calibrated partnerships limited liability companies autonomous entities joint stock companies public limited companies

limited liability companies joint stock companies public limited companies

Since _________ and ownership are separated, a corporations life is unlimited.

management

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

paid to shareholders and creditors to pay corporate taxes

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

partnership

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

partnership

Which of the following is NOT one of the basic areas of finance? personal, international, financial institutions, corporate, investments

personal finance

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

secondary

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

stock options

___________ ___________ can be used to encourage managers to maximize the value of the stock

stock options

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

stocks and bonds

The goal of financial management is to increase the value of __________.

the existing shares of stock

The goal of the financial management is to increase the value of____________.

the existing shares of stock

What is the main goal of financial management?

to maximize the current share value

A partnership must have at least ________ owners.

two

What three subjects is the financial manager concerned with?

working capital management capital budgeting capital structure