Chapter 1 quiz

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

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

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

a. agency problem

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

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

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

a. corporation

Corporate bylaws: a. determine how a corporation regulates itself b. define the name by which the firm will operate c. describe the intended life and purpose of the organization d. must be amended should a firm decide to increase the number of shares authorized e. cannot be amended once adopted

a. determine how a corporation regulates itself

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

a. limited partner

The controller of a corporation generally reports directly to the: a. vice president of finance b. chief executive office c. board of directors d. chairman of the board e. president

a. vice president of finance

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

b. capital budgeting

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

b. determining whether to pay cash for a purchase or use the credit offered by the supplier

Which one of the following is a capital structure decision? a. determining how to allocate investment funds to multiple projects b. determining which one of two projects to accept c. determining how much debt should be assumed to fund a project d. determining the amount of funds needed to finance customer purchases of a new product e. determining how much inventory will be needed to support a project

c. determining how much debt should be assumed to fund a project

A limited partnership: a. consists solely of limited partners b. terminated at the death of any limited partner c. has a greater ability to raise capital than a sole proprietorship d. can opt to be taxed as a corporation e. has an unlimited life

c. has a greater ability to raise capital than a sole proprietorship

Which one of the following functions should be the responsibility of the controller rather than the treasurer? a. daily cash deposit b. equipment purchase analysis c. income tax returns d. payment to a vendor

c. income tax returns

Which one of the following statements concerning a sole proprietorship is correct? a. the profits of a sole proprietorship are subject to double taxation b. A sole proprietorship is designed to protect the personal assets of the owner 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

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. limited partnership c. sole proprietorship d. general partnership e. limited liability company

d. general partnership

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? a. decrease in the net working capital b. decrease in the per unit production costs c. increase in the number of share outstanding d. increase in the market value per share e. increase in the amount of the quarterly dividend

d. increase in the market value per share

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. no potential financial loss c. active participation in the firm's activities d. maximum loss limited to the capital invested e. greater control over the business affairs of the partnership

d. maximum loss limited to the capital invested

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

e. capital structure

Which one of the following is a capital budgeting decision? a. determining how many shares of stock to issue b. deciding how to refinance a debt issue that is maturing c. determining how much money should be kept in the checking account d. determining how much inventory to keep on hand e. deciding whether or not to purchase a new machine for the production line

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

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

e. sole proprietorship

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

e. working capital