Ch1 FINA5320

11 ) An amount the firms owes , which it must repay within twelve months , is called a ( n ) : A) current liability . B ) long - term debt . C ) intangible asset . D ) accounts receivable . E ) current asset .

A

15 ) Regarding a sole proprietorship , which one of the following statements is accurate ? A )The ability to raise capital is limited by the owner's personal wealth . B ) It pays taxes at the corporate tax rate . C ) Ownership of the firm is easy to transfer to another individual . D ) It must pay income taxes separately from the taxes paid by the owner . E ) The legal costs to form it are usually substantial .

A

32 ) A ( n ) is a business created as a distinct legal entity , separate from its owners . A ) corporation B ) sole proprietorship C ) general partnership D ) limited partnership unlimited liability company 0

A

34 ) A provides each owner with limited liability , and is operated and taxed like a partnership A ) limited liability company B ) general partnership C ) limited proprietorship D ) limited partnership E ) corporation 0

A

55) Members of the board of directors are selected by : A) Ashareholder voting . B ) company management . the firm's chief executive officer . D ) the largest five shareholders . E ) the firm's managers and employees .

A

56 ) What is the main reason that corporations grant stock options to managers ? To : A)reduce agency costs . B ) increase current profits . C ) replace salary increases . D ) reward long - term employment . E ) replace promotions .

A

58 ) Which one of the following parties is considered a stakeholder of a firm ? A) Customer B ) Short - term creditor C ) Long - term creditor D ) Preferred stockholder E ) Common stockholder

A

6 ) is typically the responsibility of the corporate treasurer . A) Financial planning B ) Cost accounting C ) Tax reporting D ) Information systems E ) Financial accounting

A

50 ) Of the following choices , is most likely to create an agency problem .

Abandoning a profitable project because in involves some risk

13 ) A is a business owned by a single individual . A ) corporation B )sole proprietorship C) general partnership D ) limited partnership E ) limited liability company

B

17 ) A general partner . A ) has less legal liability than a limited partner . B ) can end the partnership by withdrawing . e ) faces double taxation of profits whereas a limited partner does not . D ) cannot lose more than the amount of his or her equity investment . E ) is the term applied only to corporations that invest in partnerships .

B

2 ) A typical chain of command in a corporation is described by which one of the following statements ? A ) The information systems manager reports to the treasurer . B ) The credit manager reports to the treasurer . C ) The controller reports to the chief executive officer . D ) The tax manager reports to the treasurer . E ) The capital expenditures manager reports to the controller .

B

25 ) If a business is formed as a corporation , ownership of the business : A ) must be granted with equal rights assigned to each and every shareholder . B ) can be transferred an unlimited number of times . e ) can only be transferred with the approval of the board of directors . D ) is controlled by the corporate officers . E ) must be held by non - management owners .

B

3 ) Answering which one of the following questions involves making a capital budgeting decision ? A ) How much debt should the firm borrow from a particular lender ? B ) Should the firm build a new production facility ? C ) Should the firm issue new equity to pay for its growth goals ? D ) How much inventory should the firm keep on hand ? E ) How much credit should the firm extend to a particular customer ?

B

33 ) In a limited partnership , each limited partner's liability for the partnership's debts is : A ) limited to his or her personal net worth . B ) limited to the amount he or she invested into the partnership . C ) limited to his or her total earnings received from the partnership . D ) unlimited . E ) limited to the total amount invested by all partners .

B

38 ) Which one of the following transactions will result in a cash outflow from the corporation ? A ) Selling an asset B ) Paying income taxes C ) Issuing common stock D ) Borrowing from a lender E ) Retaining profit earned by the firm

B

40 ) If a firm is profitable , it follows that : 0 A ) its cash inflows exceed its cash outflows . B ) its sales exceed its costs . its cash flows are known with certainty . D ) it has sufficient cash to pay its bills in a timely manner . E ) the timing of its cash flows is irrelevant .

