Finance Test 1

Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts? A. Sole proprietorship B. Limited partnership C. Corporation D. Joint stock company E. General partnership

A

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners? A. Sole proprietorship B. General partnership C. Limited partnership D. Limited liability company E. Corporation

C

Which one of the following occupations best fits into the corporate area of finance? A. Mortgage broker B. Treasury bill analyst C. Chief financial officer D. Insurance risk manager E. Local bank manager

C

Working capital management includes which one of the following? A. Deciding which new projects to accept B. Deciding whether to purchase a new machine or fix a currently owned machine C. Determining which customers will be granted credit D. Determining how many new shares of stock should be issuedE. Establishing the target debt-equity ratio

C

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the: A. dealer market. B. over-the-counter market. C. secondary market. D. primary market. E. tertiary market.

C

One advantage of the corporate form of organization is the: A. taxation of the corporate profits. B. unlimited liability for its shareholders. C. double taxation of profits. D. ability to raise larger sums of equity capital than other organizational forms. E. ease of formation compared to other organizational forms.

D

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict? A. Organizational B. Structural C. Formative D. Agency E. Territorial

D

The primary goal of financial management is to maximize: A. current profits. B. market share. C. current dividends. D. the market value of existing stock. E. revenue growth.

D

What is the primary goal of financial management for a sole proprietorship? A. Maximize net income given the current resources of the firm B. Decrease long-term debt to reduce the risk to the owner C. Minimize the tax impact on the proprietor D. Maximize the market value of the equity E. Minimize the reliance on fixed costs

D

The Sarbanes-Oxley Act: A. require the corporate officers to personally attest that the financial statements are a fairrepresentation of the company's financial results. B. requires all corporations to fully disclose its financial dealings to the general public. C. places the responsibility for a firm's financial statements solely on the chief financial officer. D. requires that the board of directors be solely responsible for the firm's financial dealings. E. places total responsibility for the financial statements of a firm on the auditor who certifies the statements. AACSB: Ethics

A

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: A. capital structure. B. capital budget. C. asset allocation. D. working capital. E. risk structure.

A

Which one of the following is contained in the corporate bylaws? A. Procedures for electing corporate directors B. State of incorporation C. Number of authorized shares D. Intended life of the corporation E. Business purpose of the corporation

A

Which one of the following parties can sell shares of ABC stock in the primary market? A. ABC company B. Any corporation, other than the ABC company C. Any institutional shareholder D. Any private individual shareholder E. Only officers and directors of ABC company

A

An auction market: A. is an electronic means of exchanging securities. B. has a physical trading floor. C. handles primary market transactions exclusively. D. is also referred to as an OTC market. E. is dealer-based.

B

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts? A. Limited partnership B. Corporation C. Sole proprietorship D. General partnership E. Public company

B

The daily financial operations of a firm are primarily controlled by managing the: A. total debt level. B. working capital. C. capital structure. D. capital budget. E. long-term liabilities.

B

Which one of the following is a capital structure decision? A. Determining the optimal inventory level B. Establishing the preferred debt-equity level C. Selecting new equipment to purchase D. Setting the terms of sale for credit sales E. Determining when suppliers should be paid

B

Which one of the following is most apt to align management's priorities with shareholders' interests? A. Holding corporate and shareholder meetings at high-end resort-type locations preferred by managers B. Compensating managers with shares of stock that must be held for a minimum of three years C. Paying a special management bonus on every fifth year of employment D. Increasing the number of paid holidays that long-term employees are entitled to receive E. Allowing employees to retire early with full retirement benefits AACSB: Ethics

B

An agency issue is most apt to develop when: A. a firm encounters a period of stagnant growth. B. a firm downsizes. C. the control of a firm is separated from the firm's ownership. D. the firm's owner is also its key manager. E. a firm is structured as a general partnership. AACSB: Ethics

C

In a general partnership, each partner is personally liable for: A. only the partnership debts that he or she personally created. B. his or her proportionate share of all partnership debts regardless of which partner incurred that debt. C. the total debts of the partnership, even if he or she was unaware of those debts. D. the debts of the partnership up to the amount he or she invested in the firm. E. all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts.

C

One example of a primary market transaction would be the: A. sale of 100 shares of stock by Maria to her best friend. B. purchase by Theo of 5,000 shares of stock from his father. C. sale of 1,000 shares of newly issued stock by Alt Company to Miquel. D. sale by Terry of 50,000 shares of stock to his brother. E. sale of 5,000 shares of stock owned by a corporate CEO to his son.

C

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions relatedto these accounts as referred to as: A. capital structure decisions. B. capital budgeting decisions. C. working capital management. D. operating management. E. fixed account structure

C

When conducting a financial analysis of a firm, financial analysts: A. cannot use accounting information as it is historical. B. rely solely on accounting information. C. frequently use accounting information. D. ignore accounting information but do use marketing information. E. assume the future will be a repeat of the past as reflected in the firm's accounting reports.

C

Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n): A. general creditor. B. debtholder. C. shareholder. D. stakeholder. E. agent.

D

An employee has a claim on the cash flows of Martin's Machines. This claim is defined as aclaim by one of the firm's: A. residual owners. B. shareholders. C. financiers. D. provisional partners. E. stakeholders.

E

Capital budgeting includes the evaluation of which of the following? A. Size of future cash flows only B. Size and timing of future cash flows only C. Timing and risk of future cash flows only D. Risk and size of future cash flows only E. Size, timing, and risk of future cash flows

E

Maria is the sole proprietor of an antique store that is located in a rented warehouse. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed? I. Sell the inventory and apply the proceeds to the debt II. Sell the lighting fixtures from the building and apply the proceeds to the debt III. Withdraw funds from Maria's personal account at the bank to pay the store's debt IV. Sell any assets Maria personally owns and apply the proceeds to the store's debt A. I only B. III only C. IandIIonly D. I, II, and III only E. I, III, and IV only

E

The issuer of a security must be involved in all _____ transactions involving that security. A. exchange-listed B. secondary market C. over-the-counter D. dealer market E. primary market

E

Which one of the following correctly defines a common chain of command within a corporation? A. The controller reports directly to the corporate treasurer. B. The treasurer reports directly to the board of directors. C. The chief financial officer reports directly to the board of directors. D. The credit manager reports directly to the controller. E. The controller reports directly to the chief financial officer.

E

Which one of the following is a working capital decision? A. How should the firm raise additional capital to fund its expansion? B. What debt-equity ratio is best suited to the firm? C. What is the cost of debt financing? D. Should the firm borrow money for five or for ten years? E. How much cash should the firm keep in reserve?

E