Finance chap 1

Which of the following individuals have unlimited liability for a firm's debts based on their ownership interest? Only general partners Both limited and general partners All stockholders Only sole proprietors Both general partners and sole proprietors

Both general partners and sole proprietors

Which one of the following terms is defined as the management of a firm's long-term investments? Agency cost analysis Working capital management Capital budgeting Capital structure Financial allocation

Capital budgeting

Which one of the following terms is defined as the mixture of a firm's debt and equity financing? Cash management Working capital management Cost analysis Capital budgeting Capital structure

Capital structure

A _____ has all the respective rights and privileges of a legal person.

Corporation

Which business form is best suited to raising large amounts of capital? Sole proprietorship Corporation Limited liability company General partnership Limited partnership

Corporation

Which one of the following statements is correct? -The majority of firms in the U.S. are structured as corporations. -Corporations can have an unlimited life. -Corporate profits are taxable income to the shareholders when earned. -Shareholders directly elect the corporate president. -Shareholders are protected from all potential losses.

Corporations can have an unlimited life.

Which of the following parties are considered stakeholders of a firm? Government and common stockholders Common stockholders Long-term creditors and common stockholders Long-term creditors Employees and the government

Employees and the government

Which one of the following is an agency cost? Accepting an investment opportunity that will add value to the firm Closing a division of the firm that is operating at a loss Investing in a new project that creates firm value Increasing the quarterly dividend Hiring outside accountants to audit the company's financial statements

Hiring outside accountants to audit the company's financial statements

Which one of the following questions is a working capital management decision? Should the company issue new shares of stock or borrow money? How much should the company borrow to buy a new building? How much inventory should be on hand for immediate sale? Should the company update or replace its older equipment? Should the company close one of its current stores?

How much inventory should be on hand for immediate sale?

Which one of the following questions is least likely to be addressed by financial managers? Should the firm borrow more money? Should the firm acquire new equipment? How should a product be marketed? Should customers be given 30 or 45 days to pay for their credit purchases? How much cash should the firm keep on hand?

How should a product be marketed?

Which one of the following statements is correct? Multiple Choice Partnerships are the most complicated type of business to form. A general partnership is legally the same as a corporation. Income from both sole proprietorships and partnerships that is taxable is treated as individual income. All business organizations have bylaws. Only firms organized as sole proprietorships have limited lives.

Income from both sole proprietorships and partnerships that is taxable is treated as individual income.

Which one of the following actions by a financial manager is most apt to create an agency problem? Agreeing to pay bonuses based on the market value of the company's stock rather than on its level of sales Refusing to borrow money when doing so will create losses for the firm Refusing to expand the company if doing so will lower the value of the equity Refusing to lower selling prices if doing so will reduce the net profits Increasing current profits when doing so lowers the value of the company's equity

Increasing current profits when doing so lowers the value of the company's equity

Which one of the following best states the primary goal of financial management? Maintain steady growth while increasing current profits Minimize operational costs while maximizing firm efficiency Maximize the current value per share Increase cash flow and avoid financial distress Maximize current dividends per share

Maximize the current value per share

Which one of the following is a cash flow from a corporation into the financial markets? -Borrowing of long-term debt -Payment of loan interest -Issuance of corporate debt -Sale of common stock -Payment of government taxes

Payment of loan interest

Which one of the following functions should be the responsibility of the controller rather than the treasurer? -Analyzing equipment purchases -Paying a vendor -Depositing cash receipts -Approving credit for a customer -Processing cost reports

Processing cost reports

Which one of the following parties has ultimate control of a corporation? -Chief operating officer -Shareholders -Chairman of the board -Board of directors -Chief executive officer

Shareholders

Which one of the following statements concerning a sole proprietorship is correct? A sole proprietorship is designed to protect the personal assets of the owner. The profits of a sole proprietorship are subject to double taxation. A sole proprietorship is structured the same as a limited liability company. The owner of a sole proprietorship is personally responsible for all of the company's debts. There are very few sole proprietorships remaining in the U.S. today.

The owner of a sole proprietorship is personally responsible for all of the company's debts.

The decision to issue additional shares of stock is an example of: a net working capital decision. a capital structure decision. a controller's duties. capital budgeting. working capital management.

a capital structure decision.

Financial managers should strive to maximize the current value per share of the existing stock to: guarantee the company will grow in size at the maximum possible rate. best represent the interests of the current shareholders. increase employee salaries. provide managers with shares of stock as part of their compensation. increase the current dividends per share.

best represent the interests of the current shareholders.

A business created as a distinct legal entity and treated as a legal "person" is called a(n): limited partnership. unlimited liability company. sole proprietorship. general partnership. corporation

corporation

Agency problems are most associated with: sole proprietorships. limited liability companies. limited partnerships. general partnerships. corporations.

corporations.

One disadvantage of the corporate form of business ownership is the: firm's potential for an unlimited life. firm's ability to issue additional shares of stock. firm's greater ability to raise capital than other forms of ownership. limited liability of its shareholders for the firm's debts. double taxation of distributed profits.

double taxation of distributed profits.

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a: sole proprietorship. corporation. limited partnership. general partnership. limited liability company.

general partnership.

Capital structure decisions include determining: how much inventory will be needed to support a project. how to allocate investment funds to multiple projects. which one of two projects to accept. how much debt should be assumed to fund a project. the amount of funds needed to finance customer purchases of a new product.

how much debt should be assumed to fund a project.

The growth of both sole proprietorships and partnerships is frequently limited by the firm's: bylaws. inability to raise cash. double taxation. limited liability. agency problems.

inability to raise cash.

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: general partner. corporate shareholder. zero partner. limited partner. sole proprietor.

limited partner.

Financial managers should primarily focus on the interests of: the board of directors. stakeholders. shareholders. their immediate supervisor. the vice president of finance.

shareholders.

A business owned by a solitary individual who has unlimited liability for the firm's debt is called a: limited partnership. limited liability company. general partnership. corporation. sole proprietorship.

sole proprietorship.

Corporate dividends are: tax-free since the corporation pays tax on that income when it is earned. tax-free because the income is taxed at the personal level when earned by the firm. tax-free because they are distributions of aftertax income. taxable income of the recipient even though that income was previously taxed. taxed at both the corporate and the personal level when the dividends are paid to shareholders.

taxable income of the recipient even though that income was previously taxed.

The primary advantage of being a limited partner is:

the partner's maximum loss is limited to their capital investment.

The treasurer of a corporation generally reports directly to the:

vice president of finance./ CFO

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction: occurred in a dealer market. took place in the primary market. was facilitated in the secondary market. Correct involved a proxy. was a private placement.

was facilitated in the secondary market.

An example of a capital budgeting decision is deciding: how many shares of stock to issue. how much money should be kept in the checking account. how much inventory to keep on hand. how to refinance a debt issue that is maturing. whether or not to purchase a new machine for the production line.

whether or not to purchase a new machine for the production line.

A firm's short-term assets and its short-term liabilities are referred to as the firm's: investment capital. capital structure. net capital. debt. working capital.

working capital.