BA 323 Chp1

How is ownership of a corporation represented?

Shares of stock

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

WorldCom Enron Tyco

How is ownership transferred in a corporation?

Ownership is transferred by gifting or selling shares of stock.

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

Partnership

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

Personal Finance

Which of the following are defining features of the primary market?

Proceeds from the sale of securities go to the issuing firm. It is the market where initial public offerings are made.

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

Which of the following are true of a sole proprietorship?

A proprietorship has a limited life It is one of the simplest types of businesses to form

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

Agency

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

Agency

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

Articles of incorporation

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

Bonds Stocks

______ 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

What three subjects is the financial manager concerned with?

Capital budgeting Working capital management Capital structure

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

Chief Financial Officer

The Sarbanes-Oxley Act requires corporate officers to:

Confirm the validity of the financial statements. Be responsible for errors in the annual report.

The five basic areas of finance include investments, financial institutions, fintech, international finance, and finance.

Corporate

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

General Partnership

Which of the following are considered non-owner stakeholders in a company?

Government Employees Suppliers

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?

Agency costs occur when Blank______ and stockholder interests are not in line with each other.

Management

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

Management

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

Managers

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

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

Product development

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

Proxy Fight

Corporations in other countries are often called:

Public limited companies Limited liability company Joint stock companies

When one owner or creditor sells to another, the transaction takes place in the ______ market.

Secondary

The owners of a corporation are called

Shareholder

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

Who elects the board of directors and ultimately maintains control of the firm? Multiple choice question.

Stockholders

A partnership must have at least _______ owners.

Two

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

Unlimited

Business finance is broadly concerned with which of the following?

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

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

corporate accounting fraud and financial malpractice

The federal government taxes which of the following?

corporate earnings and shareholder dividends

A bad financial decision is defined as a decision that ______ shareholder wealth.

decreases

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

limited

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

stock options

The goal of the financial management is to increase the value of Blank

the existing shares of the stock

What is the main goal of financial management?

to maximize the current share value

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

to pay corporate taxes paid to shareholders and creditors reinvested in the firm

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

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

When are corporate profits taxed?

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

"Increasing shareholder wealth" means increasing the Blank______.

Current Common Stock Value

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.

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

False

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

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.

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

Legal

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

Limited Partnership

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

Long-Term Debt Equity

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

Treasurer Controller

True or false: A corporation borrows money in its own name.

True

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

True