Corporate Finance Chapter 1
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.
A corporation receives cash from financial markets by selling _________ and _________.
-Bonds -Stocks
Which of the following statements are true about fixed assets?
-Fixed Assets have a longer life than current assets. -Fixed Assets can be tangible or intangible.
A good financial decision will do which of the following?
-Increase the value of the firm's existing stock -Increase Market Value of the shareholder's equity.
Which of the following are examples of current assets?
-Inventory -Cash
The controller is responsible for which of the following tasks?
-Tax Reporting and Payments -Financial Accounting
When a corporation is formed, it is granted which of the following rights?
-The ability to issue stock -Legal powers to sue -Provincial citizenship for jurisdictional purposes.
Which of the following are examples of fixed assets?
-Warehouses -Equipment
Which of the following is an example of a current liability?
Accounts Payable
The relationship between stockholders and management can be best described as a ____________ relationship.
Agency
___________ budgeting is the process of making and managing expenditures on long-term assets.
CAPITAL
In large firms, financial activity is usually associated with which top officer?
Chief Financial Officer
The officer responsible for corporate tax reporting is the _________.
Controller
Which corporate office is responsible for accurate financial accounting of the firm's activities?
Controller
Federal Government taxes:
Corporate Earnings and shareholders dividends
The left side of a balance sheet shows the firms
Current and Fixed Assets
A bad financial decision is defined as a decision that ________ owner's equity.
Decreases
In a limited partnership, a limited partner's liability for business debt is ______________.
Limited to their cash contribution to the partnership.
Corporate Bonds are generally classified as _________.
Long-Term Debt.
Corporate bonds are generally classified as ________.
Long-Term Debt.
Since ________ and ownership are separated, a corporation's life is unlimited.
Management
A sole proprietorship is a business owned by _________ persons.
ONE
Indirect agency costs are often due to lost __________.
Opportunities
How is ownership transferred in a corporation?
Ownership is transferred by gifting or selling shares of stock.
An important mechanism used by unhappy stockholders to replace current management is:
Proxy Fight
What happens when a firm creates value?
Shareholder wealth increases
The owners of a corporation are called _________.
Shareholders
A current assets has a ________ life.
Short
When would individuals prefer to receive cash flows?
Sooner rather than later.
A _______ is someone other than an owner or a creditor who potentially has a claim of the cash flows of a firm.
Stakeholder
___________ are frequently used to encourage key managers to maximize the value of the firm's stock.
Stock Options
The primary responsibility of financial managers is to increase the value of _________.
The existing shares of stock
The primary responsibility of financial managers is to increase the value of ________.
The existing shares of stock.
The primary responsibility of financial managers is to increase the value of _________.
The existing shares of stock.
What is the main goal of financial management?
To maximize current share value.
Shareholder's Equity is the difference between which of the following?
Total Assets and Total Debt
A sole proprietor has ___________ personal liability for all business debts and obligations.
Unlimited
A general partnership has the following characteristics:
-It is difficult to transfer ownership -Each owner has unlimited liability for all firm debt.
The costs incurred due to a conflict of interest between stockholders and management are called ___________.
Agency Costs
The conflict of interest between an agent and a principal is called a __________.
Agency Problem
An organization must prepare ________ and bylaws when forming a corporation.
Articles of Incorporation
The rules used by a corporation to regulate its existence are known as ____________.
Bylaws
The two basic classification under which most potential financial goals fall, are:
Controlling Risk Earning or increasing profits
Shareholders are the ONLY stakeholder in a firm as they are the owners.
FALSE
A 1934 Securities Exchange Act restricts anyone who has access to _________ information from trading on that information.
Non-Public
The officer responsible for managing the firm's cash flow is the ______.
Treasurer
_______ assets last a long time and include items such as equipment, land, machinery or building?
Fixed
On a balance sheet, patents and trademarks are classified as ______.
Fixed Assets
What determines when a sale is a recorded for accounting purposes?
Generally Accepted Accounting Principles.
Which of the following are included in a firm's capital structure?
-Long Term Debt -Equity
The financial goal of profit maximization is associated with which of the following?
-Maintenance Deferment -Critical Inventory Reduction -Cost-Cutting
Which of the following is true concerning government regulation?
-Regulation can help reduce conflicts of interest between managers and shareholders. -Regulation can help ensure firms disclose relevant information to investors. -Regulation can be costly to a firm.
Which of the following are considered NON-OWNER STAKEHOLDERS in a company?
-Supplies -Government -Employees
A partnership must have at least ______ owners.
Two