Chapter 1: The Goals and Activities of Financial Management

Which of the following is not a motivation for corporate managers to follow the goal of maximizing shareholder wealth?

Corporate merger

LLCs can be taxed as sole proprietorships, partnerships, corporations, or S corporations, depending upon what?

Elections made by owners

National, state, and local governments are primarily suppliers of funds to the public financial markets.

False

There are four primary forms of organizations.

False

True or false: Financial markets exist as a small, local network of individuals and financial institutions

False

True or false: The ultimate measure of performance of the firm is what the firm earns.

False

markets are the meeting place for people, corporations, and institutions that either need money or have money to lend or invest.

Financial

The Dodd-Frank Act was passed by congress in response to:

Financial crisis

Capital markets deal with securities that

Have a life of one year or more

What are some of the drawback(s) to profit maximization as the primary goal of the firm?

It fails to consider the timing of the benefits. It may not account for increases in risk with higher profits.

Select the components of a corporation that distinguish it from a sole proprietorship and a partnership.

It is a legal entity unto itself It has a continual life It is formed through articles of incorporation

An advantage of a sole proprietorship

Low organizational and operating costs

Markets dealing with short-term securities are referred to as markets

Money

An initial public offering takes place in which market?

Primary

Which of the following is true of a sole proprietorship?

Profits or losses are taxed at the owner's personal tax rate

Management, being representative of all the owners, is in the agency position of making decisions that are in the best interest of the firm's:

Shareholders

Which of the following statements are true in relation to valuation approach?

Shareholders are interested in all of the firm's future earnings The firm's current overall value is actually the present value of all the firm's future cash flows. Businesses are valued in the present value of the cash flows that a business might produce in the future.

Corporations can raise capital through the issuance of which of the following?

Short-term notes Bonds Common stock

Which of the following is true of a partnership?

There are 2 or more owners Unlimited liability

Double taxation can be circumvented through the formation of an S corporation.

True

One disadvantage to the corporate form of organization is double taxation of earnings. The company pays taxes on its income and, when stockholders receive their dividends, they pay a second tax.

True

The term financial management can be used interchangeably with corporate finance.

True

Today's dollar value is referred to as the present value.

True

True or false: As the corporate financial manager has an increasing number of external impacts to consider, future financial managers will need to understand international capital flows, computerized electronic funds transfer systems, foreign currency hedging strategies, and many other functions.

True

True or false: Capital markets foster the efficient allocation of resources.

True

True or false: Coca-Cola, Nike, and Ford raise funds in the corporate financial markets.

True

True or false: Firms in which shareholder wealth maximization is not the primary goal may be susceptible to poor stock price performance.

True

The financial manager should attempt to maximize the wealth of the firm's shareholders through achieving the highest possible ______ for the firm.

Value

A special form of partnership that circumvents shared unlimited liability is:

a limited liability partnership

The Dodd-Frank Act was passed by Congress to promote financial stability by improving:

accountability transparency

Issues of corporate governance are problems related to which theory

agency theory

Finance pioneers were concerned with how investors after understanding the nature of various risks would set the price of:

bonds options stocks

The growth of the global company has led to the growth of global fund raising as companies seek low-priced sources of funds through international

capital markets money markets

Capital market securities include all of the following except

commercial paper

Money market securities include all of the following except:

common stocks bonds

A legal entity that may sue or be sued, engage in contracts, and acquire property is known as a

corporation

The primary organizational forms include:

corporation, partnership, sole proprietorship

Participants in the corporate financial markets include:

corporations

The more frequent daily activities of financial management include:

credit management inventory control receipt and disbursement of funds

Financial managers must know how to interpret a company's financial statements in order to

effectively allocate the firm's financial resources generate the best return possible for the company in the long-run

Directors serve in a ________ capacity for the shareholders and may be liable for the mismanagement of the firm.

fiduciary

The Dodd--Frank Act was passed to reform the Blank______ industry.

financial

The major focus of the Sarbanes-Oxley Act is to ensure the accuracy of the

financial statements

A corporation relies on markets to provide funds for short-term operations and for new plant and equipment.

financial, stock, or money

In a limited liability partnership, one or more of the partners is designated as a

general partner with unlimited liability

Money markets deal with securities that

have a life of one year or less

______ occurs when someone has information that is not available to the public and then uses this information to profit from trading in a company's publicly traded securities.

illegal insider trading

The purpose of the Dodd-Frank Act is to

improve accountability and transparency in the financial system

Accounting provides financial data through the

income statement, balance sheet, and statement of cash flows

The finance field is often divided into two general subcategories, ____________ and ____________________

investments corporate finance

Insider trading, using information that is not available to the public to make a profit,

is illegal is unethical can destroy confidence in the securities markets

A firm may go to the markets to raise financial capital by:

issuing short-term notes issuing bonds selling common stock.

A corporation is a ______ entity unto itself. Therefore, it may sue or be sued, engage in contracts, and acquire property.

legal

A corporation has a continual life which means that it is not dependent upon any one shareholder for maintaining its

legal existence

The stockholder of a corporation has ______ liability for the business debts and obligations.

limited

An LLC provides the advantage of Blank______ for its owners.

limited liability

Global companies can utilize the international financial markets in their search for sources of financing.

low-cost

The goal of shareholders wealth maximization can be consistent with the concern of social responsibility if management adopts policies that ___________ values in the market.

maximize or increase

The primary concern of the financial manager should be to:

maximize shareholder wealth

Money is considered to have a time value because:

money has more value in your possession today than at a later point in the future

Participants in public financial markets include:

national governments local governments state governments

A firm that adopts policies to maximize values in the market can:

offer benefits to its community attract capital provide employment

Which of the following is not a phenomenon that has influenced the importance of internationalization by managers

rational investors

Economics provides a structure for decision making in which of the following areas:

risk analysis, pricing theory, and comparative return analysis

The focus of modern financial management is on:

risk-return relationships and the maximization of return for a given level of risk

Management of shareholders' interests is ultimately the responsibility of

the corporation's board of directors

A key difference between a partnership and a sole proprietorship is:

the number of owners

A financial manager's functions must be carried out while also balancing:

the profitability and risk components of the firm

Allocation of capital in the financial markets is based on:

the risk-return trade off

In case of a limited liability partnership. general partners have Blank______ liability for the debts and obligations of the company.

unlimited

The S corporation designation can apply to domestic corporations with up to how many stockholders?

100

The Sarbanes-Oxley Act was by congress in which year?

2002