Corporate Finance Chapter 1
Managers are encouraged to act in shareholders' interests by: A: Both shareholder election of a board of directors who select management; and the threat of a takeover by another firm. B: All of these. C: shareholder election of a board of directors who select management. D: the threat of a takeover by another firm. E: compensation contracts that tie compensation to corporate success.
B all of these.
The owners of a limited liability company prefer:
Being taxed personally on all business income.
What is the correct pecking order of the organizational structure of a corporation?
Board of Directors CEO
The treasurer and the controller of a corporation generally report to the:
CFO.
The mixture of debt and equity used by a firm to finance its operations is called?
Capital structure.
The person generally directly responsible for overseeing the tax management, cost accounting, financial accounting, and information system functions is the:
Controller.
A business created as a distinct legal entity composed of one or more individuals or entities is called a:
Corporation.
Which business type is best suited to raising large amounts of capital?
Corporation.
Which form of business structure faces the greatest agency problems?
Corporation.
Which type of business organization has all the respective rights and privileges of a legal person?
Corporation.
Which form of business is typically the largest firms?
Corporations.
Which form of business structure faces the greatest agency problem?
Corporations.
What is an example of a capital budgeting decision?
Deciding whether or not to open a new store.
The owners of a limited liability company prefer: A: being taxed like a corporation with liability like a partnership. B: having liability exposure similar to that of a sole proprietor. C: being taxed like a corporation. D: having liability exposure similar to that of a general partner. E: being taxed personally on all business income.
E: being taxed personally on all business income.
A business formed by two or more individuals who each have unlimited liability for business debts is called a:
General partnership.
Accounting profits and cash flows are:
Generally not the same since GAAP allows for revenue recognition separate from the receipt of cash flows.
A general partner: A: has less legal liability than a limited partner. B: has more management responsibility than a limited partner. C: faces double taxation whereas a limited partner does not. D: cannot lose more than the amount of his/her equity investment. E: is the term applied only to corporations which invest in partnerships.
Has more management responsibility than a limited partner.
Which of the following help convince managers to work in the best interest of the stockholders? I. compensation based on the value of the stock II. stock option plans III. threat of a proxy fight IV. threat of conversion to a partnership
I, II, and III
Which of the following are disadvantages of a partnership? I. Limited life of the firm II. Personal liability for firm debt III. Greater ability to raise capital than a sole proprietorship IV. Lack of ability to transfer partnership interest
I, II, and IV
Which of the following are advantages of the corporate form of business ownership? I. limited liability for firm debt II. double taxation III. ability to raise capital IV. unlimited firm life
I, III, and IV
Working capital management includes decisions concerning which of the following? I. accounts payable II. long-term debt III. accounts receivable IV. inventory
I, III, and IV
What is an advantage to being a limited partner rather than a general partner?
Liability for firm debts is limited to the capital invested.
What is the primary advantage of being a limited partner rather than a general partner?
Liability for firm debts limited to the capital invested.
Which two businesses are taxed in a similar fashion?
Sole proprietorship's and partnerships.
How long does a partnership survive?
Terminates at the death of any general partner.
What determines the life of a sole proprietorship?
The life of the firm is limited to the life span of the owner.
The person generally directly responsible for overseeing the cash and credit functions, financial planning, and capital expenditures is the:
Treasurer.
In a general partnership, the general partners have what kind of liability?
Unlimited liability.
In a general partnership, the general partners typically have what kind of liability?
Unlimited liability.
The management of a firm's short-term assets and liabilities is called:
Working capital management.
The articles of incorporation:
can set forth the number of shares of stock that can be issued.
Working capital management: A. is concerned with managing day to day cash flow (the upper portion of the balance sheet). B. ensures that long-term debt is acquired at the lowest possible cost. C. balances the amount of company debt to the amount of available equity. D. ensures that sufficient equipment is available to produce the amount of product desired on a daily basis. E. ensures that dividends are paid to all stockholders on an annual basis.
is concerned with managing day to day cash flow (the upper portion of the balance sheet).
The primary goal of financial management is to:
maximize the current value per share of the existing stock
