Finance Test 1 - chap one

The Sarbanes-Oxley Act requires corporate officers to do which of the following?

1. Accept responsibility for material errors in the annual report 2. List any deficiencies in internal controls 3. Confirm the validity of the annual financial report

Which of the following is included in working capital?

1. Accounts payable 2. AR 3. Current (short-term) assets

Which of the following positions generally report to the chief financial officer?

1. Controller 2. Treasurer

What are two basic classifications under which most potential financial goals fall?

1. Controlling risk 2. Earning or increasing profits

Which of the following show why a corporation is the most important form of business?

1. Corporations can sue and be sued 2. Corporations can enter into contracts 3. A corporation is a separate legal entity with the ability to acquire and exchange property.

Which of the following can be used to encourage managers to act in the best interest of the shareholders?

1. Stock options and bonuses 2. Managerial compensation 3. The threat of termination

A conflict of interest between an agent and principal is called an ______.

Agency Problem

The rules used by a corp. to regulate its existence are known as __________.

Bylaws

________ budgeting is the process of making and managing expenditures on long-term assets.

Capital

Which term applies to the mix 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

T or F: Shareholders are the only stakeholder in a firm as they are the owners.

False

What provides a manager incentive to perform well.

Job prospects

Indirect agency costs are often due to lost _______.

Opportunites

How is ownership transferred in a corporation?

Ownership is transferred by gifting or selling shares of stock

Bc shareholders get paid last after all other obligations are satisfied, they are often called:

Residual owners

What motivates managers to make good decisions?

Threat of hostile takeover.

A sole proprietor has ____ personal liability for all business debts and obligations.

Unlimited

The life of a corporation

is unlimited

The goal of a for-profit business is to _______ existing owner's equity

maximize

A sole proprietorship is a business owned by ______ person(s)

one

Organized auction markets include:

the New York Stock Exchange

Inventory is a:

1. Current asset 2. Part of working capital

A general partnership has which of the following characteristics?

1. Each owner has unlimited liability for all firm debts. 2. It is difficult to transfer ownership.

Which of the following are important when considering a partnership.

1. Fund raising limitations 2. Personal liability for firm debts 3. Taxation of partnership income

A treasurer's responsibilities typically include:

1. Handling cash flows 2. Managing capital expenditure decisions 3. Making financial plans

What should be asked when a business is started?

1. How will every day financial activities be handled 2. What long-term investments should be made 3. Where will long-term financing be obtained to pay for investments

A good financial decision will do which of the following?

1. Increase market value of shareholders equity 2. Increase the value of the firm's existing stock

Which of the following are true of a sole proprietorship?

1. It is the simplest type of business to form 2. A proprietorship has a limited life

What is included in a firms capital structure?

1. Long-term debt 2. Equity

In a large corporation, the financial manager is responsible for:

1. Long-term investment decisions 2. Financial aspects of operations, such as collections of AR 3. Financing decisions

What are possible financial goals?

1. Minimize costs 2. Max profit 3. Survival

Corporations in other countries are often called?

1. Public limited companies 2. Joint stock companies

When a corporation is formed, it is granted which of the following rights?

1. State citizenship 2. The ability to issue stock 3. Legal powers to sue

Which of the following are considered stakeholders in a company?

1. Suppliers 2. Employees 3. Government

The controller is responsible for what tasks?

1. Tax reporting 2. Financial accounting

If you hire a real estate company to sell your house, you are most apt to encounter which of the following?

Agency problem

Which corporate officer is responsible for accurate financial reporting of the firms activities?

Controller

The federal gov't taxes which of the following?

Corporate earnings and shareholder dividends

A bad financial decisions is defined as a decision that _____ owners equity

Decreases

Some of the cash flow generated by a firm goes back to markets in the form of ____________.

Dividends and debt payments

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

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

Management

Since ownership in a corp. can be dispersed over a huge number of stockholders, it can be argued that ______ effectively controls the firm.

Management

In a shareholder-manager relationship, who is the agent?

Managers (shareholders are the principals)

A business without a separate legal authority formed by two or more people is known as a ________.

Partnership

A limited liability company is taxed like a ______ and its owners have ________ liability.

Partnership; limited

When a corporation raises funds in the financial market, the transaction occurs on the _______.

Primary market

Which one of these is an important mechanism used by unhappy stockholders to replace current management?

Proxy fight

When one owner or creditor sells to another, the transaction takes place in the _______ market.

Secondary

The owners of a corporation are called ________.

Shareholders

Which one of the following parties would be the last party to receive payment if a firm were to close?

Shareholders

A _______ is someone other than an owner or a creditor who potentially has a claim of the cash flows of a firm.

Stakeholder

_____ are frequently used to encourage key managers to maximize the value of the firm's stock.

Stock options

A corporation receives cash from financial markets by selling _______ and _________.

Stocks and bonds

The primary responsibility of financial managers is to increase the value of _________.

The existing shares of stock

The main goal of the financial statement

To maximize shareholder wealth

What is the main goal of financial management?

To maximize shareholder wealth.

The officer responsible for managing the firms cash flows

Treasurer

Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley

Tyco, WorldCom, Enron