Finance Chapter 1

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

Enron Tyco WorldCom

Corporations in other countries are often called:

Joint stock companies Public limited companies

how is ownership transferred in a corporation

Ownership is transferred by gifting or selling shares of stock

which of the following show why a corporation is the most important form of business

a corporation is a separate legal entity with the ability to acquire and exchange property corporations can enter into contracts corporations can sue and be sued

which of the following is included in working capital

accounts receivable current (short-term) assets accounts payable

which of the following is included in working capital

accounts receivable accounts payable current (short-term) assets

the relationship between stockholders and management can best be described as a(n) _____ relationship

agency

the costs incurred due to a conflict of interest between stockholders and management are called

agency costs

an organization must prepare ____ and bylaws when forming a corporation

articles of incorporation

which of the following can be used to encourage managers to act in the best interests of shareholders

better prospects of promotion managerial compensation tied to performance

the rules used by a corporation to regulate its existence are known as

bylaws

which term applies to debt and equity maintained by a firm

capital structure

what are the two basic classifications under which most potential financial goals fall

controlling risk earning or increasing profits

the federal government taxes which of the following

corporate earnings and shareholder dividends

a bad financial decision is defined as a decision that _____ owners' equity

decreases

the need to monitor management actions is an example of a ____ (direct/indirect) agency cost

direct

a general partnership has which of the following characteristics

each owner has unlimited liability for all firm debts it is difficult to transfer ownership

in financial markets, debt and _____ securities are bought and sold

equity

it is sometimes argued that, left to themselves, managers tend to minimize the amount of resources over which they have control

false

true or false: the sarbanes-oxley act provides incentives for companies to go public in US markets

false

which of the following are important when considering a partnership

fund raising limitations taxation of partnership income personal liability for firm debts

a sole proprietorship is a business that

is owned by one person

the life of a corporation ____

is unlimited

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

legal

when a corporation is formed, it is granted which of the following rights

legal powers to sue the ability to issue stock state citizenship for jurisdictional purposes

businesses are motivated to organize as corporations because stockholders in a corporation have ____ liability for corporate debts

limited

in a limited partnership, a limited partner's liability for business debts is

limited to their cash contribution to the partnership

the sarbanes-oxley act requires corporate officers to do which of the following

list any deficiencies in internal controls confirm the validity of the annual financial report accept responsibility for material errors in the annual report

capital budgeting is concerned with planning and managing a firm's

long-term investments

since ____ and ownership are separated, a corporation's life is unlimited

management

since ownership in a corporation can be dispersed over a huge number of stockholders, it can be argued that _____ effectively controls the firm

management

a treasurer's responsibilities typically include

managing capital expenditure decisions handling cash flows making financial plans

the goal of a for-profit business is to ____ existing owners' equity

maximize

what is the main goal of financial management

maximize the current value per share of existing stock

which of the following, according to the textbook, are possible financial goals for a company

minimize costs survival maximize profits

indirect agency costs are often due to lost __________.

opportunities

inventory is a:

part of working capital current asset

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 ____ and its owners have ____ liability

partnership limited

which one of these provides a manager an incentive to perform well

promotions

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

proxy fight

Because shareholders get paid last after all other obligations are satisfied, they are often called:

residual owners

when one owner of a security sells the security to another person, the transaction takes place in the ____ market

secondary

which one of the following parties would be the last party to receive payment if a firm were to close? assume all parties have a legitimate claim on the firm's assets

shareholders

____ are frequently used to encourage key managers to maximize the value of the firm's stock

stock options

the owners of a corporation are called

stockholders

a corporation receives cash from financial markets by selling ________ and _________.

stocks bonds

which of the following are considered stakeholders in a company

suppliers government employees

the controller is responsible for which of the following tasks

tax payments financial accounting

the liability of a shareholder in a corporation is limited to which of these

the amount the shareholder invested in the corporation

the primary responsibility of financial managers is to increase the value of

the existing shares of stock

organized auction markets include:

the new york stock exchange

which one of these motivates managers to make good decisions

threat of a hostile takeover

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

treasurer

a sole proprietor has ____ personal liability for all business debts and obligations

unlimited