Finance Chapter 1

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 proprietorship

One advantage of the corporate form of organization is the:

ability to raise larger sums of equity capital than other organizational forms. unlimited liability for its shareholders.

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:

an agency conflict.

Probably the least effective means of aligning management goals with shareholder interests is:

automatically increasing management salaries on an annual basis.

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.

An agency issue is most apt to develop when:

the control of a firm is separated from the firm's ownership.

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?

Corporate accounting and financial fraud

Which one of the following parties can sell shares of ABC stock in the primary market?

ABC company

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 applies to a general partnership?

Any one of the partners can be held solely liable for all of the partnership's debt.

Which one of the following occupations best fits into the corporate area of finance?

Chief financial officer

Which one of the following is most apt to align management's priorities with shareholders' interests?

Compensating managers with shares of stock that must be held for a minimum of three years

Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?

Increase the protections against corporate fraud

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

A sole proprietorship:

has its profits taxed as personal income.

A corporation:

is a legal entity separate from its owners.

The primary goal of financial management is most associated with increasing the:

market value of the firm.

One example of a primary market transaction would be the:

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

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:

secondary market.

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 management.