Finance1

The interest rate that is most commonly quoted by a lender is referred to as which one of the following? A. Annual percentage rate. B. Compound rate. C. Effective annual rate. D. Simple rate. E. Common rate.

A. Annual percentage rate.

Which one of the following compounding periods will yield the lowest effective annual rate given a stated future value at year 5 and an annual percentage rate of 10 percent? A. Annual. B. Semiannual. C. Monthly. D. Daily. E. Continuous.

A. Annual.

For a tax-paying firm, an increase in _____ will cause the cash flow from assets to increase. A. Depreciation. B. Net capital spending. C. Change in net working capital. D. Taxes. E. Production costs.

A. Depreciation.

Which one of these is a working capital management decision? A. Determining the minimum level of cash to be kept in a checking account. B. Determining the best method of producing a product. C. Determining the number of employees needed to work during a particular shift. D. Determining when to replace obsolete equipment. E. Determining if a competitor should be acquired.

A. Determining the minimum level of cash to be kept in a checking account.

Amortized loans must have which one of these characteristics? A. Either equal or unequal principal payments over the life of the loan. B. One lump-sum principal payment. C. Increasing payments over the life of the loan. D. Equal interest payments over the life of the loan. E. Declining periodic payments.

A. Either equal or unequal principal payments over the life of the loan.

The higher the degree of financial leverage employed by a firm is, the: A. Higher is the probability that the firm will encounter financial distress. B. Lower is the amount of debt incurred. C. Less debt a firm has per dollar of total assets. D. Higher is the number of outstanding shares of stock. E. Lower is the balance in accounts payable.

A. Higher is the probability that the firm will encounter financial distress.

The articles of incorporation: I. Describe the purpose of the firm. II. Are amended periodically. III. Set forth the number of shares of stock that can be issued. IV. Detail the method that will be used to elect corporate directors. A. I and III only. B. I and IV only. C. II and III only. D. II and IV only. E. I, III, and IV only.

A. I and III only.

Which of the following are results related to the enactment of the Sarbanes-Oxley Act of 2002? I. Increased foreign stock exchange listings of U.S. stocks. II. Decreased compliance costs. III. Increased privatization of public corporations. IV. Increased public disclosure by all corporations. A. I and III only. B. II and IV only. C. I, II, and III only. D. II, III, and IV only. E. I, III, and IV only.

A. I and III only.

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? A. Income statement. B. Balance sheet. C. Statement of cash flows. D. Tax reconciliation statement. E. Market value report.

A. Income statement.

Depreciation for a tax-paying firm: ** A. Increases expenses and lowers taxes. B. Increases the net fixed assets as shown on the balance sheet. C. Reduces both the net fixed assets and the costs of a firm. D. Is a noncash expense that increases the net income. E. Decreases net fixed assets, net income, and operating cash flows.

A. Increases expenses and lowers taxes.

A general partner: A. Is personally responsible for all the partnership debts. B. Has no say over a firm's daily operations. C. Faces double taxation whereas a limited partner does not. D. Has a maximum loss equal to his or her equity investment. E. Receives a salary in lieu of a portion of the profits.

A. Is personally responsible for all the partnership debts.

Which term relates to the cash flow that results from a firm's ongoing, normal business activities? A. Operating cash flow. B. Capital spending. C. Net working capital. D. Cash flow from assets. E. Cash flow to creditors.

A. Operating cash flow.

Which one of the following grants an individual the right to vote on behalf of a shareholder? A. Proxy. B. Bylaws. C. Indenture agreement. D. Stock option. E. Stock audit.

A. Proxy

A positive cash flow to stockholders indicates which one of the following with certainty? A. The dividends paid exceeded the net new equity raised. B. The amount of the sale of common stock exceeded the amount of dividends paid. C. No dividends were distributed, but new shares of stock were sold. D. Both the cash flow to assets and the cash flow to creditors must be negative. E. Both the cash flow to assets and the cash flow to creditors must be positive.

A. The dividends paid exceeded the net new equity raised.

You need $25,000 today and have decided to take out a loan at 7 percent for five years. Which one of the following loans would be the least expensive? Assume all loans require monthly payments and that interest is compounded on a monthly basis. A. Interest-only loan. B. Amortized loan with equal principal payments. C. Amortized loan with equal loan payments. D. Discount loan. E. Balloon loan where 50 percent of the principal is repaid as a balloon payment.

B. Amortized loan with equal principal payments.

Which one of the following statements is correct concerning a corporation with taxable income of $125,000? A. Net income minus dividends paid will equal the ending retained earnings for the year. B. An increase in depreciation will increase the operating cash flow. C. Net income divided by the number of shares outstanding will equal the dividends per share. D. Interest paid will be included in both net income and operating cash flow. E. An increase in the tax rate will increase both net income and operating cash flow.

