finance 300 UL test 1

A corporation: A. has its identity defined by its bylaws. B. is a legal entity separate from its owners. C. is ultimately controlled by its board of directors. D. is prohibited from entering into contractual agreements. E. has its existence regulated by the rules set forth in its charter.

B. is a legal entity separate from its owners.

A limited liability company (LLC): A. that meets the IRS criteria to be an LLC will be taxed like a corporation. B. prefers its profits be taxed as personal income to its owners. C. is a hybrid between a sole proprietorship and a partnership. D. cannot be created for professional service firms, such as accountants and attorneys. E. provides limited liability for some, but not all, of its owners.

B. prefers its profits be taxed as personal income to its owners.

Which one of the following parties can sell shares of ABC stock in the primary market? A. Only officers and directors of ABC company B. Any private individual shareholder C. ABC company D. Any institutional shareholder E. Any corporation, other than the ABC company

C. ABC company

agency relationships

principal (stockholders) hire a agent (managers) to represent its interests and to run the company

investments deal with ____ and _______

stocks and bonds

who follows the controller?

tax manager financial accounting manager cost accounting manager data processing manager

working capital management

the managing of short-term assets and liabilities

capital structure

the mix of equity and debt financing a firm uses to meet its permanent financing needs

capital budgeting

the process of planning and managing a firm's long-term investments

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict? A. Organizational B. Formative C. Structural D. Agency E. Territorial

D. Agency

treasurer

oversees cash management credit management capital expenditures financial planning

controller

oversees taxes cost accounting financial accounting data processing

advantages of: corporations

ADV: - limited liability - unlimited life - separation of ownership and management - transfer of ownership is easy - easier to raise capital

Basic Areas of Finance

1. Corporate Finance = Business Finance 2. Investments 3. Financial Institutions 4. International Finance

top 3 directors in order

1. board of directors 2. chief executive officer (CEO) 3. chief operation officer (COO)

middle 3 directors

4. V.P. Marketing 4. V.P. Finance (CFO) 4. V.P. Production

who follows the CFO?

5. treasurer 5. controller

advantages of: sole proprietorship

ADV: - easiest to start -least regulating -single owner keeps all profits -taxed once as personal income

Which one of the following functions is generally a responsibility assigned to the corporate treasurer? A. Capital expenditures B. Data processing C. Financial accounting D. Cost accounting E. Corporate taxes

A. Capital expenditures

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts? A. Corporation B. Public company C. Sole proprietorship D. General partnership E. Limited partnership

A. Corporation

Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts? A. General partnership B. Joint stock company C. Limited partnership D. Sole proprietorship E. Corporation

A. General partnership

Which one of the following statements correctly applies to a sole proprietorship? A. Obtaining additional equity is dependent on the owner's personal finances. B. Debt financing is easy to arrange in the firm's name. C. The ownership can easily be transferred to another individual. D.The business entity has an unlimited life. E. The owner enjoys limited liability for the firm's debts.

A. Obtaining additional equity is dependent on the owner's personal finances.

Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts? A. Sole proprietorship B. Limited partnership C. Joint stock company D. General partnership E. Corporation

A. Sole proprietorship

advantages of: partnership

ADV: - 2 or more owners - more capital available - relatively easy to start - income taxed once as personal income

Working capital management includes which one of the following? A. Establishing the target debt-equity ratio B. Determining which customers will be granted credit C. Deciding whether to purchase a new machine or fix a currently owned machine D. Deciding which new projects to accept E. Determining how many new shares of stock should be issued

B. Determining which customers will be granted credit

Which one of the following correctly defines a common chain of command within a corporation? A. The treasurer reports directly to the board of directors. B. The controller reports directly to the chief financial officer. C. The chief financial officer reports directly to the board of directors. D. The credit manager reports directly to the controller. E. The controller reports directly to the corporate treasurer.

