Finance Chapter 1

Which of the following are reasons that the corporation is the most important form of business?

- Corporations are separate legal entities. - Corporations can sue and be sued. - Corporations can enter contracts.

Business finance is broadly concerned with which of the following

- How to finance long-term investments - Which long-term investment to make - How to manage day-to-day finances of the firm

A good financial decision will do which of the following?

- Increase the value of the firm's existing stock - Increase market value of shareholders' equity

Which of the following are true of a sole proprietorship?

- It is one of the simplest types of businesses to form. - A proprietorship has a limited life.

Which of the following are defining features of the primary market?

- It is the market where initial public offerings are made - Proceeds from the sale of securities goes to the issuing firm

Corporations in other countries are often called:

- Public limited companies - Limited liability company - Joint stock companies

According to Figure 1.2, where does cash generated by a corporation typically go?

- To pay corporate taxes - Paid to shareholders and creditors - Reinvested in the firm

What three subjects is the financial manager concerned with?

- capital structure - capital budgeting - working capital management

stakeholder

A(n) ______ is someone other than an owner or a creditor who potentially has a claim on the cash flows of the firm.

If you hire a real estate company to sell your house, you are most apt to encounter which one of the following?

Agency problem

Which of these topics is not of especial interest to a financial manager?

Debt

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

Enron Tyco WorldCom

Which of the following are considered non-owner stakeholders in a company?

Government Suppliers Employees

According to the textbook, which of the following is not one of the three main questions to be addressed if you wanted to start your own business

How many employees will I need?

In a shareholder-manager relationship, who is the agent?

Managers

Is profit maximization the primary objective of a business?

No; profit maximization may not take into account other strategic objectives necessary to maximize shareholder value.

Which of the following is NOT one of the basic areas of finance?

Personal finance

A shareholder's liability is limited to which of these?

The amount the shareholder invested in the corporation

What is the main goal of financial management?

To maximize current share value

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

Treasurer Controller

The relationship between stockholders and management can best be described as a(n) ______ relationship.

agency

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

agency problem.

management

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

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

bonds stocks

Stock options

can be used to encourage managers to maximize the value of the stock.

In large firms, financial activity is usually associated with which top officer?

chief financial officer

The Sarbanes-Oxley Act is intended to strengthen protection against:

corporate accounting fraud and financial malpractice

The four basic areas of finance include investments, financial institutions, international finance, and

corporate finance

Public limited companies and joint stock companies are other names for

corporations

"Increasing shareholder wealth" means increasing the

current common stock value

A bad financial decision is defined as a decision that ______ shareholder wealth.

decreases

True or False: "Profit maximization" is the goal for the management of a corporation in short-run only.

false

A sole proprietorship is a business that

is owned by one person

A business without separate legal authority formed by two or more people is known as a

partnership

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

secondary

Managerial compensation is often tied to financial performance. One way to make this tie explicit is to offer payment in terms of:

stock options

A partnership must have at least _______ owners.

two