Principles of finance 1
Why don't large businesses organize as sole proprietorships or partnerships?
Businesses want to maximize their liability. These forms of business organization are too complicated to manage on a large scale. O it can be difficult to raise cash for investment in these forms, and that limits the ability of the business to grow. O It is too easy to transfer ownership from one party to another.
How is ownership of a corporation represented?
Buying a company's products Bonds Shares of stock
Which term applies to the mixture of debt and equity maintained by a firm?
Capital budget Cash management Net working capital Capital structure
The federal government taxes which of the following?
Corporate earnings and shareholder dividends Shareholder dividends but not corporate earnings Corporate earnings but not shareholder dividends Neither corporate earnings nor shareholder dividends
When are corporate profits taxed?
Corporations don't pay taxes. Corporations pay taxes on all money coming in. Individuals pay taxes on corporate dividends. Corporations pay taxes on corporate profits.
Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley?
Disney Tyco Enron WoridCom
The controller is responsible for which of the following tasks? (Select all that apply.)
Financial accounting Capital expenditures Raising capital Tax reporting and payments
A good financial decision will do which of the following?
Increase the value of the firm's existing stock Increase current dividends per share Increase the cost of capital Increase market value of shareholders' equity
Corporations in other countries are often called: (Select all that apply.)
Joint stock companies Limited liability companies Re-calibrated partnerships Autonomous entities Public limited companies
BLANK budgeting is the process of planning and managing a firm's long-term assets.
O Capital O Conventional O Optional O Performance based
Which of the following are included in a firm's capital structure?
O Current assets Long-term debt Equity ONet sales
Is profit maximization the primary objective of a business?
O It depends; sometimes profit maximization is the most important objective, and sometimes it isn't. O No; profit maximization may not take into account other strategic objectives necessary to maximize shareholder value. O Yes; the entire point of running a business is to make as much money as possible for everyone involved.
A general partnership has which of the following characteristics?
O It is always regulated by a formal partnership agreement. All the partners share in gains or losses of the partnership. O Large amounts of cash can be raised easily. Each owner has unlimited liability for all firm debts.
How does the Sarbanes-Oxley Act primarily work to make sure that companies tell the truth in financial statements?
O It levies hefty fines for errors. O It has government auditors review all financial statements for potential errors omissions. O it makes management personally responsible for the accuracy of a company's financial statements.
True or false: The Sarbanes-Oxley Act provides incentives for companies to go public in US markets.
O True False
A corporation borrows money in its own name.
O True O False
Which of the following are key questions for investments? Select all that apply.
O What are the risks andewards associated with investing? What determines the price of a financial asset? O What is the best mixture of financial assets to hold? O How much money should you have to open a portfolio? What are stocks?
Which of these have been noted as unintended consequences of the Sarbanes-Oxley Act?
O firms going public outside of the U.S. market eliminating public disclosure for many firms more accurate financial disclosures public firms "going dark" and leaving the stock market
Businesses are motivated to organize as corporations because stockholders in a corporation have liability for corporate debts.
O no unlimited personal limited
In a for-profit business, owners' equity is equivalent to:
O the money they put in O the total value of stock in a corporation O the total value of average profits O the business's profits
How is ownership transferred in a corporation?
Ownership is transferred only with prior approval from the board of directors. Ownership in a corporation cannot be transferred. Ownership can be transferred only if the firm is sold. Ownership is transferred by gifting or selling shares of stock.
Which of the following is NOT one of the basic areas of finance?
Personal finance O Investments O International finance O Corporate finance O Financial institutions
A shareholder's liability is limited to which of these?
The corporation's current liabilities The amount the shareholder invested in the corporation O The corporation's outstanding long-term debt O The percentage of corporate debt that equals the shareholder's ownership percentage
What is the main goal of financial management?
To make sure that the managers hold the majority of the shares in the company O To maximize expenses O To raise as much capital as possible O To maximize current share value
apply Which of the following positions generally report to the chief financial officer (CFO)?
Treasurer Controller O Chief executive officer (CEO) O Director of marketing
Which corporate officer is responsible for managing the firm's cash?
Treasurer Sales manager Controller Cost accounting manager
True or false: The Sarbanes-Oxley Act provides incentives for companies to go public in US markets.
True False
True or false: In a large corporation, stockholders and managers are usually separate groups.
True False
True or False: "Profit maximization" is the goal for the management of a corporation in short-run only.
True false
Which of the following is a disadvantage of sole proprietorships and partnerships?
Unlimited life of the business Difficulty of transferring ownership Separation of ownership and management Double taxation
According to the textbook, which of the following is not one of the three main questions to be addressed if you wanted to start your own business?
What long-term investments should be made? O How will everyday financial activities be handled? O Where will long-term financing be obtained to pay for investments? O How many employees will I need?
Which of these topics is not of especial interest to a financial manager?
Working capital management Product development Capital budgeting Capital structure
An organization must prepare and bylaws when forming a corporation.
an indenture agreement O articles of incorporation a partnership agreement O a legal will
What three subjects is the financial manager concerned with?
capital structure working capital management O designing new products capital budgeting
Working capital includes which of the following?
cash inventory short-term assets equipment
Public limited companies and joint stock companies are other names for
companies proprietorships partnerships corporations
A business without separate legal authority formed by two or more people is known as a
conglomerate partnership corporation sole proprietorship
Capital budgeting is concerned with making and managing expenditures on
current assets current liabilities long-term assets long-term liabilities
"Increasing shareholder wealth" means increasing the
current common stock value book value of liabilities current bond value market value of liabilities
The Sarbanes-Oxley Act is intended to strengthen protection against:
destroying shareholder wealth with bad decisions using overseas tax havens corporate accounting fraud and financial malpractice O companies going out of business
A partnership must have at least owners.
four ten O two O three
A partnership in which partners share in gains or losses, and carry unlimited liability for all partnership debts, is called a
general partnership limited liability partnership. propietorship corporation
What type of partnership involves both general and limited partners to run the business?
general partnership corporation sole propietorship limited partnership
A treasurer's responsibilities typically include:
handling cash flows. financial accounting making financial plans managing capital expenditure decisions.
A corporation is a distinct entity and as such can have a name and take advantage of the legal powers of natural persons.
illegal patriotic retributive legal
A sole proprietor has personal liability for all business debts and obligations.
limited little O no O unlimited
A limited liability company's owners have liability.
limited narrowly defined limited unlimited no liability
In a limited partnership, a limited partner's liability for business debts is
limited by their average annual income over the life of the partnership $0 unlimited limited to their cash contribution to the partnership
The goal of a "for profit" business is to the value of shareholder wealth.
maximize minimize O recognize O maintain
A bad financial decision is defined as a decision that shareholder wealth.
maximizes Increases decreases
A limited liability company is taxed like a but retains for owners.
partnership; complete liability proprietorship; complete liability partnership; ownership interest partnership; limited liability proprietorship; limited liability
Since and ownership are separated, corporation's life is unlimited.
profitability management taxation debt
A sole proprietorship is a business that
provides limited personal liability to its owner Ois owned by one person is similar to a limited partnership is organized with bylaws
The owners of a corporation are called
shareholders partners bondholders government agents
Ensuring that the firm has sufficient funds to continue operations on a day-to-day basis comes under the heading of Management.
total asset accounts receivables working capital fixed asset
The office is responsible for corporate tax reporting.
treasurer's controller's ombudsman's chief operating officer's
