Chapter 1
Which type of business is the easiest to form
sole proprietorship
Which one of the following statements is correct concerning the organizational structure of a corporation?
the chief executive officer reports to the Board of Directors
Agency costs refers to
the costs of any conflicts of interest between stockholders and management
Financial managers should strive to maximize the current value per share of the existing stock because
the current stockholders are the owners of the corporation
The issuance of new equity shares is a cash flow from
the financial markets to a firm
Which one of the following statements concerning a sole proprietorship is correct?
the owner of a sole proprietorship may be forced to sell his/her personal assets to pay company debts
The person generally directly responsible for overseeing the cash and credit functions, financial planning, and capital expenditures is
treasurer
The management of a firm's short-term assets and liabilities is called
working capital management
Which one of the following statements is correct?
Both sole proprietorships and partnerships are taxed in a similar fashion
The treasurer and controller of a corporation generally report to the
Chief Financial Officer
Which type of business organization has all respective rights and privileges of a legal person?
Corporation
The primary purpose of the Sarbanes Oxley Act of 2002 was to
protect investors from corporate abuses
Which position is generally directly responsible for financial planning and capital expenditures?
Treasurer
Which one of these terms refers to a conflict of interest between the stockholders and managers of a corporation?
agency problem
A conflict of interest between the stockholders and management of a firm is called
an agency problem
Sole proprietorships
are limited to the business owner's life
The process of planning and managing a firm's long-term investments is called
capital budgeting
The mixture of debt and equity used by a firm to finance its operation is called
capital structure
The person generally directly responsible for overseeing the tax management, cost accounting, financial accounting, and information system functions is the
controller
A business created as a distinct legal entity composed of one or more individuals or entities is called a
corporation
Which form of business structure faces the greatest agency problems?
corporation
Which form(s) of business is treated as a distinct legal entity separate from its owners?
corporation
Which one of the following business types is best suited to raising large amounts of capital?
corporation
Which one of the following is a capital budgeting decision?
deciding whether or not to open a new store
Capital structure refers to
decisions related to long-term debt and equity financing
Short-term finance
is concerned with managing net working capital
A business entity operated and taxed like a partnership, but with limited liability for the owners, is called a
limited liability company
The division of profits and losses among the members of a partnership is formalized in the:
partnership agreement
