FIN 3200 ch.1

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.

A sole proprietor has ______ personal liability for all business debts and obligations.

unlimited

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

working capital

Which of the following are considered non-owner stakeholders in a company?

Government Suppliers Employees

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.

What is the primary objective of an auction market?

To bring buyers and sellers together

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 Sarbanes-Oxley Act is intended to strengthen protection against:

corporate accounting fraud and financial malpractice

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

corporations

"Increasing shareholder wealth" means increasing the _________.

current common stock value

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

financial

How is ownership of a corporation represented?

Shares of stock

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

maximize

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

treasurer

What three subjects is the financial manager concerned with

working capital management capital structure capital budgeting

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

working capital.

Which one of the following statements is correct?

The primary purpose of the NYSE is to match buyers with sellers.

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

legal

A limited liability company's owners have ______ liability.

limited

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

limited

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

limited partnership

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

limited to their cash contribution to the partnership

Capital budgeting is concerned with making and managing expenditures on __

long-term assets

Agency costs occur when _________ and stockholder interests are not in line with one another.

management

Since ________ and ownership are separated, a corporation's life is unlimited.

management

The primary goal of financial management is most associated with increasing the:

market value of the firm.

When one owner or creditor sells to another, the transaction takes place in the _________ market

secondary

The owners of a corporation are called ______.

shareholders

Working capital includes which of the following?

short-term assets cash inventory

Managerial compensation is often tied to financial performance. One way to make this tie explicit is to offer payment in terms of:

stock options

Who elects the board of directors, and ultimately maintains control of the firm?

stockholders

Which of the following are key questions for investments?

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?

The four basic areas of finance include investments, financial institutions, international finance, and .... finance.

corporate

In a for-profit business, owners' equity is equivalent to:

the total value of stock in a corporation

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

Capital

Which term applies to the mixture of debt and equity maintained by a firm?

Capital structure

Which of the following are reasons that the corporation is the most important form of business?

Corporations can sue and be sued. Corporations are separate legal entities. Corporations can enter contracts.

Which of these topics is not of especial interest to a financial manager?

Debt

How is ownership transferred in a corporation?

Ownership is transferred by gifting or selling shares of stock.

Which of the following are included in a firm's capital structure?

Equity Long-term 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

Which corporate officer is responsible for accurate financial accounting of the firm's activities?

Controller

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

Controller and Treasurer

Which of the following is a disadvantage of sole proprietorships and partnerships?

Difficulty of transferring ownership

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?

Business finance is broadly concerned with which of the following (select all that apply)

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

A good financial decision will do which of the following?

Increase market value of shareholders' equity Increase the value of the firm's existing stock

When are corporate profits taxed?

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

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

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

Corporations in other countries are often called: (Select all that apply.)

Limited liability companies Joint stock companies Public limited companies

A general partnership has which of the following characteristics?

All the partners share in gains or losses of the partnership. Each owner has unlimited liability for all firm debts.

In large firms, financial activity is usually associated with which top officer?

Chief financial officer

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

stakeholder

Which of the following is NOT one of the basic areas of finance

Personal finance

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

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

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

False

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

False

The controller is responsible for which of the following tasks?

Financial accounting Tax reporting and payments

In an over-the-counter market, which of the following is true?

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

Which one of these is an important mechanism used by unhappy stockholders to replace current management?

Proxy fight

When a corporation is formed, it is granted which of the following rights? (Select all that apply.)

The ability to issue stock Legal powers to sue

Capital budgeting includes the evaluation of which of the following?

Size, timing, and risk of future cash flows

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

Stock options

What is the main goal of financial management?

To maximize current share value

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

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

A corporation borrows money in its own name.

True

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

True

A treasurer's responsibilities typically include:

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

One advantage of the corporate form of organization is the:

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

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

agency

The relationship between stockholders and management can best be described as a(n) ______ relationship.

agency

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

agency problem.

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

auction market

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

bonds stocks

If you hire a real estate company to sell your house, you are most apt to encounter which one of the following?

Agency problem

_____ office is responsible for corporate tax reporting

controller's

The federal government taxes which of the following?

Corporate earnings and shareholder dividends

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

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

Managers

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.

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.

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

The amount the shareholder invested in the corporation

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

Tyco Enron WorldCom

Business finance is broadly concerned with which of the following (select all that apply)?

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

The threat of ______ motivates managers to make good decisions.

a takeover

Probably the least effective means of aligning management goals with shareholder interests is:

automatically increasing management salaries on an annual basis.

The Sarbanes-Oxley Act requires corporate officers to:

be responsible for errors in the annual report confirm the validity of the financial statements

The ______ office is responsible for corporate tax reporting.

controller's

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

decreases

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

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

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

general partnership

A sole proprietorship is a business that __

is owned by one person

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

partnership

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

partnership; limited liability