B. An increase in depreciation will increase the operating cash flow.

Your credit card charges you 1.5 percent interest per month. This rate when multiplied by 12 is called the: A. Effective annual rate. B. Annual percentage rate. C. Periodic interest rate. D. Compound interest rate. E. Period interest rate.

B. Annual percentage rate.

The book value of a firm is: A. Equivalent to the firm's market value provided that the firm has some fixed assets. B. Based on historical cost. C. Generally greater than the market value when fixed assets are included. D. More of a financial than an accounting valuation. E. Adjusted to the market value whenever the market value exceeds the stated book value.

B. Based on historical cost.

Which one of the following is a working capital management decision? A. Determining the amount of equipment needed to complete a job. B. Determining whether to pay cash for a purchase or use the credit offered by the supplier. C. Determining the amount of long-term debt required to complete a project. D. Determining the number of shares of stock to issue to fund an acquisition. E. Determining whether or not a project should be accepted.

B. Determining whether to pay cash for a purchase or use the credit offered by the supplier.

Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value? A. Real estate investment. B. Good reputation of the company. C. Equipment owned by the firm. D. Money due from a customer. E. An item held by the firm for future sale.

B. Good reputation of the company.

Which of the following individuals have unlimited liability based on their ownership interest? I. General partner II. Sole proprietor III. Stockholder IV. Limited partner A. II only. B. I and II only. C. II and IV only. D. I, II, and III only. E. I, II, and IV only.

B. I and II only.

Which of the following are current assets? I. Cash II. Trademark III. Accounts receivable IV. Notes payable A. II and III only. B. I and III only. C. I, II, and IV only. D. I, II, and IV only. E. II, III, and IV only.

B. I and III only.

Which of the following represent cash outflows from a corporation? I. Issuance of securities. II. Payment of dividends. III. New loan proceeds. IV. Payment of government taxes. A. I and III only. B. II and IV only. C. I and IV only. D. I, II, and IV only. E. II, III, and IV only.

B. II and IV only.

Which of the following are included in current liabilities? I. Note payable to a supplier in 13 months. II. Amount due from a customer last week. III. Account payable to a supplier that is due next week. IV. Loan payable to the bank in 10 months. A. I and III only. B. III and IV only. C. I, II, and III only. D. I, III, and IV only. E. I, II, III, and IV.

B. III and IV only.

Which one of the following statements is correct? A. A general partnership is legally the same as a corporation. B. Income from both sole proprietorships and partnerships is taxed as individual income. C. Partnerships are the most complicated type of business to form. D. All business organizations have bylaws. E. Only firms organized as sole proprietorships have limited lives.

B. Income from both sole proprietorships and partnerships is taxed as individual income.

Which one of the following is true according to generally accepted accounting principles? A. Depreciation is recorded based on the market value principle. B. Income is recorded based on the realization principle. C. Costs are recorded based on the realization principle. D. Depreciation is recorded based on the recognition principle. E. Costs of goods sold are recorded based on the matching principle.

B. Income is recorded based on the realization principle.

Net capital spending: A. Is equal to ending net fixed assets minus beginning net fixed assets. B. Is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense. C. Reflects the net changes in total assets over a stated period of time. D. Is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital. E. Is equal to the net change in the current accounts.

B. Is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.

Which one of the following statements related to liquidity is correct? A. Liquid assets tend to earn a high rate of return. B. Liquid assets are valuable to a firm. C. Liquid assets are defined as assets that can be sold quickly regardless of the price obtained. D. Inventory is more liquid than accounts receivable because inventory is tangible. E. Any asset that can be sold is considered liquid.

B. Liquid assets are valuable to a firm.

Which one of the following best states the primary goal of financial management? A. Maximize current dividends per share. B. Maximize the current value per share. C. Increase cash flow and avoid financial distress. D. Minimize operational costs while maximizing firm efficiency. E. Maintain steady growth while increasing current profits.

B. Maximize the current value per share.

An amortized loan: A. Requires the principal amount to be repaid in even increments over the life of the loan. B. May have equal or increasing amounts applied to the principal from each loan payment. C. Requires that all interest be repaid on a monthly basis while the principal is repaid at the end of the loan term. D. Requires that all payments be equal in amount and include both principal and interest. E. Repays both the principal and the interest in one lump sum at the end of the loan term.

B. May have equal or increasing amounts applied to the principal from each loan payment.

Which one of the following is classified as a tangible fixed asset? A. Accounts receivable. B. Production equipment. C. Cash. D. Patent. E. Inventory.

