Finn 3120 Chapter 1

What is an auction market?

Auction markets actually have a physical location (ex. Wall street) - dealers play a limited role here. The primary purpose is to match buyers and sellers.

Growth can summarize various aspects of a firm's __________ and ___________ policies.

Financial, Investment

What is the Sarbanes-Oxley Act of 2002?

It is an act intended to strengthen protection against corporate accounting fraud and financial malpractice

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

Limited Partnership

what do brokers and agents do

Match buyers and sellers. However, they do not actually own the commodity itself.

What is an example of an OTC market?

NASDAQ

Describe NASDAQ relative to NYSE

NASDAQ has many more companies listed there but they are smaller in size and are much less active than the NYSE. In addition, they have a much lower total value than the NYSE.

Give an example of an organized auction market

NYSE

Which one of the following statements correctly applies to a sole proprietorship?

Obtaining additional equity is dependent on the owner's personal finances

The issuer of a security must be involved in all _____ transactions involving that security.

Primary market

what are the primary pros and cons of a corporation

Pros: ease of transferring ownership, limited liability of business debts, and unlimited life of the business Cons: double taxation

who are stakeholders

Someone other than a stockholder who potentially has a claim on the cash flows of the firm (Individuals, department, families, community, law enforcement)

what is an over the counter market

a dealer market in stocks and long term debts

what is a proxy fight

a mechanism by which unhappy stockholders can act to replace existing management

What is a secondary market

a place where securities are bought and sold after the original sale. This involves one creditor/owner selling to another.

what two documents must a corporation have

articles of incorporation and bylaws

Probably the least effective means of aligning management goals with shareholder interests is:

automatically increasing management salaries on an annual basis.

what is managerial compensation typically contingent upon

financial performance and share value of the company

A sole proprietorship:

has its profits taxed as personal income.

Where are corporate securities most often traded

in organized auction markets

Who does the sarbanes-oxley act hold accountable for the accuracy of a company's financial statements?

management

what is the general goal of financial management

maximizing the market value of the existing owner's equity

what does capital budgeting consist of

planning and managing a firm's long term investments

what is the primary goal of financial management

profit maximization

what are public offerings

selling securities to the general public

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):

stakeholder

An employee has a claim on the cash flows of Martin's Machines. This claim is defined as a claim by one of the firm's:

stakeholders

who must public offerings be registered with?

the Securities and Exchange Commission

What is a primary market

the original sale of securities by governments and corporations

What is the agency problem?

the possibility of conflict of interest between the stockholders and management of a firm

what are agency relationships

the relationship between stockholders and managers

what is capital structure

the specific mixture of long-term debt and equity the firm uses to finance its operations

How are stocks put on exchanges?

they are listed

what are the 4 basic areas of finance?

1. corporate finance 2. investments 3. financial institutions 4. international finance

What are the 3 minimums that the NYSE has in order for stocks to be listed there?

1. earnings 2. assets 3. number and market value of shares outstanding

what % of all shares traded in auction markets does the NYSE account for?

85%

What is a dealer market

A market where dealers can buy and sell for themselves at their own risk

What is private placement? Does it require underwriters?

A negotiated sale involving a specific buyer. It does not require underwriters

When evaluating financial planning steps, we must consider all of the following, except:

The project horizon for the next 30 to 90 days.

What are some examples of international stock exchanges?

Tokyo and London Stock Exchanges

To generate a coherent plan, goals and objectives will have to be modified, and priorities will have to be established. (T/F)

True

what are some very important evaluations to be made in capital budgeting

evaluation of the size, timing, and risk of future cash flows

what is working capital management

ensuring the firm has sufficient resources to continue its operations and avoid costly interruptions

The Sarbanes-Oxley Act of 2002 has:

essentially made officers of publicly traded firms personally responsible for the firm's financial statements.

what is the goal of financial management in a corporation?

to maximize the current value per share of the existing stock

where does control of the firm ultimately rest

with the stockholders