Chapter 1

Which type of business is the easiest to form

sole proprietorship

Which one of the following statements is correct concerning the organizational structure of a corporation?

the chief executive officer reports to the Board of Directors

Agency costs refers to

the costs of any conflicts of interest between stockholders and management

Financial managers should strive to maximize the current value per share of the existing stock because

the current stockholders are the owners of the corporation

The issuance of new equity shares is a cash flow from

the financial markets to a firm

Which one of the following statements concerning a sole proprietorship is correct?

the owner of a sole proprietorship may be forced to sell his/her personal assets to pay company debts

The person generally directly responsible for overseeing the cash and credit functions, financial planning, and capital expenditures is

treasurer

The management of a firm's short-term assets and liabilities is called

working capital management

Which one of the following statements is correct?

Both sole proprietorships and partnerships are taxed in a similar fashion

The treasurer and controller of a corporation generally report to the

Chief Financial Officer

Which type of business organization has all respective rights and privileges of a legal person?

Corporation

The primary purpose of the Sarbanes Oxley Act of 2002 was to

protect investors from corporate abuses

Which position is generally directly responsible for financial planning and capital expenditures?

Treasurer

Which one of these terms refers to a conflict of interest between the stockholders and managers of a corporation?

agency problem

A conflict of interest between the stockholders and management of a firm is called

an agency problem

Sole proprietorships

are limited to the business owner's life

The process of planning and managing a firm's long-term investments is called

capital budgeting

The mixture of debt and equity used by a firm to finance its operation is called

capital structure

The person generally directly responsible for overseeing the tax management, cost accounting, financial accounting, and information system functions is the

controller

A business created as a distinct legal entity composed of one or more individuals or entities is called a

corporation

Which form of business structure faces the greatest agency problems?

corporation

Which form(s) of business is treated as a distinct legal entity separate from its owners?

corporation

Which one of the following business types is best suited to raising large amounts of capital?

corporation

Which one of the following is a capital budgeting decision?

deciding whether or not to open a new store

Capital structure refers to

decisions related to long-term debt and equity financing

Short-term finance

is concerned with managing net working capital

A business entity operated and taxed like a partnership, but with limited liability for the owners, is called a

limited liability company

The division of profits and losses among the members of a partnership is formalized in the:

partnership agreement