Chapter 1

Agency problems are most associated with: A) limited partnerships. B) general partnerships. C) limited liability companies. D) corporations. E) sole proprietorships.

corporations.

Which one of the following statements is correct? A) The majority of firms in the U.S. are structured as corporations. B) Shareholders directly elect the corporate president. C) Shareholders are protected from all potential losses. D) Corporate profits are taxable income to the shareholders when earned. E) Corporations can have an unlimited life.

Corporations can have an unlimited life.

Which one of the following questions is a working capital management decision? A) Should the company update or replace its older equipment? B) Should the company close one of its current stores? C) How much should the company borrow to buy a new building? D) How much inventory should be on hand for immediate sale? E) Should the company issue new shares of stock or borrow money?

How much inventory should be on hand for immediate sale?

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes. A) Increasing managers' base salaries B) Compensation based on the value of the stock C) Threat of a company takeover D) Stock option plans E) Threat of a proxy fight

Increasing managers' base salaries

Sally and Alicia are equal general partners in a business. They are content with their current management and tax situation but are uncomfortable with their unlimited liability. Which form of business entity should they consider as a replacement to their current arrangement assuming they wish to remain the only two owners of the business? A) Corporation B) Limited partnership C) Limited liability company D) Sole proprietorship E) Joint stock company

Limited liability company

Which one of the following represents a cash outflow from a corporation? A) New loan proceeds B) Payment of dividends C) Initial sale of common stock D) Issuance of new securities E) Receipt of tax refund

Payment of dividends

Which one of the following is a cash flow from a corporation into the financial markets? A)Payment of loan interest B) Payment of government taxes C) Issuance of corporate debt D) Sale of common stock E) Borrowing of long-term debt

Payment of loan interest

Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following? A) Secondary, dealer market B)Primary, auction market C) Secondary, auction market D) Secondary, OTC market E) Primary, dealer market

Secondary, auction market

Public offerings of debt and equity must be registered with the: a) NYSE Registration Office. b) Market Dealers Exchange. c) New York Board of Governors. d) Federal Reserve. e) Securities and Exchange Commission.

Securities and Exchange Commission.

Which one of the following parties has ultimate control of a corporation? A) Chairman of the board B) Chief operating officer C) Shareholders D) Board of directors E) Chief executive officer

Shareholders

Which one of the following correctly defines the upward chain of command in a typical corporate organizational structure? A) The vice president of finance reports to the chairman of the board. B) The controller reports to the chief financial officer. C) The treasurer reports to the president. D) The chief executive officer reports to the president. E) The chief operations officer reports to the vice president of production.

The controller reports to the chief financial officer.

The decision to issue additional shares of stock is an example of: A) a controller's duties. B) a net working capital decision. C) a capital structure decision. D) working capital management. E) capital budgeting.

a capital structure decision.

A business created as a distinct legal entity and treated as a legal "person" is called a(n): A) sole proprietorship. B) corporation. C) unlimited liability company. D) general partnership. E) limited partnership.

corporation.

A limited partnership: A) consists solely of limited partners. B) has at least one partner who has unlimited liability for all of the partnership's debts. C) can opt to be taxed as a corporation D) terminates at the death of any one limited partner. E) has an unlimited life.

has at least one partner who has unlimited liability for all of the partnership's debts.

Decisions made by financial managers should primarily focus on increasing the: A) market value per share of outstanding stock. B) size of the firm. C) total sales D) growth rate of the firm. E) gross profit per unit produced.

market value per share of outstanding stock.