Finance chapter 1 practice test
Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?
An increase in the market value per share
Which one of the following statements is generally correct?
Auction markets match buy and sell orders.
Which of the following individuals have unlimited liability for a firm's debts based on their ownership interest?
Both general partners and sole proprietors
Which one of the following terms is defined as the mixture of a firm's debt and equity financing?
Capital structure
Which business form is best suited to raising large amounts of capital?
Corporation
Which one of the following statements is correct?
Corporations can have an unlimited life.
Which one of the following is an unintended result of the Sarbanes-Oxley Act?
Corporations delisting from major exchanges
Which of the following parties are considered stakeholders of a firm?
Employees and the government
Which one of the following is an agency cost?
Hiring outside accountants to audit the company's financial statements
Which one of the following questions is a working capital management decision?
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?
How should a product be marketed?
Which one of the following statements is correct?
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?
Increasing current profits when doing so lowers the value of the company's equity
Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.
Increasing managers' base salaries
Sam, Alfredo, and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt?
Limited partnership
Which one of the following best states the primary goal of financial management?
Maximize the current value per share
Which one of the following represents a cash outflow from a corporation?
Payment of dividends
Which one of the following is a cash flow from a corporation into the financial markets?
Payment of loan interest
Which one of the following functions should be the responsibility of the controller rather than the treasurer?
Processing cost reports
Which one of the following grants an individual the right to vote on behalf of a shareholder?
Proxy
Which one of the following is a primary market transaction?
Sale of a new share of stock to an individual investor
Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following?
Secondary, auction market
Public offerings of debt and equity must be registered with the:
Securities and Exchange Commission.
Which one of the following parties has ultimate control of a corporation?
Shareholders
Which one of the following is a working capital management decision?
Should the firm pay cash for a purchase or use the credit offered by the supplier?
Which one of the following statements concerning stock exchanges is correct?
Some large companies are listed on NASDAQ.
Which one of the following correctly defines the upward chain of command in a typical corporate organizational structure?
The controller reports to the chief financial officer.
Which one of the following statements concerning a sole proprietorship is correct?
The life of a sole proprietorship is limited.
Which one of the following statements is correct concerning the NYSE?
The listing requirements for the NYSE are more stringent than those of NASDAQ.
Which one of the following statements concerning a sole proprietorship is correct?
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 capital structure decision.
Financial managers should strive to maximize the current value per share of the existing stock to:
best represent the interests of the current shareholders.
A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:
can provide less information to its shareholders than it did prior to "going dark".
Which one of the following terms is defined as the management of a firm's long-term investments?
capital budgeting
A _____ has all the respective rights and privileges of a legal person.
corporation
A business created as a distinct legal entity and treated as a legal "person" is called a(n):
corporation
Agency problems are most associated with:
corporations
The articles of incorporation:
describe the purpose of the firm and set forth the number of shares of stock that can be issued.
Corporate bylaws:
determine how a corporation regulates itself.
One disadvantage of the corporate form of business ownership is the:
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:
general partnership.
A limited partnership:
has at least one partner who has unlimited liability for all of the partnership's debts.
Capital structure decisions include determining:
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:
inability to raise cash
A general partner:
is personally responsible for all partnership debts.
A limited liability company:
is taxed similar to a partnership.
A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:
limited partner.
The Sarbanes-Oxley Act of 2002 is a governmental response to:
management greed and abuses
The Sarbanes-Oxley Act of 2002 holds a public company's _____ responsible for the accuracy of the company's financial statements.
managers
Decisions made by financial managers should primarily focus on increasing the:
market value per share of outstanding stock.
A partnership with four general partners:
must distribute 25 percent of the profits to each partner.
Which one of the following is a means by which shareholders can replace company management?
proxy fight
Financial managers should primarily focus on the interests of:
shareholders
A business owned by a solitary individual who has unlimited liability for the firm's debt is called a:
sole proprietorship.
Corporate dividends are:
taxable income of the recipient even though that income was previously taxed.
Working capital management decisions include determining:
the minimum level of cash to be kept in a checking account.
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.
Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:
was facilitated in the secondary market.
When evaluating the timing of a project's projected cash flows, a financial manager is analyzing:
when each cash flow is expected to occur.
An example of a capital budgeting decision is deciding:
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:
working capital.