Finn 3120 Chapter 1
What is an auction market?
Auction markets actually have a physical location (ex. Wall street) - dealers play a limited role here. The primary purpose is to match buyers and sellers.
Growth can summarize various aspects of a firm's __________ and ___________ policies.
Financial, Investment
What is the Sarbanes-Oxley Act of 2002?
It is an act intended to strengthen protection against corporate accounting fraud and financial malpractice
Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?
Limited Partnership
what do brokers and agents do
Match buyers and sellers. However, they do not actually own the commodity itself.
What is an example of an OTC market?
NASDAQ
Describe NASDAQ relative to NYSE
NASDAQ has many more companies listed there but they are smaller in size and are much less active than the NYSE. In addition, they have a much lower total value than the NYSE.
Give an example of an organized auction market
NYSE
Which one of the following statements correctly applies to a sole proprietorship?
Obtaining additional equity is dependent on the owner's personal finances
The issuer of a security must be involved in all _____ transactions involving that security.
Primary market
what are the primary pros and cons of a corporation
Pros: ease of transferring ownership, limited liability of business debts, and unlimited life of the business Cons: double taxation
who are stakeholders
Someone other than a stockholder who potentially has a claim on the cash flows of the firm (Individuals, department, families, community, law enforcement)
what is an over the counter market
a dealer market in stocks and long term debts
what is a proxy fight
a mechanism by which unhappy stockholders can act to replace existing management
What is a secondary market
a place where securities are bought and sold after the original sale. This involves one creditor/owner selling to another.
what two documents must a corporation have
articles of incorporation and bylaws
Probably the least effective means of aligning management goals with shareholder interests is:
automatically increasing management salaries on an annual basis.
what is managerial compensation typically contingent upon
financial performance and share value of the company
A sole proprietorship:
has its profits taxed as personal income.
Where are corporate securities most often traded
in organized auction markets
Who does the sarbanes-oxley act hold accountable for the accuracy of a company's financial statements?
management
what is the general goal of financial management
maximizing the market value of the existing owner's equity
what does capital budgeting consist of
planning and managing a firm's long term investments
what is the primary goal of financial management
profit maximization
what are public offerings
selling securities to the general public
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
An employee has a claim on the cash flows of Martin's Machines. This claim is defined as a claim by one of the firm's:
stakeholders
who must public offerings be registered with?
the Securities and Exchange Commission
What is a primary market
the original sale of securities by governments and corporations
What is the agency problem?
the possibility of conflict of interest between the stockholders and management of a firm
what are agency relationships
the relationship between stockholders and managers
what is capital structure
the specific mixture of long-term debt and equity the firm uses to finance its operations
How are stocks put on exchanges?
they are listed
what are the 4 basic areas of finance?
1. corporate finance 2. investments 3. financial institutions 4. international finance
What are the 3 minimums that the NYSE has in order for stocks to be listed there?
1. earnings 2. assets 3. number and market value of shares outstanding
what % of all shares traded in auction markets does the NYSE account for?
85%
What is a dealer market
A market where dealers can buy and sell for themselves at their own risk
What is private placement? Does it require underwriters?
A negotiated sale involving a specific buyer. It does not require underwriters
When evaluating financial planning steps, we must consider all of the following, except:
The project horizon for the next 30 to 90 days.
What are some examples of international stock exchanges?
Tokyo and London Stock Exchanges
To generate a coherent plan, goals and objectives will have to be modified, and priorities will have to be established. (T/F)
True
what are some very important evaluations to be made in capital budgeting
evaluation of the size, timing, and risk of future cash flows
what is working capital management
ensuring the firm has sufficient resources to continue its operations and avoid costly interruptions
The Sarbanes-Oxley Act of 2002 has:
essentially made officers of publicly traded firms personally responsible for the firm's financial statements.
what is the goal of financial management in a corporation?
to maximize the current value per share of the existing stock
where does control of the firm ultimately rest
with the stockholders