FIN 3403 Chapter 1 Quiz

Which one of the following terms is defined as the management of a firm's long-term investments? A. Capital budgeting. B. Agency cost analysis. C. Capital structure. D. Financial allocation. E. Working capital management.

A. Capital budgeting.

Which one of the following is an agency cost? A. Closing a division of the firm that is operating at a loss. B. Hiring outside accountants to audit the company's financial statements. C. Investing in a new project that creates firm value. D. Increasing the quarterly dividend. E. Accepting an investment opportunity that will add value to the firm.

B. Hiring outside accountants to audit the company's financial statements.

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? A. Legal liability. B. Articles of incorporation. C. Corporate breakdown. D. Agency problem. E. Bylaws.

D. Agency problem.

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 correctly defines the upward chain of command in a typical corporate organizational structure? A. The chief executive officer reports to the president. B. The vice president of finance reports to the chairman of the board. C. The controller reports to the president. D. The treasurer reports to the vice president of finance. E. The chief operations officer reports to the vice president of production.

D. The treasurer reports to the vice president of finance.

Which one of the following best states the primary goal of financial management? A. Minimize operational costs while maximizing firm efficiency. B. Increase cash flow and avoid financial distress. C. Maintain steady growth while increasing current profits. D. Maximize current dividends per share. E. Maximize the current value per share.

E. Maximize the current value per share.

Corporate bylaws: A. Determine how a corporation regulates itself. B. Cannot be amended once adopted. C. Must be amended should a firm decide to increase the number of shares authorized. D. Describe the intended life and purpose of the organization. E. Define the name by which the firm will operate.

A. Determine how a corporation regulates itself.

Which of the following questions are addressed by financial managers? I. How should a product be marketed? II. Should customers be given 30 or 45 days to pay for their credit purchases? III. Should the firm borrow more money? IV. Should the firm acquire new equipment? A. II, III, and IV only. B. II and III only. C. I, II, III, and IV. D. I and IV only. E. I, II, and III only.

A. II, III, and IV only.

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? A. Increase in the market value per share. B. Increase in the amount of the quarterly dividend. C. Increase in the number of shares outstanding. D. Decrease in the net working capital. E. Decrease in the per unit production costs.

A. Increase in the market value per share.

Which one of the following actions by a financial manager is most apt to create an agency problem? A. Increasing current profits when doing so lowers the value of the firm's equity. B. Refusing to borrow money when doing so will create losses for the firm. C. Refusing to expand the company if doing so will lower the value of the equity. D. Refusing to lower selling prices if doing so will reduce the net profits. E. Agreein

A. Increasing current profits when doing so lowers the value of the firm's equity.

Sally and Alicia currently are general partners in a business located in Atlanta, Georgia. They are content with their current tax situation but are both very uncomfortable with the unlimited liability to which they are each subjected. Which form of business entity should they consider to replace their general partnership assuming they wish to remain the only two owners of their business? Whichever organization they select, they wish to be treated equally. A. Limited liability company. B. Joint stock company. C. Sole proprietorship. D. Corporation. E. Limited partnership.

A. Limited liability company.

Decisions made by financial managers should primarily focus on increasing which one of the following? A. Market value per share of outstanding stock. B. Gross profit per unit produced. C. Growth rate of the firm. D. Total sales. E. Size of the firm.

A. Market value per share of outstanding stock.

The Sarbanes-Oxley Act of 2002 is a governmental response to: A. The terrorists attacks on 9/11/2001. B. Management greed and abuses. C. A weakening economy. D. Deregulation of the stock exchanges. E. Decreasing corporate profits.

B. Management greed and abuses.

Why should financial managers strive to maximize the current value per share of the existing stock? A. Because this will increase the current dividends per share. B. Doing so increases employee salaries. C. Because they have been hired to represent the interests of the current shareholders. D. Doing so guarantees the company will grow in size at the maximum possible rate. E. Because managers often receive shares of stock as part of their compensation.

C. Because they have been hired to represent the interests of the current shareholders.

Which one of the following terms is defined as the mixture of a firm's debt and equity financing? A. Cash management. B. Capital budgeting. C. Capital structure. D. Working capital management. E. Cost analysis.

C. Capital structure.

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

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

Which one of the following is a capital structure decision? A. Determining how much inventory will be needed to support a project. B. Determining how to allocate investment funds to multiple projects. 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 which one of two projects to accept.

C. Determining how much debt should be assumed to fund a project.

A limited partnership: A. Consists solely of limited partners. B. Has an unlimited life. C. Has a greater ability to raise capital than a sole proprietorship. D. Terminates at the death of any limited partner. E. Can opt to be taxed as a corporation.

C. Has a greater ability to raise capital than a sole proprietorship.

Financial managers should primarily focus on the interests of: A. The vice president of finance. B. The board of directors. C. Shareholders. D. Their immediate supervisor. E. Stakeholders.

C. Shareholders.