B. Production equipment.

Which one of the following is a primary market transaction? A. Sale of currently outstanding stock by a dealer to an individual investor. B. Sale of a new share of stock to an individual investor. C. Stock ownership transfer from one shareholder to another shareholder. D. Gift of stock from one shareholder to another shareholder. E. Gift of stock by a shareholder to a family member.

B. Sale of a new share of stock to an individual investor.

Which one of the following statements related to loan interest rates is correct? A. The annual percentage rate considers the compounding of interest. B. When comparing loans you should compare the effective annual rates. C. Lenders are most apt to quote the effective annual rate. D. Regardless of the compounding period, the effective annual rate will always be higher than the annual percentage rate. E. The more frequent the compounding period, the lower the effective annual rate given a fixed annual percentage rate.

B. When comparing loans you should compare the effective annual rates.

Which one of the following is a capital budgeting decision? A. Determining how many shares of stock to issue. B. Deciding whether or not to purchase a new machine for the production line. C. Deciding how to refinance a debt issue that is maturing. D. Determining how much inventory to keep on hand. E. Determining how much money should be kept in the checking account.

B. deciding whether or not to purchase a new machine for the production line

Which one of the following functions should be the responsibility of the controller rather than the treasurer? A. Daily cash deposit. B. Income tax returns. C. Equipment purchase analysis. D. Customer credit approval. E. Payment to a vendor.

B. income tax returns

As of 2015, which one of the following statements concerning corporate income taxes is correct? A. The largest corporations have an average tax rate of 39 percent. B. The lowest marginal rate is 25 percent. C. A firm's tax is computed on an incremental basis. D. A firm's marginal tax rate will generally be lower than its average tax rate once the firm's income exceeds $50,000. E. When analyzing a new project, the average tax rate should be used.

C. A firm's tax is computed on an incremental basis.

Which one of the following statements related to the cash flow to creditors is correct? A. If the cash flow to creditors is positive, then the firm must have borrowed more money than it repaid. B. If the cash flow to creditors is negative, then the firm must have a negative cash flow from assets. C. A positive cash flow to creditors represents a net cash outflow from the firm. D. A positive cash flow to creditors means that a firm has increased its long-term debt. E. If the cash flow to creditors is zero, then a firm has no long-term debt.

C. A positive cash flow to creditors represents a net cash outflow from the firm.

Which one of the following accounts is the most liquid? A. Inventory. B. Building. C. Accounts Receivable. D. Equipment. E. Land.

C. Accounts Receivable.

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? A. Income statement. B. Creditor's statement. C. Balance sheet. D. Statement of cash flows. E. Dividend statement.

C. Balance sheet.

Which one of the following terms is defined as a loan wherein the regular payments, including both interest and principal amounts, are insufficient to retire the entire loan amount, which then must be repaid in one lump sum? A. Amortized loan. B. Continuing loan. C. Balloon loan. D. Pure discount loan. E. Interest-only loan.

C. Balloon loan.

Why should financial managers strive to maximize the current value per share of the existing stock? A. Doing so guarantees the company will grow in size at the maximum possible rate. B. Doing so increases employee salaries. C. Because they have been hired to represent the interests of the current shareholders. D. Because this will increase the current dividends per share. E. Because managers often receive shares of stock as part of their compensation.

C. Because they have been hired to represent the interests of the current shareholders.

A firm which opts to "go dark" in response to the Sarbanes-Oxley Act: A. Must continue to provide audited financial statements to the public. B. Must continue to provide a detailed list of internal control deficiencies on an annual basis. C. Can provide less information to its shareholders than it did prior to "going dark.". D. Can continue publicly trading its stock but only on the exchange on which it was previously listed. E. Ceases to exist.

C. Can provide less information to its shareholders than it did prior to "going dark.".

Which one of the following business types is best suited to raising large amounts of capital? A. Sole proprietorship. B. Limited liability company. C. Corporation. D. General partnership. E. Limited partnership.

C. Corporation.

Which one of the following statements is correct? A. The majority of firms in the U.S. are structured as corporations. B. Corporate profits are taxable income to the shareholders when earned. C. Corporations can raise large amounts of capital generally easier than partnerships can. D. Stockholders face no potential losses related to their corporate investment. E. Corporate shareholders elect the corporate president.

C. Corporations can raise large amounts of capital generally easier than partnerships can.

Which one of the following is an unintended result of the Sarbanes-Oxley Act? A. More detailed and accurate financial reporting. B. Increased management awareness of internal controls. C. Corporations delisting from major exchanges. D. Increased responsibility for corporate officers. E. Identification of internal control weaknesses.

