FINC 3131 Ch 1

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investment opportunities worth more than they cost

in capital budgeting, the financial manager tries to identify:

proxy fight

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

A, B, C

Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley? A) WorldCom B) Tyco C) Enron D) Disney

B

"Increasing shareholder wealth" means increasing the _________. A) current bond value B) current common stock value C) book value of liabilities D) market value of liabilities

Income Before Income Taxes

Operating income + Interest Revenue - Interest Expense = ?

Net Income

Pre-tax Income - Income Taxes = ?

capital budgeting

Process of planning and managing a firm's long-term investments

management

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

how, where

The financial manager has to decide exactly ___ and _____ to raise the money

D

The goal of the financial management is to increase the value of _____. A) their total compensation package. B) future profits C) current earnings D) the existing shares of stock

treasurer

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

shareholders

The owners of a corporation are called ______.

agency

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

B

Which of the following is a disadvantage of sole proprietorships and partnerships? A) Double taxation B) Difficulty of transferring ownership C) Separation of ownership and management D) Unlimited life of the business

A, B, C

Which of the following are reasons that the corporation is the most important form of business? A) Corporations can enter contracts. B) Corporations can sue and be sued. C) Corporations are separate legal entities. D) Corporations can vote in general elections

A, B

Which of the following are true of a sole proprietorship? A) A proprietorship has a limited life. B) It is one of the simplest types of businesses to form. C) A sole proprietor can issue stock to raise capital. D) The owner has limited liability for business debts.

capital structure

specific mixture of long-term debt and equity the firm uses to finance its operations.

treasurer, controller

The CFO coordinates the activities of the _________ and the __________.

corporate finance, investments, financial institutions, international finance

What are the four basic areas of finance?

working capital

A firm's short-term assets, such as inventory, and its short-term liabilities, such as money owed to suppliers.

A, B

A general partnership has which of the following characteristics? A) All the partners share in gains or losses of the partnership. B) Each owner has unlimited liability for all firm debts. C) It is always regulated by a formal partnership agreement. D) Large amounts of cash can be raised easily.

B, D

A good financial decision will do which of the following? A) Increase the cost of capital B) Increase the value of the firm's existing stock C) Increase current dividends per share D) Increase market value of shareholders' equity

partnership, limited liability

A limited liability company is taxed like a _________, but retains ________ ________ for owners.

articles of incorporation

An organization must prepare ______ and bylaws when forming a corporation.

partnership

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

general partnership

A partnership in which partners share in gains or losses, and carry unlimited liability for all partnership debts, is called a:

C

A shareholder's liability is limited to which of these? A) The corporation's current liabilities B) The percentage of corporate debt that equals the shareholder's ownership percentage C) The amount the shareholder invested in the corporation D) The corporation's outstanding long-term debt

unlimited

A sole proprietor has ______ personal liability for all business debts and obligations.

stakeholder

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

A, B

The controller is responsible for which of the following tasks? A) Tax reporting and payments B) Financial accounting C) Capital expenditures D) Raising capital

cost/financial accounting, tax payments, management information systems

The controller's office handles:

management

Agency costs occur when _________ and stockholder interests are not in line with one another.

agency

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

B, C, D

Business finance is broadly concerned with which of the following (select all that apply)? A) How to set up the audit committee B) Which long-term investment to make C) How to finance long-term investments D) How to manage day-to-day finances of the firm

long-term assets

Capital budgeting is concerned with making and managing expenditures on _____.

A, B, E

Corporations in other countries are often called: A) Public limited companies B) Limited liability company C) Autonomous entities D) Re-calibrated partnerships E) Joint stock companies

size, timing, risk

The essence of capital budgeting is evaluating the ____, ______, and ____ of future cash flows.

working capital

Ensuring that the firm has sufficient funds to continue operations on a day-to-day basis comes under the heading of __________ management.

one year

For an account to be current, it needs to be due within.....

marketing research, design of marketing/distribution channels, product pricing

How can finance be used in marketing?

C

How does the Sarbanes-Oxley Act primarily work to make sure that companies tell the truth in financial statements? A) It levies hefty fines for errors. B) It has government auditors review all financial statements for potential errors or omissions. C) It makes management personally responsible for the accuracy of a company's financial statements.

