Financial Managment Chapter 1 Quiz

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?

Agency Problems

Which one of the following statements is generally correct?

Auction markets match buy and sell orders.

Which one of the following is a capital budgeting decision?

Deciding whether or not to purchase a new machine for the production line.

A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:

Can provide less information to its shareholders than it did prior to "going dark"

Which one of the following terms is defined as the management of a firm's long-term investments?

Capital Budgeting

Which one of the following terms is defined as the mixture of a firm's debt and equity financing?

Capital Structure

A business created as a distinct legal entity and treated as a legal "person" is called a:

Corporation

Which one of the following is a capital structure decision?

Determining how much debt should be assumed to fund a project

Which one of these is a working capital management decision? 1. Determining the minimum level of cash to be kept in a checking account. 2. Determining the best method of producing a product. 3. Determining the number of employees needed to work during a particular shift. 4. Determining when to replace obsolete equipment. 5. Determining if a competitor should be acquired.

Determining the minimum level of cash to be kept in a checking account

Which of the following are cash flows from a corporation into the financial markets? I. Repayment of long-term debt. II. Payment of government taxes. III. Payment of loan interest. IV. Payment of quarterly dividend.

I, III and IV

Which of the following represent cash outflows from a corporation? I. Issuance of securities. II. Payment of dividends. III. New loan proceeds. IV. Payment of government taxes.

II and IV

Which of the following questions are addressed by financial managers? I. How should a product be marketed? II. Should customers be given 30 or 45 days to pay for their credit purchases? III. Should the firm borrow more money? IV. Should the firm acquire new equipment?

II, III, and IV only

The growth of both sole proprietorships and partnerships is frequently limited by their:

Inability to raise cash

Which one of the following actions by a financial manager is most apt to create an agency problem?

Increasing current profits when doing so lowers the value of the firm's equity

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

Limited Partner

The Sarbanes-Oxley Act of 2002 is a governmental response to:

Management greed and abuses

Which of the following accounts are included in working capital management? I. Accounts Payable II. Accounts Receivable III. Fixed Assets IV. Inventory

I, II, and IV only

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

General Partnership

Which one of the following is an agency cost?

Hiring outside accountants to audit the company's financial statements

Which of the following parties are considered stakeholders of a firm? I. Employee II. Long-term creditor III. Government IV. Common stockholder

I and III only

Which of the following should a financial manager consider when analyzing a capital budgeting project? I. Project start-up costs. II. Timing of all projected cash flows. III. Dependability of future cash flows. IV. Dollar amount of each projected cash flow.

I, II, III and IV

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?

Increase in the market value per share

Which one of the following is a primary market transaction?

Sale of a new share of stock to an individual investor

A business owned by a solitary individual who has unlimited liability for its debt is called a:

Sole proprietorship

Which one of the following is defined as a firm's short-term assets and its short-term liabilities?

Working Capital