C. Corporations delisting from major exchanges.

Which one of the following will increase the cash flow from assets, all else equal? A. Decrease in cash flow to stockholders. B. Decrease in operating cash flow. C. Decrease in the change in net working capital. D. Decrease in cash flow to creditors. E. Increase in net capital spending.

C. Decrease in the change in net working capital.

An interest rate on a loan that is compounded monthly but expressed as an annual rate would be an example of which one of the following rates? A. Stated rate. B. Discounted annual rate. C. Effective annual rate. D. Periodic monthly rate. E. Consolidated monthly rate.

C. Effective annual rate.

An ordinary annuity is best defined by which one of the following? A. Increasing payments paid for a definitive period of time. B. Increasing payments paid forever. C. Equal payments paid at the end of regular intervals over a stated time period. D. Equal payments paid at the beginning of regular intervals for a limited time period. E. Equal payments that occur at set intervals for an unlimited period of time.

C. Equal payments paid at the end of regular intervals over a stated time period.

Which one of these sets forth the common set of standards and procedures by which audited financial statements are prepared? A. The Matching Principle. B. The Cash Flow Identity. C. Generally Accepted Accounting Principles. D. Financial Accounting Reporting Principles. E. Standard Accounting Value Guidelines.

C. Generally Accepted Accounting Principles.

Which of the following parties are considered stakeholders of a firm? I. Employee II. Long-term creditor III. Government IV. Common stockholder A. I only. B. IV only. C. I and III only. D. II and IV only. E. II, III, and IV only.

C. I and III only.

Which of the following are advantages of the corporate form of business ownership? I. Limited liability for firm debt. II. Double taxation. III. Ability to raise capital. IV. Unlimited firm life. A. I and II only. B. III and IV only. C. I, III, and IV only. D. II, III, and IV only. E. I, II, III, and IV.

C. I, III, and IV only.

The growth of both sole proprietorships and partnerships is frequently limited by their: A. Double taxation. B. Bylaws. C. Inability to raise cash. D. Limited liability. E. Organizational articles.

C. Inability to raise cash.

Sam, Alfredo, and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt? A. Sole proprietorship. B. Joint stock company. C. Limited partnership. D. General partnership. E. Corporation.

C. Limited partnership.

Which one of the following statements concerning net working capital is correct? A. The lower the value of net working capital is, the greater is the ability of a firm to meet its current obligations. B. An increase in net working capital must also increase current assets. C. Net working capital increases when inventory is sold for cash at a profit. D. Firms with equal amounts of net working capital are also equally liquid. E. Net working capital is a part of the operating cash flow.

C. Net working capital increases when inventory is sold for cash at a profit.

Which one of the following characteristics applies to a limited liability company? A. Available only to firms having a single owner. B. Limited liability for limited partners only. C. Taxed similar to a partnership. D. Taxed similar to a C corporation. E. All income generated is totally tax-free.

C. Taxed similar to a partnership.

Which one of the following statements concerning interest rates is correct? A. Savers would prefer annual compounding over monthly compounding given the same annual percentage rate. B. The effective annual rate decreases as the number of compounding periods per year increases. C. The effective annual rate equals the annual percentage rate when interest is compounded annually. D. Borrowers would prefer monthly compounding over annual compounding given the same annual percentage rate. E. For any positive rate of interest, the annual percentage rate will always exceed the effective annual rate.

C. The effective annual rate equals the annual percentage rate when interest is compounded annually.

Which one of the following statements related to an income statement is correct? Assume accrual accounting is used. A. The addition to retained earnings is equal to net income plus dividends paid. B. Credit sales are recorded on the income statement when the cash from the sale is collected. C. The labor costs for producing a product are expensed when the product is sold. D. Interest is a non-cash expense. E. Depreciation increases the marginal tax rate.

C. The labor costs for producing a product are expensed when the product is sold.

Which one of the following statements is correct concerning the NYSE? A. The publicly traded shares of a NYSE-listed firm must be worth at least $250 million. B. The NYSE is the largest dealer market for listed securities in the United States. C. The listing requirements for the NYSE are more stringent than those of NASDAQ. D. Any corporation desiring to be listed on the NYSE can do so for a fee. E. The NYSE is an OTC market functioning as both a primary and a secondary market.

C. The listing requirements for the NYSE are more stringent than those of NASDAQ.

Which one of the following statements concerning a sole proprietorship is correct? A. A sole proprietorship is designed to protect the personal assets of the owner. B. The profits of a sole proprietorship are subject to double taxation. C. The owner of a sole proprietorship is personally responsible for all of the company's debts. D. There are very few sole proprietorships remaining in the U.S. today. E. A sole proprietorship is structured the same as a limited liability company.