B. The controller reports directly to the chief financial officer.

When conducting a financial analysis of a firm, financial analysts: A. assume the future will be a repeat of the past as reflected in the firm's accounting reports. B. frequently use accounting information. C. cannot use accounting information as it is historical. D. rely solely on accounting information. E. ignore accounting information but do use marketing information.

B. frequently use accounting information.

Which one of the following is contained in the corporate bylaws? A. State of incorporation B. Business purpose of the corporation C. Procedures for electing corporate directors D. Intended life of the corporation E. Number of authorized shares

C. Procedures for electing corporate directors

Capital budgeting includes the evaluation of which of the following? A. Timing and risk of future cash flows only B. Size and timing of future cash flows only C. Size, timing, and risk of future cash flows D. Size of future cash flows only E. Risk and size of future cash flows only

C. Size, timing, and risk of future cash flows

Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm's: A. working capital. B. capital budget. C. capital structure. D. risk structure. E. asset allocation

C. capital structure.

Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n): A. agent. B. general creditor. C. stakeholder. D. debtholder. E. shareholder.

C. stakeholder.

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts as referred to as: A. operating management. B. capital structure decisions. C. working capital management. D. fixed account structure. E. capital budgeting decisions.

C. working capital management.

Which one of the following occupations best fits into the corporate area of finance? A. Insurance risk manager B. Treasury bill analyst C. Local bank manager D. Chief financial officer E. Mortgage broker

D. Chief financial officer

Which one of the following is a working capital decision? A. What is the cost of debt financing? B. Should the firm borrow money for five or for ten years? C. How should the firm raise additional capital to fund its expansion? D. How much cash should the firm keep in reserve? E. What debt-equity ratio is best suited to the firm?

D. How much cash should the firm keep in reserve?

If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas? A. Capital management B. Private placements C. Corporate finance D. Investments E. International finance

D. Investments

ou contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the: A. dealer market. B. tertiary market. C. over-the-counter market. D. secondary market. E. primary market.

D. secondary market.

The primary goal of financial management is to maximize: A. current profits. B. revenue growth. C. current dividends. D. the market value of existing stock. E. market share.

D. the market value of existing stock.

Disadvantages of Sole Proprietorship

DISADV: - limited life to the owner - equity capital limited to owner's wealth - unlimited liability - difficult to sell ownership interest

disadvantages of: corporations

DISADV: - separation on ownership and management + agency problems - double taxation + income taxed at the corporation rate and then dividends taxed and personal rate + while dividends are not tax deductible

disadvantages of: partnership

DISADV: - unlimited liability + general/limited partnership - partnership dissolves when 1 person dies or wants to sell - difficult to transfer ownership

Which one of the following is a capital structure decision? A. Setting the terms of sale for credit sales B. Determining the optimal inventory level C. Selecting new equipment to purchase D. Determining when suppliers should be paid E. Establishing the preferred debt-equity level

E. Establishing the preferred debt-equity level

Which one of the following is an advantage of being a limited partner? A. Unlimited profits without risk of incurring a loss B. Control over the daily operations of the firm C. Active market for ownership interest D. Nontaxable share of any profits E. Losses limited to capital invested

E. Losses limited to capital invested

An employee has a claim on the cash flows of Martin's Machines. This claim is defined as a claim by one of the firm's: A. residual owners. B. provisional partners. C. shareholders. D. financiers. E. stakeholders.

E. stakeholders.

financial institutions deal with _______

banks

from balance sheet, what are examples of investment decisions?

capital budgeting 1. current assets: cash, A/R, and inventory 2. fixed assets: tangible and intangible

from balance sheet, what are examples of financial decisions?

capital structure 1. current liabilities: A/P, notes payable, and loans 2. stockholders equity: common and preferred stock

who follows the treasurer?

cash manager capital expenditures credit manager financial planner

top financial managers is the ____

chief financial officer (CFO)

agency problems

conflicts of interest between managers and stockholders