Business Finance Ch. 1
A general partnership has which of the following characteristics?
All the partners share in gains or losses of the partnership, each owner has unlimited liability for all firm debts
___ Budgeting is the process of planning and managing a firm's long-term assets
Capital
Which of the following are defining features of the primary market?
Proceeds from the sales of securities goes to the issuing firm; it is the market where initial public offerings are made
The controller is responsible for which of the following tasks?
Tax reporting and payments, financial accounting
An organization must prepare ___ and bylaws when forming a corporation
articles of incorporation
The New York Stock Exchange is a(n)
auction market
The Sarbanes-Oxley Act requires corporate officers to
be responsible for errors in the annual report, confirm the validity of the financial statements
Which term applies to the mixture of debt and equity maintained by a firm
capital structure
In large firms, financial activity is usually associated with which top officer?
chief financial officer
A partnership in which partners share in gains or losses, and carry unlimited liability for all partnership debts, is called a
general partnership
Working capital includes which of the following?
inventory, cash, short-term assets
A sole proprietorship is a business that
is owned by one person
A corporation is a distinct ____ entity and as such can have a name and take advantage of the legal powers of natural persons
legal
A limited liability company's owners have ____ liability
limited
Since____ and ownership are separated, a corporation's life is unlimited
management
The goal of a "for-profit" business is to ___ the value of shareholder wealth
maximize
A business without separate legal authority formed by two or more people is known as a
partnership
A limited liability company is taxed like a _____ but retains ____ for owners
partnership; limited liability
A corporation receives cash from financial markets by selling ________ and _________.
stocks; bonds
The goal of financial management is to increase the value of
the existing shares of stock
In a for-profit business, owners' equity is equivalent to
the total value of stock in a corporation
What is the primary objective of an auction market?
to bring buyers and sellers together
What is the main goal of financial management?
to maximize current share value
According to Figure 1.2, where does cash generated by a corporation typically go?
to pay corporate taxes, reinvested in the firm, paid to shareholders and creditors
A bad financial decision is defined as a decision that ___ shareholder wealth
decreases
The ____ office is responsible for corporate tax reporting
controllers
The Sarbanes-Oxley Act is intended to strengthen protection against
corporate accounting fraud and financial malpractice
Businesses are motivated to organize as corporations because stockholders in a corporation have ___ liability for corporate debts
limited
Corporations in other countries are often called
limited liability company, joint stock companies, public limited companies
What type of partnership involves both general and limited partners to run the business?
limited partnership
In a limited partnership, a limited partner's liability for business debts is
limited to their cash contribution to the partnership
Capital budgeting is concerned with making and managing expenditures on
long-term assets
Which of these have been noted as unintended consequences of the Sarbanes-Oxley Act?
public firms "going dark" and leaving the stock market; firms going public, outside of the U.S. market; eliminating public disclosure for many firms
When one owner or creditor sells to another, the transaction takes place in the _________ market.
secondary
The owners of a corporation are called
shareholders
A partnership must have at least ___ owners
two
Which of the following positions generally report to the chief financial officer (CFO)?
Controller and treasurer
The federal government taxes which of the following?
Corporate earnings and shareholder dividends
Which of the following are included in a firm's capital structure?
Equity and long-term debt
True or false: "Profit maximization" is the goal for the management of a corporation in short-run only
False
True or false: The Sarbanes-Oxley Act provides incentives for companies to go public in U.S. markets
False
According to the textbook, which of the following is NOT one of the three main questions to be addressed if you wanted to start your own business?
How many employees will I need?
The officer responsible for managing the firm's cash flows is the
treasurer
A corporation borrows money in its own name
true
True or false: In a large corporation, stockholders and managers are usually separate groups
true
A sole proprietor has _____ personal liability for all business debts and obligations
unlimited
Ensuring that the firm has sufficient funds to continue operations on a day-to-day basis comes under the heading of ____ management
working capital
What three subjects is the financial manager concerned with?
working capital management, capital structure and capital budgeting
Which of the following are reasons that the corporation is the most important form of business?
Corporations can enter into contracts, corporations are separate legal entities, corporations can sue and be sued
A good financial decision will do which of the following?
Increase the value of the firm's existing stock; Increase market value of shareholders' equity
When are corporate profits taxed?
Individuals pay taxes on corporate dividends; corporations pay taxes on corporate profits
Why don't large businesses organize as sole proprietorships or partnerships?
It can be difficult to raise cash for investment in these forms, and that limits the ability of the business to grow
How does the Sarbanes-Oxley Act primarily work to make sure that companies tell the truth in financial statements?
It makes management personally responsible for the accuracy of a company's financial statements
In an over-the-counter market, which of the following is true?
Most of the buying and selling is done by the dealer, many dealers are also connected electronically
Is profit maximization the primary objective of a business?
No; profit maximization may not take into account other strategic objectives necessary to maximize shareholder value
How is ownership transferred in a corporation?
Ownership is transferred by gifting or selling shares of stock
Which corporate officer is responsible for managing the firm's cash?
Treasurer
The four basic areas of finance include investments, financial institutions, international finance and
corporate finance
Public limited companies and joint stock companies are other names for
corporations
Which of these topics is not of especial interest to a financial manager?
debt
Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley ?
Tyco, WorldCom and Enron
Which of the following are key questions for investments? Select all that apply
What are the risks and rewards associated with investing? What is the best mixture of financial assets to hold? What determines the price of a financial asset?
Which of the following is a disadvantage of sole proprietorship and partnerships?
difficulty of transferring ownership
How is ownership if a corporation represented?
shares of stock
How is ownership of a corporation represented?
shares of stock
Working capital includes which of the following?
short-term assets, inventory and cash