FRL 3000 Ch.1

Which of the following are true of a sole proprietorship?

- A proprietorship has a limited life. - It is the simplest type of business to form.

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

- Agency costs

Which of the following can be used to encourage managers to act in the best interests of shareholders?

- Better prospects of promotion - Managerial compensation tied to performance

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

- Bonds - Stocks

The possible goal of profit maximizaiton _______.

- Can be achieved by cost-cutting - Would probably be the most commonly sighted goal for a business

The federal government taxes which of the following?

- Corporate earnings and shareholders dividends.

Which of the following show why a corporation is the most important form of business?

- Corporations can enter into contracts. - Corporations can sue and be sued. - A corporation is a separate legal entity with the ability to acquire and exchange property.

Inventory is a:

- Current asset (Short term asset) - Part of working capital

A general partnership has which of the following characteristics?

- Each owner has unlimited liability for all firm debts. - It is difficult to transfer ownership.

What are the two basic classifications under which most potential financial goals fall?

- Earning or increasing profits - Controlling risk

Which of the following are considered stakeholders in a company?

- Employees, customers, suppliers, and even the government

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

- Enron - WorldCom - Tyco

Which of the following are included in a firm's capital structure?

- Equity - Long-term debt

It is sometimes argued that, left to themselves, managers tend to minimize the amount of resources over which they have control.

- False (They maximize)

In a large corporation, the financial manager is primarily responsible for:

- Financial aspects of operations, such as collections of accounts receivables - Financing decisions - Long-term investment decisions

Which of the following are important when considering a partnership?

- Fund raising limitations - Personal liability for firm debts - Taxation of partnership income

A treasurer's responsibilities typically include:

- Handling cash flows - Making financial plans - Managing capital expenditure decisions

A good financial decision aims at which of the following?

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

Corporations in other countries are often called:

- Joint stock companies - Public limited companies

The Sarbanes-Oxley Act requires corporate officers to do which of the following?

- List any deficiencies in internal controls - Accept responsibility for material errors in the annual report - Confirm the validity of the annual financial report

Capital budgeting is concerned with planning and managing a firm's ______.

- Long term investments

Since ownership in a corporation can be dispersed over a huge number of stockholders, it can be argued that ______ effectively controls the firm.

- Management

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

- Managers (Shareholders are the principals and managers are the agents.)

The goal of a for-profit business is to _______ existing owners' equity.

- Maximize

How is ownership transferred in a corporation?

- Ownership is transferred by gifting or selling shares of stock.

Which one of these provides a manager an incentive to perform well?

- Promotions (Job prospects)

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

- Proxy fight

When one owner of a security sells the security to another person, the transaction takes place in the _____ market.

- Secondary

_______ are frequently used to encourage key managers to maximize the value of the firm's stock.

- Stock options

Which of the following, according to the textbook, are possible financial goals for a company?

- Survival - Maximize profits - Minimize costs Also - Avoid financial distress and bankrupty - Beat the competition - Maximize sales or market share - Maintain steady earnings growth

The controller is responsible for which of the following tasks?

- Tax payments - Financial accounting

The liability of a shareholder in a corporation is limited to which of these?

- The amount the shareholder invested in the corporation

Which of these motivates managers to make good decisions?

- Threat of a hostile takeover

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

- Treasurer - Controller

Which of the following are among the most important questions to be asked when a business is started?

- What long-term investments should be made? - How will everyday financial activities be handled? - Where will long-term financing be obtained to pay for investments?

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

- articles of incorporation

The rules used by a corporation to regulate its existence are known as ______.

- bylaws

The need to monitor management actions is an example of a _______ (direct/indirect) agency cost.

- direct

The life of a corporation __________.

- is unlimited

A corporation is a distinct ____ entity and as such can have a name and take advantage of the legal powers of natural persons.

- legal

Businesses are motivated to organize as corporations because stockholders in a corporation have _____ liability for corporate debts.

- limited

In a limited partnership, a limited partner's liability for business debts is ______.

- limited to their cash contribution to the partnership.

A sole proprietorship is a business by ______ person(s).

- one

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

- partnership

A limited liability company is taxed like a _____ and its owners have _____ liability.

- partnership; limited

The owners of a corporation are called _______.

- stockholders

Organized auction markets include:

- the New York Stock Exchange

The primary responsibility of financial managers is to increase the value of ______.

- the existing shares of stock

What is the main goal of financial management?

To maximize the current value per share of existing stock (Because shareholders provide the capital for the business to be productive.)

In financial markets, debt and _____ securities are bought and sold.

equity