Fin 340 Chp 1

Investments

If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?

the total debts of the partnership, even if he was unaware of those debts

In a general partnership, each partner is personally liable for: only the partnership debts that he or she personally created. his or her proportionate share of all partnership debts regardless of which partner incurred that debt. the total debts of the partnership, even if he or she was unaware of those debts. the debts of the partnership up to the amount he or she invested in the firm. all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts.

ability to raise larger sums of equity capital than other organizational forms.

One advantage of the corporate form of organization is the:

Working Capital Management

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts as referred to as:

Capital Structure

Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm's:

frequently use accounting information

When conducting a financial analysis of a firm, financial analysts:

Increase the protections against corporate fraud

Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002? Decrease the number of corporations that can be publicly traded Increase the protections against corporate fraud Limit secondary issues of corporate securities Increase the dividends paid to shareholders Increase the number of firms that "go dark"

NASDAQ has more listed stocks than does the NYSE

Which one of the following statements is correct? NASDAQ has more listed stocks than does the NYSE. The NYSE is a dealer market. NASDAQ is an auction market. NASDAQ has the most stringent listing requirements of any U.S. exchange. The trading floor for NASDAQ is located in Chicago.

Secondary market

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the:

have the ability to change the corporation's law

Corporate shareholders: are proportionately liable for the firm's debts. are protected from all financial losses. have the ability to change the corporation's bylaws. receive tax-free distributions since all profits are taxed at the corporate level. have basically no control over the actual corporation.

buy and sell from their own inventory

Security dealers: match buyers with sellers. buy and sell from their own inventory. operate on a physical trading floor. operate exclusively in auction markets. are limited to trading non-listed stocks.

Size, timing, and risk of future cash flows

Capital budgeting includes the evaluation of which of the following? Size of future cash flows only Size and timing of future cash flows only Timing and risk of future cash flows only Risk and size of future cash flows only Size, timing, and risk of future cash flows

the control of a firm is separated from the firm's ownership

An agency issue is most apt to develop when: a firm encounters a period of stagnant growth. a firm downsizes. the control of a firm is separated from the firm's ownership. the firm's owner is also its key manager. a firm is structured as a general partnership.

has a physical trading floor

An auction market: is an electronic means of exchanging securities. has a physical trading floor. handles primary market transactions exclusively. is also referred to as an OTC market. is dealer-based.

sale of 1000 shares of newly issued stock by Alt Company to Miquel

One example of a primary market transaction would be the: sale of 100 shares of stock by Maria to her best friend. purchase by Theo of 5,000 shares of stock from his father. sale of 1,000 shares of newly issued stock by Alt Company to Miquel. sale by Terry of 50,000 shares of stock to his brother. sale of 5,000 shares of stock owned by a corporate CEO to his son.

prefers it's profits to be taxed as personal income to it's owners

A limited liability company (LLC): is a hybrid between a sole proprietorship and a partnership. prefers its profits be taxed as personal income to its owners. that meets the IRS criteria to be an LLC will be taxed like a corporation. provides limited liability for some, but not all, of its owners. cannot be created for professional service firms, such as accountants and attorneys.

market value of the firm

The primary goal of financial management is most associated with increasing the

Agency Conflict

The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of:

Limited Partnership

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners? Sole proprietorship General partnership Limited partnership Limited liability company Corporation

has profits taxed as personal income

A sole proprietorship:

is a legal entity separate from it's owners

A corporation:

stakeholders

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

a life-insurance company

A private placement is most apt to involve: a large number of private investors. only foreign investors. a life-insurance company. several private securities dealers. the U.S. Treasury department.

International Finance

Jamie is employed as a currency trader in the Japanese yen market. Her job falls into which one of the following areas of finance?

Capital Structure Management

Jenna has been promoted and is now in charge of all external financing. In other words, she is in charge of:

stakeholder

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):

Sole Proprietorship

Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts?

automaticially increasing management salaries on an annual basis

Probably the least effective means of aligning management goals with shareholder interests is: the potential for a proxy fight by an unhappy segment of shareholders. basing all management bonuses on performance goals. holding management salaries steady while increasing stock option grants. the threat of a takeover of the firm. automatically increasing management salaries on an annual basis.

Corporate accounting and financial fraud

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?

primary market

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

provide limited liability while avoiding double taxation

Limited liability companies are primarily designed to: allow a portion of their owners to enjoy limited liability while granting the other portion of their owners control over the entity. provide the benefits of the corporate structure only to foreign-based entities. spin off a wholly owned subsidiary. allow companies to reorganize themselves through the bankruptcy process. provide limited liability while avoiding double taxation.

