Finance EXAM 1- Chapter 1
Who (what positions) generally report to the chief financial officer (CFO)
1. Controller 2. Treasurer
The basic areas of finance are: (4)
1. Corporate finance 2. Investments 3. International finance 4. financial institutions NOT personal finance
The CONTROLLER is responsible for which tasks? (4)
1. Costs 2. Financial accounting 3. tax payments 4. management information systems
What is included in the firms capital structure? (2)
1. Equity 2. Long-term debt
Corporations in other countries are often called: (3)
1. Joint stock companies 2. Public limited companies 3. Limited liability companies
A treasures responsibilities include: (3)
1. Managing capital expenditure decisions 2. handling cash flows 3. making financial plans
The defining features of the primary market are: (2)
1. Market where initial public offerings are made 2. Proceeds from the sale of securities goes to the issuing firm
What are the auction markets in the US?
1. New York Stock Exchange 2. Chicago Stock Exchange
When a corporation is formed, it is granted these rights: (3)
1. Provincial citizenship for jurisdictional purposes 2. the ability to issue stock 3. legal power to sue
Business finance is broadly concerned with: (3)
1. Which longterm investment to make 2. how to finance longterm investments 3. how to manage day-to-day finances
Under the Sarbanes-Oxley Act, corporate officers are required to: (2)
1. be responsible for errors in the annual report 2. confirm the validity of the financial statements
Why is a corporation the most important form of business? (3 reasons)
1. corporations are a separate legal entity with the ability to acquire and exchange property 2. corporations can sue and be sued 3. corporations can enter contracts
The conflict of interest between an agent and a principal is called a(n) _____________ ____________.
Agency problem
A secondary market that has a physical location and matches those who wish to sell with those who wish to buy. This is called what kind of market:
Auction market ex stock exchanges
The corporate officer responsible for accurate financial accounting of the firm's activities is called:
Chief financial officer
T/F "profit maximization" is the best goal for the management of a corporation.
False
T/F Sarbanes-Oxley Act provides incentives to go public in the US
False
_________ ___________ is an important mechanism used by unhappy stockholders to replace current management.
Proxy fight
Enron, Tyco, Adelphia, and WorldCom were four companies in corporate scandals that led to what Act?
Sarbanes-Oxley Act -contains a number of requirements designed to insure that companies tell the truth in their financial statements.-
The primary responsibility of financial management is to increase the value of __________
The existing shares of stock
Short term assets cash inventory These are examples of what:
Working capital
Costs incurred due to a conflict of interest between stockholders and management are called____________.
agency costs
The relationship between stockholders and management is called:
an Agency Relationship
A corporation receives cash from financial markets by selling _____________ and ______________.
bonds and stocks
How is ownership transferred in a corporation?
by gifting or selling shares of stock
Process of planning and managing a firms long-term assets
capital budgeting
A bad financial decision is defined as a decision that ________ shareholder wealth.
decreases
Businesses are encouraged to organize as corporations because stockholders in a corporation have __________ ____________ for debts.
limited liability
In a limited partnership, a limited partners liability for business debts is:
limited to the their cash contribution to the partnership
Capital budgeting is concerned with making and managing expenditures on __________.
long-term assets
Since ___________ and ownership are separated, a corporation's life is unlimited.
management
In this (dealer) market participants are called dealers and participants buy and sell from their own inventories and securities. (many of these are done electronically)
over-the-counter market
The owners of a corporation are called:
shareholders
A business owned by one person
sole proprietorship
Secondary market
the market where When one owner or creditor sells to another
The primary objective of an auction market is:
to bring buyers and sellers together
