fin tb - chapter 1

II, I, III

Put the following steps of the financial cycle in the correct order: I. Money flows to companies who use it to fund growth through new products II. People Invest and saver their money III. Money flows back to savers and investors

true

Stock markets provide liquidity for a firm's shares

the difference in price available for an immediate sale of a stock and the immediate purchase of the stock

What is the bid-ask special

all of the above are advantages that a corporation has over other business forms

What is the major advantage corporations have over other business entities? A) it is easier for corporation to raise capital than other forms of business B) A corporation is treated as a separate legal entity for tax and legal purposes C) A corporation's shares can be freely traded among its shareholders D) all of the above are advantages that a corporation has over other business forms

deutsche borse

Which of the stock markets listed below is the smallest, as judged by trading volume? A) Deutsche Borse B) London Stock Exchange C) NASDAQ D) NYSE Euronext (US)

the stockholders who have risked their money to become owners of the company

Whose interests should a financial manager consider paramount when making a decision?

there are often many owners, and they can often change as they buy and sell stock

Why in general do financial managers make financial decisions in a corporation, rather than the owners making these decisions themselves?

shares sold on it are exchanged between investors without any involvement of the issuing corporation

Why is a stock exchange like NASDAQ considered a secondary market?

there is no organized market for its shares

Why is it difficult to determine the market price of a private corporation's shares at any point in time?

it is a legally defined, artificial entity that is separate from its owners

Why is it possible for a corporation to enter into contracts, acquire assets, incur obligations, and enjoy protection against the seizure of its property?

in general people want to invest in a well managed corporation, which will drive up the price of shares

Why is the stock price of a company an indication of the performance of the company's senior managers?

true

(T/F) The principal goal of a financial manager is to maximize the wealth of the stockholders

false

(T/F) The shares of private corporations are traded on a stock market

false

(T/F) financial decisions require that you weigh alternatives in strictly monetary terms

true

(T/F) the valuation principle shows how to make the costs and benefits of a decision comparable so that we can evaluate them properly

false

(T/F)Raising new capital by issuing bonds is an example of a commercial banking activity

true

(T/F) Corporations have come to dominate the business world through their ability to raise large amounts of capital by sale of ownership shares to anonymous outside investors

false

(T/F) In most corporations, the owners exercise direct control of a corporation

false

(T/F) It is generally not the duty of the financial managers to ensure that a firm has the cash it needs for day-to-day transactions

false

(T/F) Partnerships are the most common type of business firms in the world

false

(T/F) The fact that corporations' shares are easily traded within the market has a net effect of acting as a disincentive for managers to favor the interests of shareholders over their own interests

hostile takeover

A _____________ is when a rich individual or organization purchases a large fraction of the stock of a poorly performing performing firm and in doing so gets enough votes to replace the board of directors and the CEO

new models will require a lot of money to develop and bring to market before they generate any revenue

A company that produces racing motorbikes has several models that sell well within the motorcycle racing community and which are very profitable for the company. Despite having a profitable product, why must this company take care to ensure that it has sufficient cash on hand to meet its obligations

some activities that decrease shareholders' wealth may have intangible benefits which increase the strength of the company overall

A company's board of directors chooses to provide a comprehensive health care plan for the families of all employees, despite the large cost. They argue that this will not only increase the number of employees who stay with the firm, and thus reduce some costs involved in employee turnover, but also increase the employee's diligence and industry. What general principle is being argued by the board of directors?

by the rise in the value of the stock held by the raider when the new board of directors is judged to be superior to the ousted board of directors

A corporate raider gains controlling fraction of the shares of a poorly managed company and replaces the board of directors. How does the corporate raider hope to make a profit in this case?

by supplying incentives so the agents act in the way principal desires

A factory owner wants his workers to produce as many widgets as they can so he pays his workers based on how many widgets they produce. However, in order to make sure that the workers do not rush and produce a large number of poorly made widgets, he checks the widgets at random various stages of their manufacture. If a deficit is found in a widget, the pay of the entire section of the factory responsible for that deficit is docked. How is this factory owner seeking to solve the agency conflict problem in this case?

a limited partnership without a general partner

A limited liability company is essentially _______________

in general, all shareholders will agree that they are better off if the financial manager works to maximize the value of their investment

A typical company has many types of shareholders, from individuals holding a few shares, to large institutions that hold very large numbers of shares. How does a financial manager ensure that the priorities and concerns of such disparate stockholders are met?

the chief executive officer

In most corporations, to whom does the chief financial officer report?

2,550,000

Helen owns 10.2% of the stock of the Median Corporation. If Median makes a dividend payment of $25,000,000 paid proportionally to its shareholders, how much of this amount would Helen receive, disregarding tax?

by electing members of a board of directors

How do the shareholders of most corporations exercise their control of that corporation?

false

If broker will buy a share of stock from you at $3.85 and sell it to you at $3.87, the ask price would be $3.85

the relationship between a driver and the passengers in a car regarding the safe driving of that car

In which of the following relationships is an agency conflict problem LEAST likely to arise? A) that relationship between a hire - a car company and the persons who hire that company's cars regarding the treatment of those cars B) the relationship between high-level military officers and the soldiers who serve under them regarding the willingness of the soldiery to take risks C) the relationship between a restaurateur and the suppliers of produce to that restaurant regarding the freshness of the produce supplied D) the relationship between a driver and the passengers in a car regarding the safe driving of that car

its owners liability is restricted to their investment

In which of the following ways is a limited liability company like a corporation? A) It was created and developed first in the United States B) It can choose to be considered a partnership for tax purposes C) its owners liability is restricted to their investment D) it is directly managed by the owners

mutual funds

Investments by wealth individuals and endowments is a major source of money for each of the following EXCEPT A) private equity funds B) hedge funds C) venture capital funds D) mutual funds

the transaction was between the corporation and investors

On August 19, 2004 Google IPO offered 19,605,052 shares at a price of US $85 per share, which were sold in an online auction in a bid to make the shares more widely available. Which of the following statements best describes why these are considered a primary market transaction?

