Finance quiz 1

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

Establishing the preferred debt-equity level

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?

General Partnership

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts as referred to as:

Working Capital Mgmt

One example of a primary market transaction would be the: sale of 100 shares of stock by Maria to her best friend. purchase by Theo of 5,000 shares of stock from his father. sale of 1,000 shares of newly issued stock by Alt Company to Miquel. sale by Terry of 50,000 shares of stock to his brother. sale of 5,000 shares of stock owned by a corporate CEO to his son.

sale of 1,000 shares of newly issued stock by Alt Company to Miquel.

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?

sole proprietorswhip

In a general partnership, each partner is personally liable for: only the partnership debts that he or she personally created. his or her proportionate share of all partnership debts regardless of which partner incurred that debt. the total debts of the partnership, even if he or she was unaware of those debts. the debts of the partnership up to the amount he or she invested in the firm. all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts.

the total debts of the partnership, even if he or she was unaware of those debts.

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

ABC company

he potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

Agency

The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of:

Agency Conflict

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 primary market transactions. All stock transactions are secondary market transactions. All over-the-counter sales occur in dealer markets.

All stock transactions are secondary market transactions.

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:

Capital Structure

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s? Increased stock market volatility Corporate accounting and financial fraud Increased executive compensation Increased foreign investment in U.S. stock markets Increased use of tax loopholes

Corporate accounting and financial fraud

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

Determining which customers will be granted credit

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 the firm? What is the cost of debt financing? Should the firm borrow money for five or for ten years? How much cash should the firm keep in reserve?

How much cash should the firm keep in reserve?

Maria is the sole proprietor of an antique store that is located in a rented warehouse. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed? I. Sell the inventory and apply the proceeds to the debt II. Sell the lighting fixtures from the building and apply the proceeds to the debt III. Withdraw funds from Maria's personal account at the bank to pay the store's debt IV. Sell any assets Maria personally owns and apply the proceeds to the store's debt

I,III,IV

Which one of the following is an advantage of being a limited partner? Nontaxable 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 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: dealer market. over-the-counter market. secondary market. primary market. tertiary market.

Secondary Market

Capital budgeting includes the evaluation of which of the following? Size of future cash flows only Size and timing of future cash flows only Timing and risk of future cash flows only Risk and size of future cash flows only Size, timing, and risk of future cash flows

Size, timing, and risk of future cash flows

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): general creditor. debtholder. shareholder. stakeholder. agent.

Stakeholder

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

The controller reports directly to the chief financial officer.

Security dealers: match buyers with sellers. buy and sell from their own inventory. operate on a physical trading floor. operate exclusively in auction markets. are limited to trading non-listed stocks.

buy and sell from their own inventory.

The Sarbanes-Oxley Act of 2002 has: reduced the annual compliance costs of all publicly traded firms in the U.S. decreased senior management's involvement in the corporate annual report. greatly increased the number of U.S. firms that are going public for the first time. decreased the number of U.S. firms going public on foreign exchanges. essentially made officers of publicly traded firms personally responsible for the firm's financial statements.

essentially made officers of publicly traded firms personally responsible for the firm's financial statements.

Corporate shareholders: are proportionately liable for the firm's debts. are protected from all financial losses. have the ability to change the corporation's bylaws. receive tax-free distributions since all profits are taxed at the corporate level. have basically no control over the actual corporation.

have the ability to change the corporation's bylaws.

The primary goal of financial management is most associated with increasing the: dollar amount of each sale. traffic flow within the firm's stores. the fixed costs while lowering the variable costs. firm's liquidity. increasing the market value of the firm.

increasing the market value of the firm.

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

is a legal entity separate from its owners.