C. The owner of a sole proprietorship is personally responsible for all of the company's debts.

How is the principal amount of an interest-only loan repaid? A. The principal is forgiven over the loan period; thus it does not have to be repaid. B. The principal is repaid in decreasing increments and included in each loan payment. C. The principal is repaid in one lump sum at the end of the loan period. D. The principal is repaid in equal annual payments. E. The principal is repaid in increasing increments through regular monthly payments.

C. The principal is repaid in one lump sum at the end of the loan period.

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction: A. Took place in the primary market. B. Occurred in a dealer market. C. Was facilitated in the secondary market. D. Involved a proxy. E. Was a private placement.

C. Was facilitated in the secondary market.

Which one of the following represents the most liquid asset? A. $100 account receivable that is discounted and collected for $96 today. B. $100 of inventory which is sold today on credit for $103. C. $100 of inventory which is discounted and sold for $97 cash today. D. $100 of inventory that is sold today for $100 cash. E. $100 accounts receivable that will be collected in full next week.

D. $100 of inventory that is sold today for $100 cash.

Which one of the following statements is generally correct? A. Private placements must be registered with the SEC. B. All secondary markets are auction markets. C. Dealer markets have a physical trading floor. D. Auction markets match buy and sell orders. E. Dealers arrange trades but never own the securities traded.

D. Auction markets match buy and sell orders.

The _____ tax rate is equal to total taxes divided by total taxable income. A. Deductible. B. Residual. C. Total. D. Average. E. Marginal.

D. Average.

The cash flow of a firm that is available for distribution to the firm's creditors and stockholders is called the: A. Operating cash flow. B. Net capital spending. C. Net working capital. D. Cash flow from assets. E. Cash flow to stockholders.

D. Cash flow from assets.

You recently purchased a grocery store. At the time of the purchase, the store's market value equaled its book value. The purchase included the building, the fixtures, and the inventory. Which one of the following is most apt to cause the market value of this store to be lower than the book value? A. A sudden and unexpected increase in inflation. B. The replacement of old inventory items with more desirable products. C. Improvements to the surrounding area by other store owners. D. Construction of a new restricted access highway located between the store and the surrounding residential areas. E. Addition of a stop light at the main entrance to the store's parking lot.

D. Construction of a new restricted access highway located between the store and the surrounding residential areas.

Which form of business structure is most associated with agency problems? A. Sole proprietorship. B. General partnership. C. Limited partnership. D. Corporation. E. Limited liability company.

D. Corporation.

Which type of business organization has all the respective rights and privileges of a legal person? A. Sole proprietorship. B. General partnership. C. Limited partnership. D. Corporation. E. Limited liability company.

D. Corporation.

Which one of the following is a capital structure decision? A. Determining which one of two projects to accept. B. Determining how to allocate investment funds to multiple projects. C. Determining the amount of funds needed to finance customer purchases of a new product. D. Determining how much debt should be assumed to fund a project. E. Determining how much inventory will be needed to support a project.

D. Determining how much debt should be assumed to fund a project.

Noncash items refer to: A. Accrued expenses. B. Inventory items purchased using credit. C. The ownership of intangible assets such as patents. D. Expenses which do not directly affect cash flows. E. Sales which are made using store credit.

D. Expenses which do not directly affect cash flows.

Cash flow from assets is also known as the firm's: A. Capital structure. B. Equity structure. C. Hidden cash flow. D. Free cash flow. E. Historical cash flow.

D. Free cash flow.

A limited partnership: A. Has an unlimited life. B. Can opt to be taxed as a corporation. C. Terminates at the death of any limited partner. D. Has a greater ability to raise capital than a sole proprietorship. E. Consists solely of limited partners.

D. Has a greater ability to raise capital than a sole proprietorship.

Which one of the following is an agency cost? A. Accepting an investment opportunity that will add value to the firm. B. Increasing the quarterly dividend. C. Investing in a new project that creates firm value. D. Hiring outside accountants to audit the company's financial statements. E. Closing a division of the firm that is operating at a loss.

D. Hiring outside accountants to audit the company's financial statements.

Which of the following are expenses for accounting purposes but are not operating cash flows for financial purposes? I. Interest expense. II. Taxes. III. Cost of goods sold. IV. Depreciation. A. IV only. B. II and IV only. C. I and III only. D. I and IV only. E. I, II, and IV only.

D. I and IV only.

Which of the following accounts are included in working capital management? I. Accounts Payable II. Accounts Receivable III. Fixed Assets IV. Inventory A. I and II only. B. I and III only. C. II and IV only. D. I, II, and IV only. E. II, III, and IV only.

D. I, II, and IV only.

Which of the following are cash flows from a corporation into the financial markets? I. Repayment of long-term debt. II. Payment of government taxes. III. Payment of loan interest. IV. Payment of quarterly dividend. A. I and II only. B. I and III only. C. II and IV only. D. I, III, and IV only. E. I, II, and III only.

