CH 1 TextBank Study Questions

Which one of the following situations is most apt to create an agency conflict?

Basing management bonuses on the length of employment

Which one of the following functions is generally a responsibility assigned to the corporate treasurer?

Capital expenditures

Which one of the following occupations best fits into the corporate area of finance?

Chief financial officer

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?

Corporate accounting and financial fraud

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

Corporation

Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n):

stakeholder

An agency issue is most apt to develop when:

the control of a firm is separated from the firm's ownership.

Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

General partnership

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

Limited partnership

Which one of the following is an advantage of being a limited partner?

Losses limited to capital invested

Which one of the following statements correctly applies to a sole proprietorship?

Obtaining additional equity is dependent on the owner's personal finances.

Probably the least effective means of aligning management goals with shareholder interests is:

automatically increasing management salaries on an annual basis.

Jenna has been promoted and is now in charge of all external financing. In other words, she is in charge of:

capital structure management.

The Sarbanes-Oxley Act of 2002 has:

essentially made officers of publicly traded firms personally responsible for the firm's financial statements.

A corporation:

is a legal entity separate from its owners.

A private placement is most apt to involve:

life insurance company

The primary goal of financial management is most associated with increasing the:

market value of the firm.

The Sarbanes-Oxley Act:

require the corporate officers to personally attest that the financial statements are a fair representation of the company's financial results.

One example of a primary market transaction would be the:

sale of 1,000 shares of newly issued stock by Alt Company to Miquel.

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the:

secondary market.