Chapter 1 Business Finance Smart Book

current common stock value

"Increasing shareholder wealth" means increasing the _________.

inventory short-term assets cash

Working capital includes what?

decreases

A bad financial decision is defined as a decision that ______ shareholder wealth.

partnership

A business without separate legal authority formed by two or more people is known as a _____.

legal

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

stocks, bonds

A corporation receives cash from financial markets by selling ______ and ______.

partnership, limited liability

A limited liability company is taxed like a _________, but retains ________ ________ for owners.

general partnership

A partnership in which partners share in gains or losses, and carry unlimited liability for all partnership debts, is called a:

The amount the shareholder invested in the corporation

A shareholder's liability is limited to which of these?

making financial plans. handling cash flows. managing capital expenditure decisions.

A treasurer's responsibilities include these 3.

stakeholder

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

To pay corporate taxes Paid to shareholders and creditors Reinvested in the firm

According to Figure 1.2, where does cash generated by a corporation typically go?

limited

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

Joint stock companies Public limited companies Limited liability companies

Corporations in other countries are often called

Working Capital

Ensuring that the firm has sufficient funds to continue operations on a day-to-day basis comes under the heading of __________ management.

Shares of stock

How is ownership of a corporation represented?

Ownership is transferred by gifting or selling shares of stock

How is ownership transferred in a corporation?

limited to their cash contribution to the partnership

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

Manager

In a shareholder-manager relationship, who is the agent?

Most of the buying and selling is done by the dealer. Many dealers are also connected electronically.

In an over-the-counter market what 2 things are true?

No; profit maximization may not take into account other strategic objectives necessary to maximize shareholder value.

Is profit maximization the primary objective of a business?

Financial

One of the important questions in the area of investments includes the potential risks and reward associated with investing in _________ assets.

corporations

Public limited companies and joint stock companies are other names for __________.

auction market

The New York Stock Exchange is a(n) _____.

corporate accounting fraud and financial malpractice

The Sarbanes-Oxley Act is intended to strengthen protection against:

Confirm the validity of the financial statements. Be responsible for errors in the annual report.

The Sarbanes-Oxley Act requires corporate officers to:

controller's

The ______ office is responsible for corporate tax reporting

agency problem

The conflict of interest between an agent and a principal is called a(n)

Financial accounting, Tax reporting and payments

The controller is responsible for which tasks?

agency

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

Corporate earnings and shareholder dividends

The federal government taxes which of the following?

maximize

The goal of a "for profit" business is to ______ the value of shareholder wealth.

Treasurer

The officer responsible for managing the firm's cash flows is the ______.

shareholders

The owners of a corporation are called ______.

a takeover

The threat of ______ motivates managers to make good decisions.

False

True or False: "Profit maximization" is the goal for the management of a corporation in short-run only.

True

True or false: In a large corporation, stockholders and managers are usually separate groups

False

True or false: Personal finance is one of the four basic areas of finance.

False

True or false: The Sarbanes-Oxley Act provides incentives for companies to go public in US markets.

It is one of the simplest types of businesses to form. A proprietorship has a limited life.

What 2 things are true of a sole proprietorship?

How to manage day-to-day finances of the firm How to finance long-term investments Which long-term investment to make

What 3 things is business finance broadly concerned with?

What are the risks and rewards associated with investing? What is the best mixture of financial assets to hold? What determines the price of a financial asset?

What are key questions for investments?

Equity, Long-term debt

What is included in a firm's capital structure?

working capital management capital budgeting capital structure

What three subjects is the financial manager concerned with?

limited partnership

What type of partnership involves both general and limited partners to run the business?

The ability to issue stock Legal powers to sue

When a corporation is formed, it is granted which 2 rights?

Individuals pay taxes on corporate dividends. Corporations pay taxes on corporate profits.

When are corporate profits taxed?

Tyco WorldCom Enron

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

Proxy fight

Which important mechanism is used by unhappy stockholders to replace current management?

It is the market where initial public offerings are made Proceeds from the sale of securities goes to the issuing firm

Which of the following are defining features of the primary market?

Controller Treasurer

Which of the following positions generally report to the chief financial officer (CFO)?

firms going public outside of the U.S. market public firms "going dark" and leaving the stock market eliminating public disclosure for many firms

Which of these have been noted as unintended consequences of the Sarbanes-Oxley Act?

It can be difficult to raise cash for investment in these forms, and that limits the ability of the business to grow.

Why don't large businesses organize as sole proprietorships or partnerships?

Running the firm well and acting in the stockholders' interest makes the firm a less attractive takeover target to begin with.

Why would the threat of a takeover motivate a manager to act in stockholders' interest?

Capital

______ budgeting is the process of planning and managing a firm's long-term assets.

Stock options

_______ ______ can be used to encourage managers to maximize the value of the stock.