D. I, III, and IV only.

An increase in the depreciation expense will do which of the following for a firm with taxable income of $80,000? I. Increase net income. II. Decrease net income. III. Increase the cash flow from assets. IV. Decrease the cash flow from assets. A. I only. B. II only. C. I and III only. D. II and III only. E. II and IV only.

D. II and III only.

Which of the following questions are addressed by financial managers? I. How should a product be marketed? II. Should customers be given 30 or 45 days to pay for their credit purchases? III. Should the firm borrow more money? IV. Should the firm acquire new equipment? A. I and IV only. B. II and III only. C. I, II, and III only. D. II, III, and IV only. E. I, II, III, and IV.

D. II, III, and IV only.

Which one of the following is NOT included in cash flow from assets? A. Accounts payable. B. Inventory. C. Sales. D. Interest expense. E. Cash account.

D. Interest expense.

Sally and Alicia currently are general partners in a business located in Atlanta, Georgia. They are content with their current tax situation but are both very uncomfortable with the unlimited liability to which they are each subjected. Which form of business entity should they consider to replace their general partnership assuming they wish to remain the only two owners of their business? Whichever organization they select, they wish to be treated equally. A. Sole proprietorship. B. Joint stock company. C. Limited partnership. D. Limited liability company. E. Corporation.

D. Limited liability company.

Decisions made by financial managers should primarily focus on increasing which one of the following? A. Size of the firm. B. Growth rate of the firm. C. Gross profit per unit produced. D. Market value per share of outstanding stock. E. Total sales.

D. Market value per share of outstanding stock.

Which one of the following statements concerning net working capital is correct? A. Net working capital increases when inventory is purchased with cash. B. Net working capital excludes inventory. C. Total assets must increase if net working capital increases. D. Net working capital may be a negative value. E. Net working capital is the amount of cash a firm currently has available for spending.

D. Net working capital may be a negative value.

Which one of these is most apt to be a fixed cost? A. Raw materials. B. Manufacturing wages. C. Management bonuses. D. Office salaries. E. Shipping and freight.

D. Office salaries.

The entire repayment of which one of the following loans is computed simply by computing one single future value? A. Interest-only loan. B. Balloon loan. C. Amortized loan. D. Pure discount loan. E. Bullet loan.

D. Pure discount loan.

A loan where the borrower receives money today and repays a single lump sum on a future date is called a(n) _____ loan. A. Amortized. B. Continuous. C. Balloon. D. Pure discount. E. Interest-only.

D. Pure discount.

Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following? A. Primary, dealer market. B. Secondary, dealer market. C. Primary, auction market. D. Secondary, auction market. E. Secondary, OTC market.

D. Secondary, auction market.

Public offerings of debt and equity must be registered with which one of the following? A. New York Board of Governors. B. Federal Reserve. C. NYSE Registration Office. D. Securities and Exchange Commission. E. Market Dealers Exchange.

D. Securities and Exchange Commission.

Financial managers should primarily focus on the interests of: A. Stakeholders. B. The vice president of finance. C. Their immediate supervisor. D. Shareholders. E. The board of directors.

D. Shareholders.

Which one of the following statements concerning stock exchanges is correct? A. NASDAQ is a broker market. B. The NYSE is a dealer market. C. The exchange with the strictest listing requirements is NASDAQ. D. Some large companies are listed on NASDAQ. E. Most debt securities are traded on the NYSE.

D. Some large companies are listed on NASDAQ.

Which one of the following statements related to an income statement is correct? A. Interest expense increases the amount of tax due. B. Depreciation does not affect taxes since it is a non-cash expense. C. Net income is distributed to dividends and paid-in surplus. D. Taxes reduce both net income and operating cash flow. E. Interest expense is included in operating cash flow.

D. Taxes reduce both net income and operating cash flow.

Which one of the following must be true if a firm had a negative cash flow from assets? A. The firm borrowed money. B. The firm acquired new fixed assets. C. The firm had a net loss for the period. D. The firm utilized outside funding. E. Newly issued shares of stock were sold.

D. The firm utilized outside funding.

Which one of the following accurately defines a perpetuity? A. A limited number of equal payments paid in even time increments. B. Payments of equal amounts that are paid irregularly but indefinitely. C. Varying amounts that are paid at even intervals forever. D. Unending equal payments paid at equal time intervals. E. Unending equal payments paid at either equal or unequal time intervals.

