Chapter 1

The federal government taxes which of the following? - Corporate earnings but not shareholder dividends - Neither corporate earnings nor shareholder dividends - Corporate earnings and shareholder dividends - shareholder dividends but not corporate earnings

- Corporate earnings and shareholder dividends

A general partnership has which of the following characteristics - It is always regulated by a formal partnership agreement. - All the partners share in gains or losses of the partnership - Large amounts of cash can be raised easily - Each owner has unlimited liability for all firm debts.

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

The owners of a corporation are called ________? - partners - bondholders - government agents - shareholders

- shareholders

Which of the following is a disadvantage of a sole proprietorships and partnerships? - unlimited life of the business - double taxation - Difficulty of transferring ownership - separation of ownership and management

- Difficulty of transferring ownership

If you hire a real estate company to sell your house, you are most apt to encounter which one of the following? - Capital structure problem - Securities Act of 1933 violation - Securities Exchange Act of 1934 violation - Agency problem

- Agency problem

Which term applies to the mixture of debt and equity maintained by a firm? - Net working capital - Cash management - Capital Budget - Capital structure

- Capital structure

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

- How many employees will I need?

Which of the following are defining features of the primary market? - It is the market where shareholders and bondholders buy and sell to each other. - It only involves seasoned equity offerings. - It is the market where initial public offerings are made. - Proceeds from the sale of securities goes to the issuing firm.

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

How is ownership transferred in a corporation? - Ownership can be transferred only if the firm is sold. - Ownership in a corporation cannot be transferred. - Ownership is transferred only with prior approval from the board of directors - Ownership is transferred by gifting or selling shares of stocks.

- Ownership is transferred by gifting or selling shares of stocks.

According to Figure 1.2, where does cash generated by a corporation typically go? - Paid to shareholders and creditors - To buy financial assets - Reinvested in the firm - To pay corporate taxed

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

Which one of these is an important mechanism used by unhappy stockholders to replace current management? - Prospectus - Proxy fight - Perpetual debt - Ponzi scheme

- Proxy Fight

Corporations in other countries are often called: - Public limited companies - Joint stock companies - Limited liability company - Re-calibrated partnerships - Autonomous entities

- Public limited companies - Joint stock companies - Limited liability company

_________ _______________ can be used to encourage managers to maximize the value of the stock. - Green Mail - Poison pills - Stock splits - Stock options

- Stock options

The relationship between stockholders and management can best be described as a(n) _________ relationship. - agency - mentoring - irrelevant - contradictory

- agency

A partnership must have at least __________ owners. - ten - two - three - four

- two

A sole proprietor has ___________ personal liability for all business debts and obligations. - no - little - unlimited - limited

- unlimited

Ensuring that the firm has sufficient funds to continue operations of day-to-day basis comes under the heading of _____ management. - working capital - accounts receivables - fixed assets - total assets

- working capital

What three questions are the financial manager concerned with? - working capital management - capital structure - capital budgeting - designing new products

- working capital management - capital structure - capital budgeting

Which of the following are defining features of the primary market? -Proceeds from the sale of securities goes to the issuing firm - It is the market where initial public offering are made - It is the market where shareholders and bondholders buy and sell to each other - It only involves seasoned equity offerings

-Proceeds from the sale of securities goes to the issuing firm - It is the market where initial public offering are made

Which of the following is NOT one of the basic areas of finance? - Investments - Corporate Finance - Financial Institutions - Personal Finance - International Finance

4. Personal Finance

Which of the following positions generally report to the chief financial officer (CFO)? - Director of Marketing - Chief Executive Officer (CEO) - Controller - Treasurer

Controller and Treasurer

The __________ office responsible for corporate tax reporting. - Controller's - Treasurer's - Ombudsman's - Chief Operating Officer's

Controller's

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

False

True/False The Sarbanes-Oxley Act provides incentives for companies to go public in US markets.

False

Which of the following are considered non-owner stakeholders in a company? - Suppliers - Government - Employees - Stockholder

- Suppliers - Government - Employees

A shareholder's liability is limited to which of these? - The corporation's total liabilities - The corporation's current liabilities - The corporation's outstanding long-term debt - The amount the shareholder invested in the corporation.

- The amount the shareholder invested in the corporation.

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

- Tyco - WorldCom - Enron

True/False A corporation borrows money in its own name.

True

What is the main goal of financial management? - To make sure that the managers hold the majority of the shares in the company - To maximize current share value - To raise as much capital as possible - To maximize expenses

- To maximize current share value

The costs incurred due to a conflict of interest between stockholders and management are called __________ costs. - opportunity - agency - sunk - hidden

- agency

An organization must prepare ____________ and bylaws when forming a corporation. - articles of incorporation - a partnership agreement - an indenture agreement - a legal will

- articles of incorporation

The New York Stock Exchange is a(n) __________. - auction market - primary market - dealers market

- auction market

The Sarbanes-Oxley Act requires corporate officers to: - confirm the validity of the financial statements - personally prepare all financial statements - be responsible for errors in the annual report - limit their compensation and stock options

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

A bad financial decision is defined as a decision that _____________ shareholder wealth. - decreases - maximizes - increases

- decreases

Capital budgeting is concerned with making and managing expenditures on ____________ ? - current assets - long - term assets - long - term liabilities - current liabilities

- long - term assets

A treasurer's responsibilities typically include: - making financial plans - handling cash flows - managing capital expenditure decisions - financial accounting

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

In a shareholder-manager relationship, who is the agent? - Managers - Both shareholders and managers - Shareholders - Neither shareholders nor Managers

- Managers

In an over-the-counter market which of the following is true? - An OTC market is also called an auction market - Many dealers are also connected electronically - Only stocks are bought and sold - Most of the buying and selling is done by the dealer

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

One of the important questions in the area of investments includes the potential risks and reward associated with investing in ______________ assets.

financial