Chapter 1: Intro to Corporate Finances

True or false: Finance is mainly important to study if you are planning a career in finance.

False

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

Agency problem

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

Capital

Which of the following are considered stakeholders in a company? Employees Competitor Suppliers Government

Employees Suppliers Government

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

Enron WorldCom Tyco

What are the two factors that impact whether managers will act in the best interest of stockholders?

How closely management goals align with stockholder goals and the way managers are compensated

Which of the following can be used to encourage managers to act in the best interests of shareholders? A larger organization and more employees Managerial compensation tied to performance Better prospects of promotion Executive perks

Managerial compensation tied to performance Better prospects of promotion

A ____ corporation is for profit, and has the legal attributes of accountability, transparency, and purpose.

benefit

The possible goal of profit maximization _____. avoids maximizing the sales can be achieved by cost-cutting would probably be the most commonly sighted goal for a business should always be a short-term goal

can be achieved by cost-cutting would probably be the most commonly sighted goal for a business

Some of the cash flow generated by a firm goes back to the financial markets in the form of ______.

dividends and debt payments

The five main areas of finance are corporate finance, _____, financial institutions, international finance, and fintech.

investments

A sole proprietorship is a business that _______.

is owned by one person

Capital budgeting is concerned with planning and managing a firm's _____.

long-term investments

The goal of a for-profit business is to ______ existing owners' equity.

maximize

Corporations in other countries are often called:

public limited companies. joint stock companies.

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

Chief financial officer

The five main areas of finance are corporate finance, investments, financial institutions, international finance, and

fintech

Most equity shares of large firms in the U.S. trade on:

organized auction markets

It is sometimes argued that, left to themselves, managers tend to minimize the amount of resources over which they have control.

False

Which of the following, according to the textbook, are possible financial goals for a company?

Survival Minimize costs Maximize profits

It is argued that, left to themselves, managers would tend to maximize the amount of resources over which they have control or, more generally, ____ power or wealth.

corporate

Because ownership in a corporate is spread over a huge number of shareholders, it can be argued that ____ effectively controls the firm.

managers

The goal of the for-profit business is to maximize ____ equity.

owners

The financial manager acts in the shareholders' best interests by making decisions that increase the value of _____.

the stock

A benefit corporation is for profit, and has the legal attributes of accountability, _____, and purpose.

transparency

A partnership must have at least _______ owners.

two

In addition to the importance of finance for marketing, accounting, and management careers, finance is also now considered a _____ discipline, especially at the graduate level.

STEM

What is the main goal of financial management?

To maximize current value per share of existing stock

Which of the following is not an important question that must be asked when starting a firm?

Which type of operating system should you use for your computers?

The aim of the act known as _____ is to protect investors form corporate abuse.

SOX

A sole proprietorship is a business owned by ______ person(s).

one

A ______ is someone other than an owner or a creditor who potentially has a claim of the cash flows of a firm.

stakeholder

Organized auction markets include:

the New York Stock Exchange

When a corporation is formed, it is granted which of the following rights? State citizenship for jurisdictional purposes Corporate life of up to 100 years The ability to issue stock Legal powers to sue

State citizenship for jurisdictional purposes The ability to issue stock Legal powers to sue

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

Treasurer Controller

Which of the following are among the most important questions to be asked when a business is started? What long-term investments should be made? How will everyday financial activities be handled? How much vacation will I be able to take if I own my own business? Where will long-term financing be obtained to pay for investments?

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

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

agency

Joint stock company is another name for what is referred to as a ____ in the United States.

corporation

In financial markets, debt and ____ securities are bought and sold.

equity

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

legal

Since ownership in a corporation can be dispersed over a huge number of stockholders, it can be argued that ______ effectively controls the firm.

management

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

partnership