D. Unending equal payments paid at equal time intervals.

Which one of the following terms is defined as the management of a firm's long term investments? a. working capital management b. financial allocation c. agency cost analysis d. capital budgeting e. capital structure

D. capital budgeting

Which one of the following correctly defines the upward chain of command in a typical corporate organizational structure? A. The vice president of finance reports to the chairman of the board. B. The chief executive officer reports to the president. C. The controller reports to the president. D. The treasurer reports to the vice president of finance. E. The chief operations officer reports to the vice president of production.

D. the treasurer reports to the vice president of finance

A Canadian consol is best categorized as: A. An ordinary annuity. B. An amortized cash flow. C. An annuity due. D. A discounted loan. E. A perpetuity.

E. A perpetuity.

The decision to issue additional shares of stock is an example of which one of the following? A. Working capital management. B. Net working capital decision. C. Capital budgeting. D. Controller's duties. E. Capital structure decision.

E. Capital structure decision.

The cash flow related to interest payments less any net new borrowing is called the: A. Operating cash flow. B. Capital spending cash flow. C. Net working capital. D. Cash flow from assets. E. Cash flow to creditors.

E. Cash flow to creditors.

Net working capital is defined as: A. Total liabilities minus shareholders' equity. B. Current liabilities minus shareholders' equity. C. Fixed assets minus long-term liabilities. D. Total assets minus total liabilities. E. Current assets minus current liabilities.

E. Current assets minus current liabilities.

Corporate bylaws: A. Must be amended should a firm decide to increase the number of shares authorized. B. Cannot be amended once adopted. C. Define the name by which the firm will operate. D. Describe the intended life and purpose of the organization. E. Determine how a corporation regulates itself.

E. Determine how a corporation regulates itself.

Cash flow to stockholders is defined as: A. The total amount of interest and dividends paid during the past year. B. The change in total equity over the past year. C. Cash flow from assets plus the cash flow to creditors. D. Operating cash flow minus the cash flow to creditors. E. Dividend payments less net new equity raised.

E. Dividend payments less net new equity raised.

Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes. I. Compensation based on the value of the stock. II. Stock option plans. III. Threat of a company takeover. IV. Threat of a proxy fight. A. I and II only. B. III and IV only. C. I, II, and III only. D. I, III, and IV only. E. I, II, III, and IV.

E. I, II, III, and IV.

Which of the following should a financial manager consider when analyzing a capital budgeting project? I. Project start-up costs. II. Timing of all projected cash flows. III. Dependability of future cash flows. IV. Dollar amount of each projected cash flow. A. I and IV only. B. I, II, and IV only. C. I, II, and III only. D. II, III, and IV only. E. I, II, III, and IV.

E. I, II, III, and IV.

Which of the following is (are) included in the market value of a firm but is (are) excluded from the firm's book value? I. Value of management skills. II. Value of a copyright. III. Value of the firm's reputation. IV. Value of employee's experience. A. I only. B. II only. C. III and IV only. D. I, II, and III only. E. I, III, and IV only.

E. I, III, and IV only.

Which of the following apply to a partnership that consists solely of general partners? I. Double taxation of partnership profits. II. Limited partnership life. III. Active involvement in the firm by all the partners. IV. Unlimited personal liability for all partnership debts. A. II only. B. I and II only. C. II and III only. D. I, II, and IV only. E. II, III, and IV only.

E. II, III, and IV only.

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? A. Increase in the amount of the quarterly dividend. B. Decrease in the per unit production costs. C. Increase in the number of shares outstanding. D. Decrease in the net working capital. E. Increase in the market value per share.

E. Increase in the market value per share.

Which one of the following actions by a financial manager is most apt to create an agency problem? A. Refusing to borrow money when doing so will create losses for the firm. B. Refusing to lower selling prices if doing so will reduce the net profits. C. Refusing to expand the company if doing so will lower the value of the equity. D. Agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales. E. Increasing current profits when doing so lowers the value of the firm's equity.

E. Increasing current profits when doing so lowers the value of the firm's equity.

Which one of the following terms is used to describe a loan that calls for periodic interest payments and a lump sum principal payment? A. Amortized loan. B. Modified loan. C. Balloon loan. D. Pure discount loan. E. Interest-only loan.

E. Interest-only loan.

Which one of the following statements concerning a sole proprietorship is correct? A. The life of a sole proprietorship is potentially unlimited. B. A sole proprietor can generally raise large sums of capital quite easily. C. Transferring ownership of a sole proprietorship is easier than transferring ownership of a corporation. D. A sole proprietorship is taxed the same as a C corporation. E. It is easy to create a sole proprietorship.

E. It is easy to create a sole proprietorship.

The Sarbanes-Oxley Act of 2002 is a governmental response to: A. Decreasing corporate profits. B. The terrorists attacks on 9/11/2001. C. A weakening economy. D. Deregulation of the stock exchanges. E. Management greed and abuses.

