Finance Chapter 1

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

A corporation is a seperate legal entity with the ability to acquire and exchange property. Corporations can sue and be sued. Corporations can enter into contracts.

A corporation must prepare ___ and bylaws when forming a corporation.

Articles of incorporation

A corporation recieves cash from financial markets by selling ___ and ___.

Bonds Stocks

The rules used by a corporation to regulate its existence are known as ___.

Bylaws

___________ budgeting is the process of making and managing expenditures on long-term assets.

Capital budgeting

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

Controller Treasurer

A bad financial decison is defined as a decision that ___ owner's equity.

Decreases

The need to monitor management actions is an example of a(n) ___ agency cost.

Direct agency cost

T/F: It is sometimes argued that, left to themselves, managers tend to minimize the amount of resources over which they have control.

False

T/F: Shareholders are the ONLY stakeholder in a firm as they are the owners.

False

The goal of a for-profit business is to ___ existing owners' equity.

Maximize

Most equity shares of large firms in the US trade on:

Organized auction markets

Which of the following are important when considering a partnership?

Personal liability for firm debts Fund raising limitations Taxation of partnership income

The controller is responsible for which of the following tasks?

Tax reporting Financial accounting

Which of the following are among the most important questions to be asked when a business is started?

What long-term investments should be made? Where will long-term financing be obtained to pay for investments? How will everyday financial activities be handled?

Inventory is a:

current asset part of working capital

T/F: The Sarbanes-Oxley Act provides incentives for companies to go public in US markets.

False

A good financial decision aims at which if the following?

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

A good financial decision aims at which of the following?

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

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

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 recieve payment if a firm were to close? Assume all parties have a legitimate claim on the firm's assets.

Shareholders

The owners of a corporation are called ___.

Stockholders

T/F: The Sarbanes-Oxley act provides incentives for companies to go public in US markets?

T/F

Which one of these motivates managers to make good decisions?

Threat of hostile takeover

What is the main goal of financial management?

To maximize current value per share of existing stock.

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

Treasurer

The primary responsibility of financial managers is to increase the value of ___.

the existing shares of stock

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

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

Equity Long-term debt

In a large corporation, the financial manager is primarily responsible for:

Financing decisions, Financial aspects of operations, such as collections of accounts recievables. Long-term Investment decisons

Which of the following are true of a sole proprietorship?

It is the simplest type of business to form. A proprietorship has a limited life.

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

Legal

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

Limited to their cash contributions to the partnership

The Sarbanes-Oxley Act requires corporate officers to do which of the following?

List any deficiencies in internal controls. Accept responsibility for material errors in the annual report Confirm the validity of the annual financial report

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

Stock options

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

Stock options and bonuses Managerial compensation tied to performance Better prospects of promotion

A partnership must have at least ___ owners.

Two

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

Tyco WorldCom Enron