Finance EXAM 1- Chapter 1

Who (what positions) generally report to the chief financial officer (CFO)

1. Controller 2. Treasurer

The basic areas of finance are: (4)

1. Corporate finance 2. Investments 3. International finance 4. financial institutions NOT personal finance

The CONTROLLER is responsible for which tasks? (4)

1. Costs 2. Financial accounting 3. tax payments 4. management information systems

What is included in the firms capital structure? (2)

1. Equity 2. Long-term debt

Corporations in other countries are often called: (3)

1. Joint stock companies 2. Public limited companies 3. Limited liability companies

A treasures responsibilities include: (3)

1. Managing capital expenditure decisions 2. handling cash flows 3. making financial plans

The defining features of the primary market are: (2)

1. Market where initial public offerings are made 2. Proceeds from the sale of securities goes to the issuing firm

What are the auction markets in the US?

1. New York Stock Exchange 2. Chicago Stock Exchange

When a corporation is formed, it is granted these rights: (3)

1. Provincial citizenship for jurisdictional purposes 2. the ability to issue stock 3. legal power to sue

Business finance is broadly concerned with: (3)

1. Which longterm investment to make 2. how to finance longterm investments 3. how to manage day-to-day finances

Under the Sarbanes-Oxley Act, corporate officers are required to: (2)

1. be responsible for errors in the annual report 2. confirm the validity of the financial statements

Why is a corporation the most important form of business? (3 reasons)

1. corporations are a separate legal entity with the ability to acquire and exchange property 2. corporations can sue and be sued 3. corporations can enter contracts

The conflict of interest between an agent and a principal is called a(n) _____________ ____________.

Agency problem

A secondary market that has a physical location and matches those who wish to sell with those who wish to buy. This is called what kind of market:

Auction market ex stock exchanges

The corporate officer responsible for accurate financial accounting of the firm's activities is called:

Chief financial officer

T/F "profit maximization" is the best goal for the management of a corporation.

False

T/F Sarbanes-Oxley Act provides incentives to go public in the US

False

_________ ___________ is an important mechanism used by unhappy stockholders to replace current management.

Proxy fight

Enron, Tyco, Adelphia, and WorldCom were four companies in corporate scandals that led to what Act?

Sarbanes-Oxley Act -contains a number of requirements designed to insure that companies tell the truth in their financial statements.-

The primary responsibility of financial management is to increase the value of __________

The existing shares of stock

Short term assets cash inventory These are examples of what:

Working capital

Costs incurred due to a conflict of interest between stockholders and management are called____________.

agency costs

The relationship between stockholders and management is called:

an Agency Relationship

A corporation receives cash from financial markets by selling _____________ and ______________.

bonds and stocks

How is ownership transferred in a corporation?

by gifting or selling shares of stock

Process of planning and managing a firms long-term assets

capital budgeting

A bad financial decision is defined as a decision that ________ shareholder wealth.

decreases

Businesses are encouraged to organize as corporations because stockholders in a corporation have __________ ____________ for debts.

limited liability

In a limited partnership, a limited partners liability for business debts is:

limited to the their cash contribution to the partnership

Capital budgeting is concerned with making and managing expenditures on __________.

long-term assets

Since ___________ and ownership are separated, a corporation's life is unlimited.

management

In this (dealer) market participants are called dealers and participants buy and sell from their own inventories and securities. (many of these are done electronically)

over-the-counter market

The owners of a corporation are called:

shareholders

A business owned by one person

sole proprietorship

Secondary market

the market where When one owner or creditor sells to another

The primary objective of an auction market is:

to bring buyers and sellers together