Finance Exam 1 Review

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

B

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

C

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: A. dealer market. B. over-the-counter market. C. secondary market. D. primary market. E. tertiary market.

C

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict? A. Organizational B. Structural C. Formative D. Agency E. Territorial

D

The primary goal of financial management is to maximize A. current profits. B. market share. C. current dividends. D. the market value of existing stock. E. revenue growth.

D

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. residual owners. B. shareholders. C. financiers. D. provisional partners. E. stakeholders.

E

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

E

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 A. capital structure. B. capital budget. C. asset allocation. D. working capital. E. risk structure.

A