FIN 310 K. Welch HW 1

Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002? -Increase the costs of going public -Increase protection against corporate fraud -Limit secondary issues of corporate securities -Decrease the number of publicly traded firms -Increase the number of firms that "go dark"

Increase protection against corporate fraud

Which are advantages and which are disadvantages of the corporate form of organization? A. Advantage B. Disadvantage Limited liability ___ The double taxation to shareholders of distributed earnings and dividends ___ Ability to raise capital ___ Ease of transferability ___ Unlimited life ___

A B A A A

Below are examples of business transactions. Choose the type of financial management decision that is relevant to each. Deciding whether to expand a manufacturing plant _____ Deciding whether to issue new equity and use the proceeds to retire outstanding debt _____ Modifying the firm's credit collection policy with its customers _____

Capital budgeting Capital structure Working capital management

Which one of the following statements is correct? -All secondary markets are dealer markets. -All secondary markets are broker markets. -All stock trades between existing shareholders are secondary market transactions. -All stock transactions are secondary market transactions. -All Dutch auction sales are secondary market transactions.

All stock trades between existing shareholders are secondary market transactions.

What does it mean when we say the New York Stock Exchange is an auction market? How are auction markets different from dealer markets? What kind of market is NASDAQ? In auction markets like the NYSE, _____ meet at a physical location to buy and sell their assets. Markets like Nasdaq represent _____ operating in dispersed locales who buy and sell assets themselves, usually communicating with other dealers electronically or literally over the counter.

Brokers and agents Dealers

Which one of the following is most apt to align management's priorities with shareholders' interests? -Increasing employee retirement benefits -Compensating managers with shares of stock that must be held for 3 years before the shares can be sold -Allowing a manager to decorate his or her own office once he or she has been in that office for a period of 3 years or more -Increasing the number of paid holidays that long-term employees are entitled to receive -Allowing employees to retire early with full retirement benefits

Compensating managers with shares of stock that must be held for 3 years before the shares can be sold

What goal should always motivate the actions of the firm's financial manager?

Current market value (share price) of the equity

Jamie is employed as a commercial loan officer for a regional bank centered in the Midwestern section of the U.S. Her job falls into which one of the following areas of finance?International finance -Financial institutions -Corporate finance -Capital management -Investments

Financial institutions

Which one of the following is a working capital decision? How should the firm raise additional capital to fund its expansion? -What debt-equity ratio is best suited to our firm? -What is the cost of debt financing? -Which type of debt is best suited to finance our inventory? -How much cash should the firm keep in reserve?

How much cash should the firm keep in reserve?

Which of the following are potential ways to align management goals with shareholder interests? I. Employee stock options II. Threat of a takeover III. Management bonuses tied to performance goals IV. Threat of a proxy fight -I and III only -II and IV only -I, II, and III only -I, III, and IV only -I, II, III, and IV

I, II, III, and IV

QUESTION 5 Which of the following are advantages of the corporate form of organization? I. Ability to raise large sums of equity capital II. Ease of ownership transfer III. Profits taxed at the corporate level IV. Limited liability for all owners -I and II only -III and IV only -II, III, and IV only -I, II, and IV only -I, II, III, and IV

I, II, and IV only

Which one of the following best matches the primary goal of financial management? -Increasing the dollar amount of each sale -Increasing traffic flow within the firm's stores -Transforming fixed costs into variable costs -Increasing the firm's liquidity -Increasing the market value of firm

Increasing the market value of firm

Which one of the following is an advantage of being a limited partner? -Non-taxable share of any profits -Control over the daily operations of the firm -Losses limited to capital invested -Unlimited profits without risk of incurring a loss -Active market for ownership interest

Losses limited to capital invested

You've probably noticed coverage in the financial press of an initial public offering (IPO) of a company's securities. Web search company Google is a relatively recent example. IPO is a

primary market transaction

Limited liability companies are primarily designed to: allow a portion of its owners to enjoy limited liability while granting the other portion of its owners control over the entity. -provide the benefits of the corporate structure to foreign-based entities. -spin-off a wholly-owned subsidiary. -allow companies to reorganize themselves through the bankruptcy process. -provide limited liability while avoiding double taxation.

provide limited liability while avoiding double taxation.

Who owns a corporation? Describe the process whereby the owners control the firm's management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise? In the corporate form of ownership, the _____ are the owners of the firm. The _____ elect the _____ of the corporations, who in turn appoint the firm's _____. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else's best interests, rather than those of the _____. If such events occur, they may contradict the goal of maximizing the share price of the equity of the firm.

shareholders shareholders Board of directors management shareholders