corporations

Over four-fifths of all US business revenue is generated by which type of firms?

by raising the company's equity by encouraging new owners to take a stake in the company

The financial manager of a well-regarded book publishing firm wishes to buy a small internet publishing company to provide an avenue for sale of its materials online. In order to raise the funds to make this purchase, the financial manager decides to sell more stock in the company. How is the financial manager raising funds in this case?

the owners of a limited liability company can take an active role in running the company

What is the major way in which the roles and obligations of the owners of a limited liability company differ from the roles and obligation sof limited partners in a limited partnership?

sole proprietorships

What is the most common type of firm in the United States and the World

by minimizing the number of decisions that a manager makes where there is a conflict between the managers interests and those of the shareholders

What is the most common way that agency conflict problems are addressed in most corporations

to make investment decisions

What is the most important duty of a firm's financial officer?

maximizing stockholder wealth

What is the principal guiding factor for the financial manager of a firm

it shows how to make the costs and benefits of a decision comparable so that we can weigh them properly

Which of the following best describes why the Valuation Principle is a key concept in making financial decisions? A) It shows how to assign monetary value to intangibles such as good health and well-being, B) It allows fixed assets and liquid assets to be valued correctly C) It gives a good indication of the net worth of a person, item, or company and can be used to estimate any changes in that net worth D) It shows how to make the costs and benefits of a decision comparable so that we can weigh them properly

earnings from a corporation are taxed only once

Which of the following features of a corporation is LEAST accurate? A) the owners' identity is separate from a corporation B) the owners of a corporation are not liable for any obligations the corporation enters into C) Changes in ownership do not result in the dissolution of the corporation D) earnings from a corporation are taxed only once

day to day running of the company

Which of the following is NOT a function of the board of directors? A) determining how top executives should be compensated B) monitoring the performance of the company C) answering to shareholders of the company D) day to day running of the company

these investment decisions determine the corporation's mix of debt and equity

Which of the following is NOT a reason why a firm's financial managers must take great care when making investment decisions? A) these investment decisions determine whether the firm will add value for its owners B) these investments determine the long term direction in which the company may move C) these investment decisions determine the corporations mix of debt and equity D) these investment decisions typically involve substantial costs which must be carefully weighed against their potential benefits

printing money for borrowers

Which of the following is NOT a role of financial institutions A) moving funds from savers to borrowers B) spreading out risk-bearing C) printing money for borrowers D) moving funds through time

unlimited liability

Which of the following is NOT an advantage of sole proprietorship? A) single taxation B) ease of set up C) unlimited liability D) no separation of ownership and control

all of the above

Which of the following is a major duty of the financial manager? I. To make investment decisions II. To make financing decisions III. To manage cash flow from operating activities A) I only B) I and II only C) I and III only D) all of the above

SP 500

Which of the following is a measure of the aggregate price level of collections of pre-selected stocks? A) NASDAQ B) SP 500 C) NYSE D) Euronext

The amount of money that can be raised by such firms is limited by the fact that the single owner must make good on all debts

Which of the following is typicall the major factor in limiting the growth of sole proprietorships?

none of the above statements is unique

Which of the following is unique for an S corporation? A) the profits and losses of an S corporation are not taxed at the corporate level, but shareholders must include these profits and losses on their individual tax returns B) the shareholders of an S corporation must include the firm's profit and losses in their individual income taxes even if no money is distributed to them C) there is a maximum limit on the number of shareholders for an S corporation D) none of the above statements is unique

C corporation

Which of the following organization forms has the most revenue? A) S corporation B) limited partnership C) C corporation D) limited liability company

limited partners in a limited partnership

Which of the following people may not manage the operations of a firm in which they are part or full owners

it can be easily bought and sold and the selling price is very close to the buying price at a given point in time

Which of the following should be true for an asset to be considered liquid? A) it pays regular dividends B) it can be bought and sold at an organized stock market or bourse C) it is offered for sale on both primary and secondary markets D) it can be easily bought and sold and the selling price is very close to the buying price at a given point in time

sole proprietorships

Which of the following types of firms does NOT have limited liability? A) sole proprietorships B) limited partnerships C) corporations D) none of the above

bill chooses to pursue a risky investment for the company's funds because his compensation will substantially rise if it suceeds

Which of the following would be best considered to be an agency conflict problem in the behavior of the following financial managers? A) bill chooses to pursue a risky investment for the company's funds because his compensation will substantially rise if it succeeds B) sue instructs her staff to skip safety inspections in one of the company's factories, knowing that it will likely fail the inspection and incur significant costs to fix C) james ignores an opportunity for his company to invest in a new drug to fight alzheimer's disease, judging the drug's chances of succeeding as low D) michael chooses to enhance his firm's reputation at some cost to its shareholders by sponsoring a team of athletes for the Olympics

overseeing accounting and tax functions

Which of the following would be more typically the responsibility of a controller rather than a treasurer

one person

a sole proprietorship is owned by ___________

janes liability for the firms debts consists solely of her investment in the firm

joe is a general partner in a limited partnership firm, while jane is a limited parptner in the same firm. Which of the following statements regarding their respective relationships to the firm is correct?

the corporation is taxed on the profits it makes and the owners are taxed when this profit is distributed to them

what is the process of double taxation for the stockholders in a C corporation