Chapter 1 Practice Problems

Which one of the following best states the primary goal of financial management? A) Maximize the current value per share B)Maintain steady growth while increasing current profits C) Minimize operational costs while maximizing firm efficiency D) Increase cash flow and avoid financial distress E) Maximize current dividends per share

A) Maximize the current value per share

The growth of both sole proprietorships and partnerships is frequently limited by the firm's: A) inability to raise funds. B) agency problems. C) limited liability. D) bylaws. E) double taxation.

A) inability to raise funds.

Which one of the following best states the primary goal of financial management? A) Maximize current dividends per share B) Maximize the current value per share C) Increase cash flow and avoid financial distress D) Minimize operational costs while maximizing firm efficiency E) Maintain steady growth while increasing current profits

B) Maximize the current value per share

Which one of the following is a primary market transaction? A) Sale of currently outstanding stock by a dealer to an individual investor B) Sale of a new share of stock to an individual investor C) Stock ownership transfer from one shareholder to another shareholder D) Gift of stock from one shareholder to another shareholder E) Gift of stock by a shareholder to a family member

B) Sale of a new share of stock to an individual investor

Which one of the following is a working capital management decision? A) What type(s) of equipment is (are) needed to complete a current project? B) Should the firm pay cash for a purchase or use the credit offered by the supplier? C)What amount of long-term debt is required to complete a project? D) How many shares of stock should the firm issue to fund an acquisition? E) Should a project should be accepted?

B) Should the firm pay cash for a purchase or use the credit offered by the supplier?

Which one of the following is a working capital management decision? A) Should a project should be accepted? B) Should the firm pay cash for a purchase or use the credit offered by the supplier? C) How many shares of stock should the firm issue to fund an acquisition? D) What amount of long-term debt is required to complete a project? E) What type(s) of equipment is (are) needed to complete a current project?

B) Should the firm pay cash for a purchase or use the credit offered by the supplier?

An example of a capital budgeting decision is deciding: A) how many shares of stock to issue. B) whether or not to purchase a new machine for the production line. C) how to refinance a debt issue that is maturing. D) how much inventory to keep on hand. E) how much money should be kept in the checking account.

B) whether or not to purchase a new machine for the production line.

GolfMerch Lehigh Valley is owned by two people who provided the initial capital to launch the business. One person, however, does not participate in any of the managing activities. This is an example of: A) Corporation B) Sole proprietorship C) General partnership D) Limited partnership E) Limited liability company

D) Limited partnership

Capital structure decisions include determining: A) the amount of funds needed to be raised to finance big purchases. B) how much inventory will be needed to support a project. C) how to allocate investment funds to multiple projects. D) how much debt should be spent to fund a project. E) which one of two projects to accept.

D) how much debt should be spent to fund a project.

In the US, financial managers primarily focus on the interests of: A) their immediate supervisor. B) the board of directors. C) stakeholders D) shareholders. E) creditors F) the vice president of finance.

D) stareholders

Which one of the following parties has ultimate control of a corporation? Chief executive officer A) Board of directors B) Chairman of the board C) Creditors D) Chief operating officer E) Shareholders

E) Shareholders

The decision to issue additional shares of stock is an example of A) working capital management B) a net working capital decision C) capital budgeting D) a controller's duties E) a capital structure decision

E) a capital structure decision

The decision to issue additional shares of stock is an example of: A) a controller's duties. B) a capital structure decision. C) capital budgeting. D) working capital management. E) a net working capital decision.

a capital structure decision