chapter 1 - intro

A partnership must have at least _______ owners.

2

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.

If you hire a real estate company to sell your house, you are most apt to encounter which one of the following?

Agency problem

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

Chief financial officer

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

Controller, Treasurer

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

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

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

Employees, Suppliers, Government

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

Enron, WorldCom, Tyco

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

False

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?

Business finance is broadly concerned with which of the following

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

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

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

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 the following is NOT one of the basic areas of finance?

Personal finance

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

Product development

Corporations in other countries are often called

Public limited companies, Joint stock companies, Limited liability companies

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

Stock options

A shareholder's liability is limited to which of these?

The amount the shareholder invested in the corporation

What is the main goal of financial management?

To maximize 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

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

agency

The conflict of interest between an agent and a principal is called a(n)

agency problem.

What three subjects is the financial manager concerned with?

capital budgeting, capital structure, working capital management

The four basic areas of finance include investments, financial institutions, international finance, and ____ finance

corporate

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

corporate accounting fraud and financial malpractice

Public limited companies and joint stock companies are other names for __________.

corporations

"Increasing shareholder wealth" means increasing the _________.

current common stock value

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

decreases

A sole proprietorship is a business that _______.

is owned by one person

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

management

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

partnership

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

secondary

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

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

stocks, bonds