Chapter 1/ 7.5 /8.3

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

-Worldcom -Tyco -Enron

Partnership must have at least __ owners

2

The difference between net income and dividends paid is known as what?

Addition to retained earnings

The costs incurred due to a conflict of interest between stockholders and management are called______

Agency costs

If a $1000 face value US treasury bond is quoted at 99.5, then the bond can be purchased _______

At 99.5 percent of face value plus any accrued interest

Which one of the following terms is defined as the management of a firm's long-term investments?

Capital budgeting.

The decision to issue additional shares of stock is an example of which one of the following?

Capital structure decision.

How has TRACE improved transparency in the corp bond market?

Corporate bond dealers are now required to report trade info through TRACE

The federal government taxes which of the following?

Corporate earnings and shareholder dividends

Which one of the following actions by a financial manager is most apt to create an agency problem?

Increasing current profits when doing so lowers the value of the firm's equity.

A market is considered transparent if ___________

Its prices and trading volume are easily observed

A corp is a distinct ______ entity and as such can have a name and take advantage of the legal powers of a natural person.

Legal

The 2 most important stock markets in the US are the NYSE and ________

NASDAQ

Which occurs in the primary market?

Newly issued stocks are initially sold

Indirect agency costs are often due to lost____

Opportunities

LLC's are taxed like a _____ and its owners have ______ liability

Partnership, limited

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

Stock options

Organized auction markets include:

The new york stock exchange

Which is the largest security market in the world in terms of trading volume?

Us treasury market

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

Was facilitated in the secondary market.

The rules used by a corp to regulate its existence are known as

bylaws

The officer responsible for corporate tax reporting is the:

controller

NASDAQ has which features?

-Computer network of securities dealers -Multiple market maker system

Which positions generally report to the CFO?

-Controller -Treasurer

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

-Corps can sue/ be sued -Separate legal entity with ability to acquire and exchange property -Can enter into contracts

Inventory is a:

-Current asset -Part of working capital

A general partnership has which of the following characteristics?

-Difficult to transfer ownership -Each owner has unlimited liability for debts

What are some reasons the bond market is so big?

-Federal govt borrowing activity in the bond market is enormous -Various state and local govts also participate in the bond market -Many corps have multiple bond issues outstanding

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

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

Which are important when considering a partnership?

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

A treasurers responsibilities typically include:

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

What are the 2 basic classifications under which most potential financial goals fall?

-Increase profits -Controlling risk

Sarbanes-Oxley act requires corporate officers do which of the following?

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

What are possible goals for a company?

-Maximize profits -Minimize costs -Survival

what is true of a sole proprietorship?

-Simplest type of business to form -Has a limited life

What are some features of the OTC market for bonds?

-The OTC has no designated physical location -OTC dealers are connected electronically

What is the main goal of financial management?

-To maximize shareholder wealth -Maximize the current value per share.

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

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

Which is included in working capital?

-accounts receivable -Accounts payable -current (short term) assets

In what order are the four primary financial statements prepared?

Balance sheet> Income statement > Statement of cash flows> Statement of stockholders' equity

Why should financial managers strive to maximize the current value per share of the existing stock?

Because they have been hired to represent the interests of the current shareholders.

A person who brings buyers and sellers together is called a ________

Broker

______ budgeting is the process of making and managing expenditures on long term assets.

Capital

Which one of the following is a capital budgeting decision?

Deciding whether or not to purchase a new machine for the production line.

Which one of the following is a capital structure decision?

Determining how much debt should be assumed to fund a project.

Which one of the following is a working capital management decision?

Determining whether to pay cash for a purchase or use the credit offered by the supplier.

Because shareholders get paid last after all other obligations are satisfied, they are often called

Residual owners

The owners of a corp are called

Shareholders

Which one of the following parties has ultimate control of a corporation?

Shareholders.

How is ownership transferred in a corp

Shares of stock

The NYSE member who acts as a dealer in a small number of securities is called a ________

Specialist

Which of the following are included in a firms capital structure?

-Equity -Long term debt

Corps in other countries are often called:

-Joint stock companies -Public limited companies

Which has a higher value, the bid price quote or the asked price quote?

The asked price quote is higher

What is the bid price?

The price at which a dealer is willing to buy securities

A sole proprietorship is a business that

Is owned by one person

In a limited partnership, a limited partner's liability for debts is:

Limited to their cash contribution to partnership

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

Manager, the shareholders are the principal

Fundamentally, the business of the NYSE is to attract and process

Order flow

Most equity share of large firms in the US trade on:

Organized auction markets

When a corporation raises funds in the financial markets, the transaction occurs on the:

Primary market