B

41 ) Which one of the following statements is accurate ? A ) Individuals generally prefer later cash flows rather than current cash flows . ( B ) The value of an investment depends on the size , timing , and risk of the investment's cash flows C ) When selecting one of two projects , managers should select the project with the higher total expected cash flow D ) Most investors prefer greater risk rather than less risk . E ) Accountants record sales and expenses after the related cash flows occur .

B

18 ) A partnership : A ) is taxed in the same fashion that a corporation is taxed . B ) terminates upon the death of any limited partner . C ) creates for all general partners an unlimited liability for the partnership's debts . D ) has the same ability as a corporation to raise capital . E ) allows for easy transfer of ownership from one general partner to another .

C

22 ) The articles of incorporation : A ) can be used to remove the firm's management . B ) are amended annually by the firm's stockholders . C ) set forth the rights granted to shareholders . Đ ) set forth the rules by which the corporation regulates its existence .

C

26 ) The owners of a limited liability company typically would prefer to : A ) be taxed like a corporation . B ) have liability exposure similar to that of a sole proprietor . C ) be taxed personally on all business income . D ) have liability exposure similar to that of a general partner . E ) be taxed like a corporation , and have liability like a partnership .

C

64 ) The Securities Act of 1933 focuses on : 0 A ) all stock transactions . B ) the sales of existing securities . C ) ) the issuance of new securities . D ) insider trading . E ) Federal Deposit Insurance Corporation ( FDIC ) insurance .

C

Among the typical responsibilities of the corporate controller is : A ) capital expenditures management . B ) cash management . C ) tax reporting . D ) financial planning . E ) credit management

C

53 ) A proxy fight occurs when : A ) the board of directors disagree on the members of the management team . B ) a group solicits voting rights to replace the board of directors . C ) a competitor offers to sell its ownership interest in the firm . D ) the firm files for bankruptcy . E ) the firm is declared insolvent .

D

57 ) of the following choices , which one best fits the description of an agency cost ? 0 A ) The costs of increasing the dividend payment per share B ) The benefits received from reducing production costs per unit C ) The payment of corporate income taxes D ) The payment required for an outside audit of the firm E ) The payment of interest on a firm's debts

D

60 ) One intent of the Sarbanes - Oxley Act of 2002 is to : A ) prevent minority investors from making demands on corporations . B ) protect corporate directors from frivolous lawsuits . C ) guarantee the repayment of all future personal loans to corporate officers and directors D ) protect investors from corporate abuses . E ) require all public corporations to " go dark " within the next twenty years .

D

63 ) The established the basic regulatory framework for the public trading of securities in the United States . A ) New York Stock Exchange , when it was founded , B ) Securities Exchange Act of 1934 C ) Federal Reserve Bank , when it was first authorized by Congress , D ) Securities Act of 1933 and the Securities Exchange Act of 1934 E ) Sarbanes - Oxley Act of 2002 0

D

1 ) Generally , among those who report directly to the are the treasurer and the controller of a corporation A ) board of directors B ) chairperson of the board C ) chief executive officer D ) president E ) chief financial officer

E

20 ) One disadvantage of the corporate form of business ownership is the : A ) limited liability protection provided for all owners . B ) firm's ability to raise cash . C ) unlimited life of the firm . D ) difficulties encountered when changing ownership . E ) double taxation of business profits .

E

59 ) A stakeholder is any person or entity : A ) owning shares of stock of a corporation . B ) owning bonds or other long - term debt issued by a corporation . C ) that initially started a firm and currently has management control over that firm . D ) to whom the firm currently owes money . E ) other than a stockholder or creditor who potentially has a financial interest in a firm .

E

65 ) The intent of the registration statement required for all new securities by the Securities Act of 1933 is to : A ) provide a governmental evaluation of the risks associated with those new securities . B ) set the price at which the securities will be offered . C ) guarantee the profitability of the new securities . D ) prevent any insider trading .E) Provide all necessary infoemation to allow the a potential invesor to make an informed decision.

