Finance HW 1 Questions

Which form of business structure typically has the greatest potential for agency problems? Multiple Choice Sole proprietorship General partnership Limited partnership Corporation Limited liability company

Corporation

Which one of the following is a capital budgeting decision? Multiple Choice Determining how much debt should be borrowed from a particular lender Deciding whether or not a new production facility should be built Deciding when to repay a long-term debt Determining how much inventory to keep on hand Deciding how much credit to grant to a particular customer

Deciding whether or not a new production facility should be built

Which one of these represents the best means of increasing current shareholder value? Multiple Choice Maximizing the capital rate of the firm Increasing the current value of the overall firm Forsaking all new projects Minimizing the overall size of the firm Decreasing the number of employees

Increasing the current value of the overall firm

Which one of these accounts is included in net working capital? Multiple Choice Copyright Manufacturing equipment Common stock Long-term debt Inventory

Inventory

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Multiple Choice Threat of a takeover of the firm by unsatisfied stockholders Implementation of a stock option plan Salary raises based on length of service Management compensation tied to the market value of the firm's stock Threat of a proxy fight

Salary raises based on length of service

Which one of these is a cash outflow from a corporation? Multiple Choice Sale of an asset Tax payment Sale of common stock Issuance of debt Profit retained by the firm

Tax payment

Which one of these statements is correct? Multiple Choice Individuals tend to prefer later cash flows over current cash flows. The value of an investment depends on the size, timing, and risk of the investment's cash flows. When selecting one of two projects, managers should select the project with the higher total expected cash flow. Most investors prefer greater risk over less risk. Accountants record sales and expenses after the related cash flows occur.

The value of an investment depends on the size, timing, and risk of the investment's cash flows.

Accounting profits and cash flows are generally: Multiple Choice the same since they reflect current laws and accounting standards. the same since accounting profits reflect the timing of cash flows. different because of GAAP rules regarding the recognition of income. different because cash inflows must occur before revenue recognition. the same due to the requirements of GAAP.

different because of GAAP rules regarding the recognition of income.

Financial managers primarily create firm value by: Multiple Choice maximizing current dividends. investing in assets that generate cash in excess of their cost. lowering the earnings per share. increasing the firm's market share. maximizing current sales.

investing in assets that generate cash in excess of their cost.

If a firm is currently profitable, then: Multiple Choice its current cash inflows must exceed its current cash outflows. its reported sales exceed its costs. its cash flows are known with certainty. it will always have sufficient cash to pay its bills in a timely manner. the timing of the related cash flows is irrelevant.

its reported sales exceed its costs.

The decisions made by financial managers should all be ones which increase the: Multiple Choice size of the firm. growth rate of the firm. marketability of the managers. market value of the existing owners' equity. firm's current sales.

market value of the existing owners' equity.

Financial managers should primarily strive to: Multiple Choice minimize costs while increasing current dividends. maximize the current profits of the firm. maximize the current value per share of existing stock. maximize current dividends even if doing so adds financial distress costs to the firm. maximize current market share in every market in which the firm participates.

maximize the current value per share of existing stock.

The primary goal of financial management is to: Multiple Choice maximize current dividends per share of the existing stock. maximize the current value per share of the existing stock. avoid financial distress. minimize operational costs and maximize firm efficiency. maintain steady growth in both sales and net earnings.

maximize the current value per share of the existing stock.

A firm creates value by: Multiple Choice having a greater cash inflow from its stockholders than its outflow to them. paying more cash to its creditors and stockholders than the amount it received from them. borrowing long-term debt. generating sales whether or not payment is received for all of those sales. purchasing assets that create cash inflows equal to the cost of those assets.

paying more cash to its creditors and stockholders than the amount it received from them.

A firm's capital structure refers to the firm's: Multiple Choice mixture of various types of production equipment. investment selections for its excess cash reserves. combination of cash and cash equivalents. combination of accounts appearing on the left side of its balance sheet. proportions of financing from current and long-term debt and equity.

proportions of financing from current and long-term debt and equity.

The ultimate control of a corporation lies in the hands of the corporate: Multiple Choice board of directors. stockholders. president. chief executive officer. chairman of the board.

stockholders.

The Securities Act of 1933 focuses on: Multiple Choice all stock transactions. the sales of existing securities. the issuance of new securities. insider trading. Federal Deposit Insurance Corporation (FDIC) insurance.

the issuance of new securities.

A financial manager should make decisions based on: Multiple Choice the effects those decisions will have on current profits. the best interests of the current employees. the welfare of the current shareholders. minimizing the firm's tax liability. their personal goals and ambitions.

the welfare of the current shareholders.

In a general partnership, the general partners have _____ liability for the firm's debts and have _____ control over day-to-day operations. Multiple Choice limited; no unlimited; total limited; total unlimited; no unlimited; limited

unlimited; total