FRL 3000 LS 1

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

- Confirm the validity of the annual financial report - Accept responsibility for material errors in the annual report - List any deficiencies in internal controls

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

- Managerial compensation tied to performance - Better prospects of promotion

The possible goal of profit maximization:

- can be achieved by cost-cutting. - would probably be the most commonly cited goal for a business.

Corporations in other countries are often called:

- joint stock companies. - public limited companies.

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

Agency Problem

The federal government taxes which of the following?

Corporate earnings and Shareholder Dividends

It is sometimes argued that, left to themselves, managers tend to minimize the amount of resources over which they have control.

False

True or false: Ownership in the corporate form is difficult to transfer.

False

What are the two factors that impact whether managers will act in the best interest of stockholders?

How closely management goals align with stockholder goals and the way managers are compensated

Because ownership in a corporate is spread over a huge number of shareholders, it can be argued that _________ effectively controls the firm.

Management

The aim of the act known as Blank______ is to protect investors from corporate abuse.

SOX

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

Stock Options

Which of the following are considered stakeholders in a company?

Suppliers, Government, Employees

Which of the following, according to the textbook, are possible financial goals for a company?

Survival, Maximize profits, Minimize costs

The liability of a shareholder in a corporation is limited to which of these?

The amount the shareholder invested in the corporation

From the stockholders' perspective, what is the primary purpose of awarding stock options to managers?

To increase shareholders wealth

Under SOX, corporate officers must explicitly declare that the annual report does not contain any false statements or material omissions.

True

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

Tyco Enron WorldCom

The costs incurred due to a conflict of interest between stockholders and management are called ______ costs.

agency

The relationship between stockholders and management can best be described as a(n) ______ relationship.

agency

A ___________________ corporation is for profit, and has the legal attributes of accountability, transparency, and purpose.

benefit

It is argued that, left to themselves, managers would tend to maximize the amount of resources over which they have control or, more generally, _______________ power or wealth.

corporate

Joint stock company is another name for what is referred to as a _______________ in the United States?

corporation(s)

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

dividends and debt payments

In financial markets, debt and _________ securities are bought and sold.

equity

The life of a corporation ______.

is unlimited

A corporation is a distinct ______ entity and as such can have a name and take advantage of the legal powers of natural persons.

legal

Businesses are motivated to organize as corporations because stockholders in a corporation have _______ liability for corporate debts.

limited

Stockholders in a corporation have _____ liability for corporate debts.

limited

In a limited partnership, a limited partner's liability for business debts is ______.

limited to his/her cash contribution to the partnership

In a _________________ partnership, one or more general partners will run the business and have unlimited liability, but there will be one or ___________________more partners who will not actively participate in the business.

limited, limited

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

management

The goal of a for-profit business is to Blank______ existing owners' equity.

maximize

Most equity shares of large firms in the U.S. trade on:

organized auction markets

The goal of the for-profit business is to maximize ____________ equity.

owner's

Corporate profits are taxed twice, first at the corporate level when they are earned and again at the ________________ level when they are paid out.

personal

Which one of these provides a manager an incentive to perform well?

promotions

A __________ is the authority to vote someone else's stock.

proxy

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

proxy fight

The relative ease of transferring ownership, the limited liability for business debts, and the unlimited life of the business are why the corporate form is superior to sole proprietorships or partnerships for _____.

raising cash

Because shareholders get paid last after all other obligations are satisfied, they are often called _____.

residual owners

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

stakeholder

Managers who are successful in pursuing _____ will be in greater demand in the labor market and thus command higher salaries.

stockholder goals

Organized auction markets include:

the New York Stock Exchange

The primary responsibility of financial managers is to increase the value of:

the existing shares of stock

The financial manager acts in the shareholders' best interests by making decisions that increase the value of _____.

the stock

A benefit corporation is for profit, and has the legal attributes of accountability, _____, and purpose.

transparency

What is the main goal of financial management?

To maximize current value per share of existing stock

The term __________ costs refers to the costs of the conflict of interest between stockholders and management.

agency

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

management