Test 1 (chapter 1)

The primary goal of corporate financial management is to maximize the: a. total revenue of the firm. b. number of shares of common stock outstanding. c. current value per share of the existing stock. d. current net income of the firm.

current value per share of the existing stock

The Sarbanes-Oxley Act in 2002 is designed to protect the public against... a. a firm's net operating losses if those losses extend beyond a 2-year period. b. declines in the market value of a firm's outstanding shares of stock. c. financial malpractice and accounting fraud. d. a firm's issuing additional shares of stock if the issue will reduce the market value of the current outstanding shares.

financial malpractice and accounting fraud

A limited partner... a. has no personal responsibility for the debts incurred by the partnership. b. is guaranteed a return of his or her entire investment in the partnership if the partnership terminates. c. can only control the daily operations for an individual segment of the partnership. d. has minimal control, if any, over the daily operations of the partnership.

has minimal control, if any, over the daily operations of the partnership

The NYSE: a. has the most stringent listing requirements of any U.S. exchange. b. is all electronic and has its base of operations in New York City. c. is best described as a centralized dealer market. d. exists solely a primary market.

has the most stringent listing requirements of any U.S. exchange.

The Sarbanes-Oxley Act of 2002: a. requires all corporations to comply with the terms of the act. b. has significantly increased the number of firms opting to go public in the U.S. c. imposed some significant costs on U.S. corporations. d. makes the chief financial officer solely responsible for the accuracy of the firm's financial statements.

imposed some significant costs on U.S. corporations.

The goal of financial management is to maximize the: a. market value of the existing owners' equity. b. current dividends. c. total assets owned by the firm. d. current net income.

market value of the existing owners' equity.

Capital structure refers to the: a. type of firm ownership selected. b. mix of a firm's short-term assets. c. mix of plant and equipment used for operational purposes. d. mix of debt and equity used to finance a firm's operations.

mix of debt and equity used to finance a firm's operations.

Which one of the following forms of management compensation best addresses the agency problem? a. flat annual salary b. salary based on annual net income c. stock options d. annual bonus based on revenue growth

stock options

The decision concerning the types and amounts of items to be held in inventory is a _____ decision a. working capital management b. capital budgeting c. capital structure d. portfolio management

working capital management

An agency problem is most apt to exist in which one of the following situation? a. an employee asks for a raise and is denied b. a management decision increases the market value of the firm's stock c. a board member resigns for personal reasons d. a firm's board decides to increase management bonuses and forego the normal stock dividend

A firm's board decides to increase management bonuses and forego the normal stock dividend

Example of a primary market transaction? a. Theo, the president of ABC, sells some of his shares in ABC on the NYSE b. ABC offers newly issued shares to the general public c. Tom instructs his broker to sell all of his shares in ABC, Inc. d. Mary gifts shares of ABC stock to her son

ABC offers newly issued shares to the general public

Which one of the following entities is considered a legal "person"? a. corporation b. general partnership c. limited partnership d. sole proprietorship

Corporation

Which one of the following functions is generally under the control of the corporate treasurer? a. cost accounting b. tax management c. financial planning d. financial accounting

Financial planning

The chief financial officer of a corporation generally reports directly to the firm's: a. chairman of the board. b. chief executive officer. c. president. d. shareholders.

President

Which one of the following types of loans is repaid in one lump sum payment? a. pure discount b. amortized c. interest-only d. installment

Pure discount

Public offerings of both debt and equity securities are regulated by the... a. Securities and Exchange Commission. b. U.S. Banking and Financial Services Agency. c. U.S. Treasury Department. d. Federal Reserve.

Securities and Exchange Commission

Who has the ultimate control over a corporation? a. shareholders b. chief executive officer c. chairman of the board d. board of directors

Shareholders

Which one of the following is a capital structure decision? a. Should a new machine be purchased this year? b. Should the credit terms offered to customers be revised? c. Should debt or equity financing be used to purchase a building? d. Should the level of inventory be increased?

Should debt or equity financing be used to purchase a building?

Who has the greatest control over a firm's daily operations? a. limited partner b. major stockholder in a corporation c. minor stockholder in a joint stock company d. sole proprietor

Sole proprietor

Who has unlimited personal liability for the debts of the business entity? a. general and limited partners b. sole proprietors and limited partners c. sole proprietors and general partners d. limited partners and common stockholders

Sole proprietors and general partners

What kind of liability does a general partner have for partnership debts? a. none b. liability limited to amount invested in the firm c. liability limited based on percentage ownership d. unlimited

Unlimited