finance test 1

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

Agency

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. working capital. risk structure. capital budget. asset allocation.

capital structure.

Deandre and Mason 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. Deandre and Mason 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 Corporation Sole proprietorship Limited partnership Joint stock company

General partnership

A private placement is most apt to involve: a life-insurance company. the U.S. Treasury Department. several private securities dealers. only foreign investors. a large number of private investors.

a life-insurance company.

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: tertiary market. primary market. dealer market. secondary market. over-the-counter market.

secondary market.

is an electronic means of exchanging securities. has a physical trading floor. is dealer-based. is also referred to as an OTC market. handles primary market transactions exclusively.

has a physical trading floor.

A sole proprietorship: provides limited financial liability for its owner. has an unlimited life. can generally raise significant capital from non-owner sources. has its profits taxed as personal income. involves significant legal costs during the formation process.

has its profits taxed as personal income.

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

is a legal entity separate from its owners.

The shareholders of Qiang'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: an agency conflict. a compensation issue. a working capital decision. a capital structure issue. a corporate takeover.

an agency conflict.

Which one of the following parties can sell shares of ABC stock in the primary market? 1. Any institutional shareholder 2.ABC company 3.Any private individual shareholder 4.Any corporation, other than the ABC Company 5.Only officers and directors of ABC Company

2.ABC company

Which one of the following functions should be assigned to the corporate treasurer rather than to the controller? Cash management Financial Accounting Cost accounting Tax management Data processing

Cash management

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? Private placements International finance Capital management Corporate finance Investments

Investments

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

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

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

Procedures for electing corporate directors

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 controller reports directly to the chief financial officer. The credit manager reports directly to the controller. The chief financial officer reports directly to the board of directors.

The controller reports directly to the chief financial officer.

One advantage of the corporate form of organization is the: unlimited liability for its shareholders. taxation of the corporate profits. ease of formation compared to other organizational forms. double taxation of profits. ability to raise larger sums of equity capital than other organizational forms.

ability to raise larger sums of equity capital than other organizational forms.

Probably the least effective means of aligning management goals with shareholder interests is: basing all management bonuses on performance goals. the potential for a proxy fight by an unhappy segment of shareholders. holding management salaries steady while increasing stock option grants. the threat of a takeover of the firm. automatically increasing management salaries on an annual basis.

automatically increasing management salaries on an annual basis.

The Sarbanes-Oxley Act of 2002 has: 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. reduced the annual compliance costs of all publicly traded firms in the U.S. decreased senior management's involvement in the corporate annual report.

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

One example of a primary market transaction would be the: purchase by Theo of 5,000 shares of stock from his father. 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. sale of 100 shares of stock by Maria to her best friend. sale by Terry of 50,000 shares of stock to his brother.

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

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

stakeholder

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

the market value of existing stock.

Which one of the following statements is correct? The primary purpose of the NYSE is to match buyers with sellers. OTC markets have a physical trading floor generally located in either New York City or Chicago. The Chicago Stock Exchange is a dealer market. All of the major stock exchanges are U.S. based. The NYSE was created by the National Association of Securities Dealers in the early 1930s.

The primary purpose of the NYSE is to match buyers with sellers.

Which one of the following statements about a limited partnership is correct? All partners have their losses limited to their capital investment in the partnership. Any partner can transfer his or her ownership interest without ending the partnership. Equity financing is easy to obtain and unlimited. All partners are treated equally. There must be at least one general partner.

There must be at least one general partner.

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

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