A

How is ownership transferred in a corporation? A) Ownership is transferred by gifting or selling shares of stock. B) Ownership in a corporation cannot be transferred. C) Ownership is transferred only with prior approval from the board of directors. D) Ownership can be transferred only if the firm is sold.

B

In a limited partnership, a limited partner's liability for business debts is ______. A) limited by their average annual income over the life of the partnership B) limited to their cash contribution to the partnership C) $0 D) unlimited

managers

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

stock options

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

corporations

Public limited companies and joint stock companies are other names for __________.

operating income

Sales Revenue - Cost of Goods Sold - Admin Expenses = ?

Gross Profit

Sales Revenue - Cost of Goods Sold = ?

controller's

The ______ office is responsible for corporate tax reporting.

agency problem

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

T

T or F: A corporation borrows money in its own name.

F

T or F: The Sarbanes-Oxley Act provides incentives for companies to go public in US markets.

D

The Sarbanes-Oxley Act is intended to strengthen protection against: A) companies going out of business B) using overseas tax havens C) destroying shareholder wealth with bad decisions D) corporate accounting fraud and financial malpractice

C, D

The Sarbanes-Oxley Act requires corporate officers to: A) limit their compensation and stock options B) personally prepare all financial statements C) confirm the validity of the financial statements D) be responsible for errors in the annual report

cash/credit, financial planning, capital expenditures

The treasurer's office is responsible for managing the firm's:

how much cash/inventory to keep on hand, should we sell on credit to customers, how will we obtain short-term financing, if we borrow short term, how and where should we do it

What are 4 questions that working capital answers?

Choosing a retirement plan, starting a business, student loans

What are some ways finance helps an individual?

Cash, Accounts Receivable, Accounts payable, equipment, bonds payable, common stock, retained earnings

What are the Balance Sheet accounts?

How much the firm should borrow, the cheapest sources of funds

What are the two concerns in a firm's capital structure?

Stockbroker, financial advisers, portfolio management, security analyst

What are types of careers for the investments area?

Banks/insurance companies

What are types of financial institutions?

portfolio management

What career mainly uses mutual funds?

Researches individual investments, such as stock in a particular company

What does a security analyst do?

capital structure, capital budgeting, working capital management

What three subjects is the financial manager concerned with?

limited partnership

What type of partnership involves both general and limited partners to run the business?

A, B

When are corporate profits taxed? A) Corporations pay taxes on corporate profits. B) Individuals pay taxes on corporate dividends. C) Corporations pay taxes on all money coming in. D) Corporations don't pay taxes.

treasurer

Which corporate officer is responsible for managing the firm's cash?

A, B, C

Which of the following are considered non-owner stakeholders in a company? A) Government B) Suppliers C) Employees D) Stockholder

A, D

Which of the following are included in a firm's capital structure? A) Long-term debt B) Net sales C) Current assets D) Equity

A, B, D

Which of these have been noted as unintended consequences of the Sarbanes-Oxley Act? A) firms going public outside of the U.S. market B) eliminating public disclosure for many firms C) more accurate financial disclosures D) public firms "going dark" and leaving the stock market

D

Which of these topics is not of especial interest to a financial manager? A) Working capital management B) Capital structure C) Capital budgeting D) Debt

capital structure

Which term applies to the mixture of debt and equity maintained by a firm?

stockholders

Who elects the board of directors, and ultimately maintains control of the firm?

C

Why don't large businesses organize as sole proprietorships or partnerships? A) It is too easy to transfer ownership from one party to another. B) These forms of business organization are too complicated to manage on a large scale. C) It can be difficult to raise cash for investment in these forms, and that limits the ability of the business to grow. D) Businesses want to maximize their liability.

A

Why would the threat of a takeover motivate a manager to act in stockholders' interest? A) Running the firm well and acting in the stockholders' interest makes the firm a less attractive takeover target to begin with. B) Acting in the stockholders' interest will help to keep them from nominating proxies to replace the board of directors. C) Takeovers are generally viewed as positive, and well-run firms would be a great target for such an acquisition. D) Fear often motivates people to make wise and responsible decisions.

A, B, C

Working capital includes which of the following? A) short-term assets B) inventory C) cash D) equipment

stocks, bonds

investments area deals with financial assets such as ______ and _____.


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