E

7 ) A firm's define ( s ) its capital structure . A ) mixture of various types of production equipment B ) investment selections for its excess cash reserves C ) combination of cash and cash equivalents D ) combination of accounts appearing on the left side of its balance sheet ( E ) proportions of financing from debt and equity

E

35 ) The profits earned by a partnership are :

Fully distributed as taxable income to the partners

31 ) The describes the fraction of the work and cash to be contributed partnership by each member of that partnership .

Parynership agreement

12 ) The business entity that is typically the least expensive to form is the :

Sole proprietorship

54 ) Ultimately , the control ( s ) the corporation .

Stockholders

A focus of short term finance is on

the timing of cash flows

21 ) Which one of the following statements is correct ? A ) Both partnerships and corporations are subject to double taxation . B ) Sole proprietorships and partnerships are taxed in a similar fashion . C ) Partnerships are the most complicated type of business to form . D ) Both partnerships and corporations have limited liability for all owners . E ) All types of business formations have limited lives .

B

27 ) In a general partnership , the general partners have liability for the firm's debts and have control over day - to - day operations . A ) limited ; no B )unlimited ; total

B

36 ) Financial managers primarily create firm value by : A ) maximizing current dividends . B ) investing in assets that generate cash in excess of their cost . C ) lowering the earnings per share . D ) increasing the firm's market share . E ) maximizing current sales . 0

B

39 ) A firm creates value by : A ) having a greater cash inflow from its stockholders than its outflow them . B ) paying more cash to its creditors and stockholders than the amount it received from C ) borrowing long - term debt . D ) generating sales whether or not payment received for all of those sales . E ) purchasing assets that create cash inflows equal to the cost of those assets .

B

46 ) The primary goal of financial management is to : 0 A ) maximize current dividends per share of the existing stock . B ) maximize the current value per share of the existing stock .

B

47 ) Of the following choices , is the best way to increase current shareholder value . A ) maximizing the firm's amount of available cash B ) increasing the current value of the overall firm C ) postponing all new projects D ) minimizing the overall size of the firm E ) decreasing the number of employees

B

62 ) Insider trading is : A) prohibited by the Securities Act of 1933 . B ) prohibited by the Securities Exchange Act of 1934 . impossible in today's efficient markets . D ) highly discouraged , but still legal . E ) prohibited by the Sarbanes - Oxley Act of 2002 .

B

28 ) Which one of the following business types is best for raising large amounts of capital ? 0 A ) Sole proprietorship B ) Limited liability company C ) Corporation D ) General partnership E ) Limited partnership

C

30 ) A is a business formed by two or more individuals who each have unlimited personal liability for all of the firm's debts . 0 A ) corporation B ) sole proprietorship C ) general partnership D ) limited partnership E ) limited liability company

C

37 ) Accounting profits and cash flows are generally : A ) equal because they reflect current laws and accounting standards . B ) equal because accounting profits reflect the timing f cash flows . C ) unequal because of how income is recognized according to GAAP . D ) unequal because cash inflows must occur before revenue recognition . E ) equal because of the requirements of GAAP .

C

42 ) A firm is considering a new project . Analysts at the firm would be justified in having the greatest level of certainty in the : A ) amount of the project's cash inflow in Year 3 . B ) timing of the last cash inflow from the project . C) project's initial cost .

C

43 ) Financial managers should primarily strive to : A ) minimize costs while increasing current dividends . B ) maximize the current profits of the firm.dgn C ) maximize the current value per share of existing stock . D ) maximize current dividends even if doing so adds financial distress costs to the firm . E ) maximize current market share in every market in which the firm participates .

