3060 HW1

The goal of the financial management is to increase the value of _____.

the existing shares of stock

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

The amount the shareholder invested in the corporation

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

Proxy fight

How is ownership transferred in a corporation?

Ownership is transferred by gifting or selling shares of stock.

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

limited partnership

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

limited to their cash contribution to the partnership

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

long-term assets

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

Agency problem

______ budgeting is the process of planning and managing a firm's long-term assets.

Capital

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

Capital structure

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

Chief financial officer

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

Controller Treasurer

The federal government taxes which of the following?

Corporate earnings and shareholder dividends

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

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

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

Debt

A general partnership has which of the following characteristics?

Each owner has unlimited liability for all firm debts. All the partners share in gains or losses of the partnership.

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

Equity Long-term debt

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

False

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?

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

When are corporate profits taxed?

Individuals pay taxes on corporate dividends. Corporations pay taxes on corporate profits.

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

How does the Sarbanes-Oxley Act primarily work to make sure that companies tell the truth in financial statements?

It makes management personally responsible for the accuracy of a company's financial statements.

Corporations in other countries are often called:

Joint stock companies Public limited companies Limited liability company

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

Managers

In an over-the-counter market, which of the following is true?

Most of the buying and selling is done by the dealer. Many dealers are also connected electronically.

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.

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

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

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

Personal finance

Why would the threat of a takeover motivate a manager to act in stockholders' interest?

Running the firm well and acting in the stockholders' interest makes the firm a less attractive takeover target to begin with.

How is ownership of a corporation represented?

Shares of stock

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

Stock options

When a corporation is formed, it is granted which of the following rights?

The ability to issue stock Legal powers to sue

What is the primary objective of an auction market?

To bring buyers and sellers together

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

Treasurer

A corporation borrows money in its own name.

True

True or false: In a large corporation, stockholders and managers are usually separate groups.

True

Business finance is broadly concerned with which of the following (select all that apply)?

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

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

WorldCom Tyco Enron

The threat of ______ motivates managers to make good decisions.

a takeover

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.

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

articles of incorporation

The New York Stock Exchange is a(n) _____.

auction market

The Sarbanes-Oxley Act requires corporate officers to:

be responsible for errors in the annual report confirm the validity of the financial statements

What three subjects is the financial manager concerned with?

capital structure capital budgeting working capital management

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

corporate

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

corporate accounting fraud and financial malpractice

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

general partnership

A treasurer's responsibilities typically include:

handling cash flows. making financial plans. managing capital expenditure decisions.

A sole proprietorship is a business that _______.

is owned by one person

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

limited

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

management

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

The owners of a corporation are called ______.

shareholders

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

stakeholder

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

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

unlimited

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

stockholders

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

stocks bonds

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