E. Management greed and abuses.

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate. A. Mean. B. Residual. C. Total. D. Average. E. Marginal.

E. Marginal.

Which one of the following best describes the primary advantage of being a limited partner instead of a general partner? A. Tax-free income. B. Active participation in the firm's activities. C. No potential financial loss. D. Greater control over the business affairs of the partnership. E. Maximum loss limited to the capital invested.

E. Maximum loss limited to the capital invested.

Which one of the following is a means by which shareholders can replace company management? A. Stock options. B. Promotion. C. Sarbanes-Oxley Act. D. Agency play. E. Proxy fight.

E. Proxy fight.

Shareholders' equity: A. Is referred to as a firm's financial leverage. B. Is equal to total assets plus total liabilities. C. Decreases whenever new shares of stock are issued. D. Includes patents, preferred stock, and common stock. E. Represents the residual value of a firm.

E. Represents the residual value of a firm.

Which one of the following will decrease the value of a firm's net working capital? A. Using cash to pay a supplier. B. Depreciating an asset. C. Collecting an accounts receivable. D. Purchasing inventory on credit. E. Selling inventory at a loss.

E. Selling inventory at a loss.

Which one of the following parties has ultimate control of a corporation? A. Chairman of the board. B. Board of directors. C. Chief executive officer. D. Chief operating office. E. Shareholders.

E. Shareholders.

Corporate dividends are: A. Tax-free income because they represent a repayment of the cost to purchase corporate shares. B. Not taxed as shareholders pay taxes on corporate income when it is earned. C. Tax-free since the corporation pays tax on that income when it is earned. D. Taxed at both the corporate and the personal level when the dividends are paid. E. Taxable as personal income when received by shareholders even though that income was taxed at the corporate level.

E. Taxable as personal income when received by shareholders even though that income was taxed at the corporate level.

Which one of the following statements related to taxes is correct? A. The marginal tax rate must be equal to or lower than the average tax rate for a firm. B. The tax for a firm is computed by multiplying the firm's current marginal tax rate times the taxable income. C. Additional income is taxed at a firm's average tax rate. D. Given the tax structure in 2014, the highest average corporate tax rate is 34 percent. E. The marginal tax rate for a firm can be either higher than or the same as the average tax rate.

E. The marginal tax rate for a firm can be either higher than or the same as the average tax rate.

Which one of these statements related to growing annuities and perpetuities is correct? A. You can compute the present value of a growing annuity but not a growing perpetuity. B. In computing the present value of a growing annuity, you discount the cash flows using the growth rate as the discount rate. C. The future value of an annuity will decrease if the growth rate is increased. D. An increase in the rate of growth will decrease the present value of an annuity. E. The present value of a growing perpetuity will decrease if the discount rate is increased.

E. The present value of a growing perpetuity will decrease if the discount rate is increased.

Which one of the following statements correctly defines a time value of money relationship? A. Time and future values are inversely related, all else held constant. B. Interest rates and time are positively related, all else held constant. C. An increase in a positive discount rate increases the present value. D. An increase in time increases the future value given a zero rate of interest. E. Time and present value are inversely related, all else held constant.

E. Time and present value are inversely related, all else held constant.

The controller of a corporation generally reports directly to the: A. Board of directors. B. Chairman of the board. C. Chief executive officer. D. President. E. Vice president of finance.

E. vice president of finance

A business created as a distinct legal entity and treated as a legal "person" is called a: a. corporation b. sole proprietorship c. general partnership d. limited partnership e. unlimited liability company

a. corporation

Which one of the following is defined as a firm's short-term assets and its short-term liabilities? a. working capital b. debt c. investment capital d. net capital e capital structure

a. working capital

A business owned by a solitary individual who has unlimited liability for its debt is called a: a. corporation b. sole proprietorship c. general proprietorship d. limited partnership e. limited liability company

b. sole proprietorship

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? a. articles of incorporation b. corporate breakdown c. agency problem d. bylaws e. legal liability

c. agency problem

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a: a. corporation b. sole proprietorship c. general partnership d. limited partnership e. limited liabilty

c. general partnership

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: a. general partner b. sole proprietor c. limited partner d. corporate shareholder e. zero partner

c. limited partner

a stakeholder is: a. a person who owns shares of stock b. any person who has voting rights based on stock ownership of a corporation c. a person who initially founded a firm and currently owes money d. a creditor to whom a firm currently owes money e. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm

e. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm

Which one of the following terms is defined as the mixture of a firm's debt and equity financing? a. working capital management b. cash management c. cost analysis d. capital budgeting e. capital structure

e. capital structure