I, III, and IV only

Maria is the sole proprietor of an antique store that is located in a rented warehouse. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed? I. Sell the inventory and apply the proceeds to the debt II. Sell the lighting fixtures from the building and apply the proceeds to the debt III. Withdraw funds from Maria's personal account at the bank to pay the store's debt IV. Sell any assets Maria personally owns and apply the proceeds to the store's debt

Corporation

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

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

The Sarbanes-Oxley Act of 2002 has: reduced the annual compliance costs of all publicly traded firms in the U.S. decreased senior management's involvement in the corporate annual report. greatly increased the number of U.S. firms that are going public for the first time. decreased the number of U.S. firms going public on foreign exchanges. essentially made officers of publicly traded firms personally responsible for the firm's financial statements.

working capital

The daily financial operations of a firm are primarily controlled by managing the: total debt level. working capital. capital structure. capital budget. long-term liabilities.

Any one of the partners can be held solely liable for all of the partnership's debt.

Which one of the following applies to a general partnership? The firm's operations must be controlled by a single partner. Any one of the partners can be held solely liable for all of the partnership's debt. The profits of the firm are taxed as a separate entity. Each partner's liability for the firm's debts is limited to each partner's investment in the firm. The profits of a general partnership are taxed the same as those of a corporation.

The controller reports directly to the CFO

Which one of the following correctly defines a common chain of command within a corporation? The controller reports directly to the corporate treasurer. The treasurer reports directly to the board of directors. The chief financial officer reports directly to the board of directors. The credit manager reports directly to the controller. The controller reports directly to the chief financial officer

Capital Expenditures

Which one of the following functions is generally a responsibility assigned to the corporate treasurer? Cost accounting Data processing Corporate taxes Financial accounting Capital expenditures

Cash Management

Which one of the following functions should be assigned to the corporate treasurer rather than to the controller? Data processing Cost accounting Tax management Cash management Financial accounting

Establishing the preferred debt-equity level

Which one of the following is a capital structure decision? Determining the optimal inventory level Establishing the preferred debt-equity level Selecting new equipment to purchase Setting the terms of sale for credit sales Determining when suppliers should be paid

Losses limited to capital investment

Which one of the following is an advantage of being a limited partner? Nontaxable share of any profits Control over the daily operations of the firm Losses limited to capital invested Unlimited profits without risk of incurring a loss Active market for ownership interest

compensating managers with shares of stock that must be held for a minimum of 3 years

Which one of the following is most apt to align management's priorities with shareholders' interests? Holding corporate and shareholder meetings at high-end resort-type locations preferred by managers Compensating managers with shares of stock that must be held for a minimum of three years Paying a special management bonus on every fifth year of employment Increasing the number of paid holidays that long-term employees are entitled to receive Allowing employees to retire early with full retirement benefits

CFO

Which one of the following occupations best fits into the corporate area of finance? Mortgage broker Treasury bill analyst Chief financial officer Insurance risk manager Local bank manager

ABC company

Which one of the following parties can sell shares of ABC stock in the primary market? ABC company Any corporation, other than the ABC company Any institutional shareholder Any private individual shareholder Only officers and directors of ABC company

Basing management bonuses on the length of employment

Which one of the following situations is most apt to create an agency conflict? Compensating a manager based on his or her division's net income Giving all employees a bonus if a certain level of efficiency is maintained Hiring an independent consultant to study the operating efficiency of the firm Basing management bonuses on the length of employment Laying off employees during a slack period

There must be at least one general partner

Which one of the following statements about a limited partnership is correct? All partners have their losses limited to their capital investment in the partnership. All partners are treated equally. There must be at least one general partner. Equity financing is easy to obtain and unlimited. Any partner can transfer his or her ownership interest without ending the partnership.

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

Which one of the following statements correctly applies to a sole proprietorship? The business entity has an unlimited life. The ownership can easily be transferred to another individual. The owner enjoys limited liability for the firm's debts. Debt financing is easy to arrange in the firm's name. Obtaining additional equity is dependent on the owner's personal finances.

The primary purpose of the NYSE is to match buyers with sellers

Which one of the following statements is correct? All of the major stock exchanges are U.S. based. The NYSE was created by the National Association of Securities Dealers in the early 1930s. The Chicago Stock Exchange is a dealer market. OTC markets have a physical trading floor generally located in either New York City or Chicago. The primary purpose of the NYSE is to match buyers with sellers.

General Partnership

Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

Determining which customers will be granted credit

Working capital management includes which one of the following? Deciding which new projects to accept Deciding whether to purchase a new machine or fix a currently owned machine Determining which customers will be granted credit Determining how many new shares of stock should be issued Establishing the target debt-equity ratio