Finance 3000 Chapter 1
Shareholders
Corporate governance seeks to align the goals of the managers with the goals of the:
21%
The TJCA established a flat corporate tax rate of:
Successful execution of unique professional services
The profitability of financial market intermediaries depends upon:
successful execution of unique professional services
The profitability of financial market intermediaries depends upon:
the asset's expected future cash flows
The current value of a financial asset is determined by which cash flow?
financial management
The sub-area of finance that deals with a firm's decisions in acquiring and using cash from investors and retained earnings is called what?
-How can corporate taxes be minimized? -Should a firm issue debt (bonds) or equity (stocks)? -How can a firm attract more capital financing?
The subarea of finance known as financial management addresses which of these decisions?
Ethics is the study of values, morals, and morality
What are ethics?
-Unlimited liability -Ability to raise capital
What are examples of disadvantages of a sole proprietorship?
-Capital spending -Managing cash -Interest rate hedging
What are examples of finance functions that fall under the supervision of the treasurer?
single taxation and limited liability
What are the two key characteristics of a hybrid organization?
Taxes and Retained Earnings
What are two primary sources of friction that decrease cash flows from companies to their investors?
-Double taxation -Division of ownership and control -Separate legal entity
What could be accurately included in the definition of a corporation?
Separation of management and ownership
What is a disadvantage of the corporate form of business?
single taxation
What is an advantage of a general partnership?
Ease of formation
What is an advantage of a sole proprietorship?
Lester's wants to expand its operations but has insufficient cash to do so
What is an example of a borrower in the financial markets?
Expertise and unique assets
What is credited for providing financial institutions with high profit margins?
maximize the value of the current shareholders' stock
What is the best proposed firm goal?
to facilitate cash flows between investors and companies
What is the primary function of a financial institution?
Financial institutions must distribute capital in an efficient manner
What role does a financial institution play in a financial system?
Employee stock options
Which form of executive compensation is most apt to reduce agency problems?
people with money and no ideas
Which group of people has individual investors as participants and is a lender of funds to the financial markets?
Limited access to capital Profits split among the partners
Which of these are characteristics of a general partnership?
Investments address the timing of cash flows most desired by investors
Which of these correctly defines a role of investments?
Exports Ltd. decides to open a warehouse in Europe
Which of these decisions involves international finance? Assume the firms are U.S. firms.
people with money but no ideas and people with ideas but no money
Which two groups participate in financial markets?
Shareholders
Who does a firm's manager fail to put the interests of first when making decision in an agency problem?
fiduciary relationship
a legal duty between parties where one party must act in the interest of the other party
Risk
a potential future negative impact to value and/or cash flows
General partnership
involving multiple business owners who are each personally responsible for all of the partner's debts
Corporate governance
the ongoing process of monitoring managers and aligning their incentives with shareholder goals
Financial market
the places and processes that facilitate the trading of financial assets between investors
applies finance theory to a global world with changing political, currency, and legal environments
International finance does what?
fiduciary
Managing other people's money implies a ________ relationship from the manager.
Shareholders
Putting the interests of which party first should be the primary goal of a corporation?
True
T/F: The U.S. government typically restricts hybrid organization status to relatively small firms.
$750,000
TJCA brought about the change that only the first how much of mortgage debt is deductible?
risks
financial decisions compare the rewards of a decision with the _______ of the decisions
An individual invests in a bank savings account and the bank lends money to companies
How do funds flow in a financial system?
Financial decisions require an understanding of a firm's past transactions in order to plan for the future
How is finance dependent on accounting?
TVM is the theory and application of valuing cash flows at various points in time
How is the time value of money (TVM) theory best defined?
True
True or false: Managerial finance helps managers make decisions related to cash management, capital investments, and risk reduction.
