FIN: Ch 1 Introduction to Corporate Finance

In a larger corporation, the financial manager is primarily responsible for:

- Long-term investment decisions - Financing decisions - Financial aspects of operations, such as collections of accounts receivables

When a corporation is formed, is is granted which of the following rights

- The ability to issue stock - Legal powers to sue - State citizenship for jurisdictional purposes

Which of the following show why a corporation is the most important form of business?

-A corporation is a separate legal entity with the ability to acquire and exchange property -Corporations can enter into contracts -Corporations can sue and be sued

Which of the following is true about a sole proprietorship?

-A proprietorship has a limited life -It is the simplest type of business to form

Which of the following can be used to encourage managers to act in the best interests of shareholders?

-Better prospects of promotion -Managerial compensation tied to performance -Stock options and bonuses

The Sarbanes-Oxley Act requires corporate officers to do which of the following?

-Confirm the validity of the annual financial report -Accept responsibility for material errors in the annual report -List any deficiencies in internal controls

A general partnership has which of the following characteristics?

-Each owner has unlimited liability for all firm debts -It is difficult to transfer ownership

which of the following are important when considering a partnership?

-Fund raising limitations - Taxation of partnership income -Personal liability for firm debts

Which of the following are among the most important questions to be asked when a business is started?

-How will everyday financial activities be handled? -Where will long-term financing be obtained to pay for investments? - What long-term investments should be made?

The financial goal of profit maximization is associated with which of the following?

-Maintenance deferment -Cost-cutting -Critical inventory reduction

Which of the following, according to the textbook, are possible financial goals for a company?

-Minimize costs -Maximize profits -Survival

The officer responsible for corporate tax reporting is the ____________.

Controller

Which of the following positions generally report to the chief financial officer (CFO)?

Controller and Treasurer (The CFO reports to the CEO)

The federal government taxes which of the following?

Corporate earnings and shareholder dividends

What are the two basic classification under which most potential financial goals fall?

Earning or increasing profits and Controlling risk

Which of the following are considered stakeholders in a company?

Employees, the Government, and Suppliers Someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm

T or F: Shareholders are the ONLY stakeholders in a firm as they are the owners.

Fasle

Corporations in other countries are often called:

Joint stock companies and public limited companies

In a limited partnership, a limited partner's liability for business debts is ________.

Limited to their cash contribution to the partnership

Which of the following are included in a firm's capital structure?

Long-term debt and Equity

Capital budgeting is concerned with planning and managing a firm's _________.

Long-term investments

How is ownership transferred in a corporation?

Ownership is transferred by gifting or selling shares of stock.

A business without separate legal authority formed by two or more people is know as a _________.

Partnership

When a corporation raises funds in the financial markets, the transaction occurs on the:

Primary Market

Which one of these is an important mechanism used by unhappy stockholders to replace current management?

Proxy fight

When one owner or creditor sells to another, the transaction takes place in the _____________ market.

Secondary

The owners of a corporation are called ___________.

Shareholders

Which of the following parties would be the last party to receive payment if a firm were to close? Assume all parties have a legitimate claim on the firm's assets.

Shareholders

_______ are frequently used to encourage key managers to maximize the value of the firm's stock.

Stock options

The primary responsibility of financial managers is to increase the value of __________.

The existing shares of stock

Which on of these motivates managers to make good decisions?

Threat of a hostile takeover

What is the main goad of financial management?

To maximize shareholder wealth

The officer responsible for managing the firm's cash flows is the ___________.

Treasurer

Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley?

Tyco, Enron, and WorldCom

The costs incurred due to a conflict of interest between stockholders and management are called ______________.

agency costs

The conflict of interest between an agent and a principal is called a(n) ________________.

agency problem

A corporation receives cash from financial markets by selling __________ and __________.

bonds and stocks

The rules used by a corporation to regulate its existence are know as ______________.

bylaws

A bad financial decision is defined as a decision that ______ owners' equity.

decreases

Some of the cash flow generated by a firm goes back to the financial markets in the form of ____________.

dividends and debt payments

A corporation is a distinct __________ entity and as such can have a name and take advantage of the legal powers of natural persons.

legal

Businesses are motivated to organize as corporations because stockholders in a corporation have ___________ liability for corporate debts.

limited

Since ___________ and ownership are separated, a corporation's life is unlimited.

management

Since ownership in a corporation can be dispersed over a huge number of stockholders, it can be argued that ___________ effectively controls the firm.

management

The goal of a for-profit business is to ____________ existing owners' equity.

maximize

A sole proprietorship is a business owned by _____________ person(s).

one

Most equity shares of large firms in the US trade on:

organized auction markets

Inventory is a

part of working capital and a current asset

A limited liability company is taxed like a __________ and its owners have _____________ liability

partnership; limited

Because shareholders get paid last after all other obligations are satisfied, they are often called:

residual owners

When one owner or creditor sells to another, the transaction takes place in the _____________ market.

secondary