Chapter 1

Which one of the following parties can sell shares of ABC stock in the primary market?

ABC company

Which one of the following situations is most apt to create an agency conflict?

Basing management bonuses on the length of employment

One advantage of the corporate form of organization is the:

ability to raise larger sums of equity capital than other organizational forms.c

Jenna has been promoted and is now in charge of all external financing. In other words, she is in charge of:

capital structure management.

Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm's:

capital structure.

The goal of financial management is to increase the:

current market value per share.

The Sarbanes-Oxley Act of 2002 has:

essentially made officers of publicly traded firms personally responsible for the firm's financial statements.

When conducting a financial analysis of a firm, financial analysts:

frequently use accounting information.

A sole proprietorship:

has its profits taxed as personal income.

A corporation:

is a legal entity separate from its owners.

Limited liability companies are primarily designed to:

provide limited liability while avoiding double taxation.

One example of a primary market transaction would be the:

sale of 1,000 shares of newly issued stock by Alt Company to Miquel.

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the:

secondary market

Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n):

stakeholder.

An employee has a claim on the cash flows of Martin's Machines. This claim is defined as a claim by one of the firm's:

stakeholders.

An agency issue is most apt to develop when:

the control of a firm is separated from the firm's ownership.

The primary goal of financial management is to maximize:

the market value of existing stock.

In a general partnership, each partner is personally liable for:

the total debts of the partnership, even if he or she was unaware of those debts.

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?

Corporate accounting and financial fraud

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

Corporation

Which one of the following is a working capital decision?

How much cash should the firm keep in reserve?

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

Agency

Which one of the following applies to a general partnership?

Any one of the partners can be held solely liable for all of the partnership's debt.

Which one of the following is most apt to align management's priorities with shareholders' interests?

Compensating managers with shares of stock that must be held for a minimum of three years

Working capital management includes which one of the following?

Determining which customers will be granted credit

Which one of the following is a capital structure decision?

Establishing the preferred debt-equity level

Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

General partnership

Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?

Increase the protections against corporate fraud

Jamie is employed as a currency trader in the Japanese yen market. Her job falls into which one of the following areas of finance?

International finance

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

Limited partnership

Which one of the following is an advantage of being a limited partner?

Losses limited to capital invested

What is the primary goal of financial management for a sole proprietorship?

Maximize the market value of the equity

Which one of the following statements correctly applies to a sole proprietorship?

Obtaining additional equity is dependent on the owner's personal finances.

Capital budgeting includes the evaluation of which of the following?

Size, timing, and risk of future cash flows

Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts?

Sole proprietorship

Which one of the following statements about a limited partnership is correct?

There must be at least one general partner.

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as:

working capital management.

The daily financial operations of a firm are primarily controlled by managing the:

working capital.