C

45 ) Which one of the following actions by a financial manager creates an agency problem ? A) Borrowing money , when doing so creates value for the firm B ) Lowering selling prices , which will result in increased firm value C ) Agreeing to expand the company at the expense of stockholders ' value Ď ) Agreeing to pay management bonuses based on the market value of the firm's stock E ) Refusing to spend current cash on an unprofitable project

C

48 ) A financial manager should make decisions based on : A ) the effects those decisions will have on current profits . B ) the best interests of the manager and his or her peers . C) the welfare of the current shareholders . D ) minimizing the firm's tax liability . E ) their personal goals and ambitions . 0

C

49 ) A ( n ) is defined as a conflict of interest between the stockholders and managers of a firm A ) stockholders ' liability B ) corporate breakdown C ) agency problem D ) corporate activist E ) legal liability

C

51 ) Of the following choices , is least likely to convince managers to work in the best interest of the stockholders . A ) being threatened with a takeover of the firm by unsatisfied stockholders B) implementing a stock option plan C ) raising managers ' salaries based on their length of service D ) tying management compensation to the market value of the firm's stock receiving a threat of a proxy fight

C

61 ) The Sarbanes - Oxley Act requires public corporations to : A ) assess the company's internal control structure at least quarterly . B ) distribute at least 90 percent of their profits as dividends on an annual basis .C) lists any deficiencies in internal controls . D ) file annual audit reports if the firm has " gone dark . " E ) disclose all personal loans to corporate officers or directors made after 2002 .

C

4 ) Which one of the following statements is accurate ?

Current Assets SHORT lives, such as Accounts Receivable

10 ) is defined as planning and managing a firm's long - term assets . A ) Working capital management B ) Cash management C ) Cost accounting management D ) Capital budgeting E ) Capital structure management

D

14 ) Regarding a sole proprietorship , which one of the following statements is accurate ? A ) It is more difficult to form than other forms of business . B ) Its business profits are taxed twice at the federal level . C ) Its business profits are taxed separately from the personal income of the owner . D ) The owner may be forced to sell his or her personal assets to pay the company's debts E ) It has an unlimited life span .

D

19) One advantage of a partnership is the : A ) personal liability for all of the firm's debts . B ) limited life of the entity . C ) limited liability protection for all of the partners . D ) relatively low cost of formation . E ) ease of transferring full ownership to others .

D

23 ) Corporate bylaws : A ) establish the of the corporation . B ) establish the rights granted to its shareholders . C ) set forth the purpose of the firm . D ) establish the rules by which the corporation regulates its existence . Eset forth the number of members of the initial board of directors .

D

24 ) Regarding corporations , which one of the following statements is accurate ? 0 A ) After a predetermined number of years , ownership can no longer be transferred . B ) The ability to raise capital is limited by the personal wealth of the owners . C ) Primary shareholders have unlimited liability for corporate debts . D ) The entity can outlive all of its initial owners . E ) When the last original owner dies or withdraws , the entity is terminated .

D

29 ) Which type of business organization has the same rights and privileges accorded to a legal person ? A ) Sole rietorship B ) General partnership C ) Limited partnership D ) Corporation E ) Limited liability company

D

44 ) Financial managers should make decisions in such a way as to increase the : A ) size of the firm . B ) growth rate of the firm . C ) marketability of the managers . D ) market value of the existing owners ' equity . E ) firm's current sales .

D

52 ) Which form of business structure typically has the greatest potential for agency problems ? 0 A ) Sole proprietorship B ) General partnership C ) Limited partnership D ) Corporation E ) Limited liability company

D

16 ) The primary advantage of being a limited partner rather than a general partner is : A ) being entitled to a larger portion of the partnership's income . B ) having responsibility for day - to - day management of the business . C ) earning profits that are free from income taxation . D ) the ability to have overall control of the partnership . E ) one's personal financial liability is limited to the amount of capital invested

E

Net working capital includes : A ) copyrights . B ) manufacturing equipment . C ) common stock . D ) long - term debt . E) inventory .

E