FIN101 CH1

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

Agency

Which one of the following statements is correct?

All over-the-counter sales occur in dealer markets.

Which one of the following statements concerning the balance sheet is correct?

Assets are listed in descending order of liquidity.

Which one of the following terms is defined as the total tax paid divided by the total taxable income?

Average tax rate

Jordan and Carmen created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

Corporation

One advantage of the corporate form of organization is the:

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

The market value of:

an asset tends to provide a better guide to the actual worth of that asset than does the book value.

Highly liquid assets:

can be sold quickly at close to full value.

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

Which one of the following is an advantage of being a limited partner?

Losses limited to capital invested

Vera opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Vera own if she is personally liable for all the store's debts?

Sole proprietorship

Which one of the following correctly defines a common chain of command within a corporation?

The controller reports directly to the chief financial officer.

Scranton Paper Company generates $.97 in sales for every $1 invested in total assets. Which one of the following ratios would reflect this relationship?

Total Asset turnover

Paid-in surplus is classified as

owners' equity.

Which one of these statements is true concerning the price-earnings (PE) ratio?

A high PE ratio may indicate that a firm is expected to grow significantly.

Which one of the following functions is generally a responsibility assigned to the corporate treasurer?

Capital expenditures

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

Which one of the following is a measure of long-term solvency?

Cash coverage ratio

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

Which one of the following is a working capital decision?

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, and IV only

Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?

Internal growth rate

Financial leverage:

increases the potential return to the stockholders.

The primary goal of financial management is to maximize:

the market value of existing stock.

Common-size financial statements present all balance sheet account values as a percentage of:

total assets.