Finance Chapter 1

A limited liability company can only have a single owner. is comprised of limited partners only. is taxed similarly to a partnership.Correct is taxed similarly to a C corporation. generates totally tax-free income.

is taxed similarly to a partnership.

Which one of the following statements regarding corporations is correct? The majority of firms in the U.S. are structured as corporations. Undistributed corporate profits are taxable income to the shareholders. Corporations can have an unlimited life. Correct Shareholders are protected from all potential losses.

Corporations can have an unlimited life.

Ultimately, the ______ control(s) the corporation. chair of the board members of the board of directors chief executive officer chief operating officer shareholders

shareholders

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

sole proprietorship.

Which one of the following is a working capital management decision? the amount of each expected cash flow. only the start-up costs that are expected to require cash resources. only the date of the final cash flow related to the project. the amount by which cash receipts are expected to exceed cash outflows.

when each cash flow is expected to occur.

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

Hiring outside accountants to audit the company's financial statements

Which one of the following questions involves a capital structure decision? Which one of two project proposals should the firm implement? How should the firm allocate its limited available funds among acceptable projects? How much funding should be allocated to financing customer purchases of a new product? How much debt should the firm incur to fund a project?

How much debt should the firm incur to fund a project?

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

Payment of loan interest

Which of the following actions would be most likely to decrease agency costs for the firm? Increase employees' salaries to exceed the salaries paid by competitors Pay all employees based on the amount of revenue generated by the firm Prohibit employees from becoming shareholders of the firm Pay bonuses to employees only if profits increase from one year to the next Reward high performing employees with shares of stock

Reward high performing employees with shares of stock

Symone sold shares of Naraghi Corporation stock to Aleena. The stock is listed on the NYSE. This trade occurred in which one of the following? Primary, dealer market Secondary, dealer market Primary, auction market Secondary, auction market Correct Secondary, OTC market

Secondary, auction market

Which one of the following is a working capital management decision? What equipment will be required to complete a project? Should the firm require immediate payment from customers or offer credit terms?Correct What amount of long-term debt is required to complete a project? What percentage of the firm's equity should the firm issue to fund an acquisition?

Should the firm require immediate payment from customers or offer credit terms?

Which one of the following statements is correct? A general partnership is a legal person. Taxable income earned by a partnership is treated as individual income.Correct Partnerships are the most complicated type of business to form. All partnerships are required to have at least one limited partner.

Taxable income earned by a partnership is treated as individual income.

Which one of the following involves a working capital management decision? What is the maximum level of cash to be kept in the firm's bank account?Correct What is the most efficient process for producing a product? How many hours of overtime should manufacturing employees be allowed to work? When is the appropriate time to replace the delivery fleet?

What is the maximum level of cash to be kept in the firm's bank account?

Shareholders can replace company management by implementing: stock options. promotions. the Sarbanes-Oxley Act. an agency play. a proxy fight.

a proxy fight.

A firm's mixture of debt and equity financing is the result of its ______ decisions. working capital management cash management cost analysis capital budgeting capital structure

capital structure

Determining the number of shares of stock to issue is an example of a ______ decision. capital rationing net working capital capital budgeting capital allocation capital structure

capital structure

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

corporations.

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

general partnership.

Which one of the following questions is a working capital management decision? Should the company issue new shares of stock or borrow money? Should the company refurbish its equipment or replace it? How much inventory should the company keep on hand?Correct Should the company close one of its current stores? How much money should the company borrow to buy a new building?

How much inventory should the company keep on hand?

Which one of the following statements is correct concerning the NYSE? The publicly traded shares of an NYSE-listed firm must be worth at least $250 million. The NYSE is the largest dealer market for listed securities in the United States. The listing requirements for the NYSE are more stringent than those of Nasdaq.Correct Any corporation desiring to be listed on the NYSE can do so for a fee. The NYSE is an OTC market functioning as both a primary and a secondary market.

The listing requirements for the NYSE are more stringent than those of Nasdaq.

Financial managers should strive to maximize the current value per share of the existing stock to: ensure the company will grow in size at the maximum possible rate. provide the greatest opportunity for employees to earn high salaries. best represent the interests of the current owners of the firm.Correct increase the current dividends per share. create the possibility of rewarding high-performing managers with shares of stock.

best represent the interests of the current owners of the firm.

Deciding which long-term investment a firm should make is a ______ decision. working capital management capital constraints cost of capital capital budgeting

capital budgeting