Chapter 1 - Assignment 1
An organization must prepare Blank______ and bylaws when forming a corporation.
" Articles of Incorporation" AKA "Charter"
What are the three main questions to be addressed if you want to start your own business?
1. ) What long-term investments should you take on? 2.) Where will you get the long-term financing to pay for your investments? 3.) How will you manage your everyday financial activities, such taking payment from customers and paying vendors?
The relationship between stockholders and management can best be described as a(n) Blank______ relationship.
Agency
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 conflict of interest between an agent and a principal is called a(n):
Agency problem
What are two characteristics of a partnership business?
All the partners share in gains or losses of the partnership. Each owner has unlimited liability for all firm debts.
New York Stock exchange is a what market?
Auction Market
What is the primary objective of an auction market?
Bring buyers and sellers together
In large firms, financial activity is usually associated with which top officer?
CFO
______ budgeting is the process of planning and managing a firm's long-term assets.
Capital
What three subjects is the financial manager concerned with?
Capital Budgeting, Capital Structure, and Working Capital Management
Which term applies to the mixture of debt and equity maintained by a firm?
Capital Structure
Which corporate officer is responsible for accurate financial accounting of the firm's activities?
Controller
The ______ office is responsible for corporate tax reporting.
Controller's Office. They handle the tax department in general.
The four basic areas of finance include
Corporate Finance, Investments, Financial Institutions, International Finance. NOT personal finance!
When are corporate profits taxed?
Corporations pay taxes on the corporate profits. An then individuals pay taxes on the corporate dividends they received.
Which companies were involved in corporate scandals that led to Sarbanes-Oxley?
Enron, WorldCom, Tyco, and Adelphia, Congress enacted the Sarbanes-Oxley Act in 2002.
A partnership in which partners share in gains or losses and carry unlimited liability for all partnership debts is called a Blank______.
General partnership
According to the textbook, which of the following is not one of the three main questions to be addressed if you wanted to start your own business?
How many employees will I need?
A general partnership has which of the following characteristics?
In a general partnership, all the partners share in gains or losses, and all have unlimited liability for all partnership debts, not just some particular share. NO partnership agreement needs to be written, it can be an oral agreement.
Which of the following are defining features of the primary market?
It is the market where initial public offerings are made. Proceeds from the sale of securities go to the issuing firm.
How does the Sarbanes-Oxley Act primarily work to make sure that companies tell the truth in financial statements?
It makes management personally responsible for the accuracy of a company's financial statements.
A corporation is a distinct Blank______ 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 Blank______ liability for corporate debts.
Limited
What type of partnership involves both general and limited partners to run the business?
Limited Partnership
Capital budgeting is concerned with making and managing expenditures on ______.
Long term Assets. explanation: Managing expenditures on long-term assets is known as capital budgeting. Decisions about current liabilities, long-term liabilities, and shareholders' equity are called capital structure decisions.
In a shareholder-manager relationship, who is the agent?
Managers
Since Blank______ and ownership are separated, a corporation's life is unlimited.
Managment
In an over-the-counter market, what are 2 true statements?
Most of the buying and selling is done by the dealer. Many dealers are also connected electronically.
Is profit maximization the primary objective of a business?
No. Profit maximization may not take into account other strategic objectives necessary to maximize shareholder value.
Another term for dealer market
OTC Market
How is ownership transferred in a corporation?
Ownership is transferred by gifting or selling shares of stock.
A business without separate legal authority formed by two or more people is known as a Blank______.
Partnership
Why would the threat of a takeover motivate a manager to act in stockholders' interest?
Running the firm well and acting in the stockholders' interest makes the firm a less attractive takeover target to begin with.
Managerial compensation is often tied to financial performance. One way to make this tie explicit is to offer payment in terms of:
Stock options
Which of the following positions generally report to the chief financial officer (CFO)? ( can be more than one) Treasurer, Controller, Director of Marketing, or CEO?
Treasurer and controller both report to the CFO.
True or false: In a large corporation, stockholders and managers are usually separate groups.
True
A sole proprietor has ______ personal liability for all business debts and obligations.
Unlimited personal liability. Personal assets can even be seized in an unfavorable event.
Business finance is broadly concerned with which of the following?
Which long-term investment to make? How to finance long-term investments? How to manage day-to-day finances of the firm?
Which of the following are considered non-owner stakeholders in a company?
employees government suppliers
A good financial decision will do what two things?
increase market value of shareholders' equity increase the value of the firm's existing stock
Corporations in other countries are often called:
joint stock companies public limited companies limited liability companies
In a limited partnership, a limited partner's liability for business debts is Blank______.
limited to their cash contribution to the partnership
The mix of ____ and _____ is referred to as a firm's capital structure.
long-term debt and equity
Which of these topics is not of especial interest to a financial manager? Choices: product development, Capital Budgeting, Capital Structure, and Working Capital Management
product development
Which one of these is an important mechanism used by unhappy stockholders to replace current management?
proxy fight
where does cash generated by a corporation typically go?
reinvested in the firm to pay corporate taxes paid to shareholders and creditors
A corporation receives cash from financial markets by selling Blank______ and Blank______.
stocks and bonds
A shareholder's liability is limited to which of these?
the amount the shareholder invested in the corporation
The goal of the financial management is to increase the value of Blank______.
the existing shares of the stock