FIN Ch. 1

Capital budgeting

What long-term investments or projects should the business take on?

What should be the goal of a corporation?

- Maximize the current value of the firm's stock - The goal of financial management is to maximize the current value per share of the existing stock

An example of a capital budgeting decision is deciding: Select one: a. how many shares of stock to issue. b. whether or not to purchase a new machine for the production line. c. how to refinance a debt issue that is maturing. d. how much inventory to keep on hand. e. how much money should be kept in the checking account.

B

Which one of the following best states the primary goal of financial management? Select one: a. Maximize current dividends per share b. Maximize the current value per share c. Increase cash flow and avoid financial distress d. Minimize operational costs while maximizing firm efficiency e. Maintain steady growth while increasing current profits

B

Which one of the following is a working capital management decision? Select one: a. What type(s) of equipment is (are) needed to complete a current project? b. Should the firm pay cash for a purchase or use the credit offered by the supplier? c. What amount of long-term debt is required to complete a project? d. How many shares of stock should the firm issue to fund an acquisition? e. Should a project should be accepted?

B

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction: Select one: a. took place in the primary market. b. occurred in a dealer market. c. was facilitated in the secondary market. d. involved a proxy. e. was a private placement.

C

The growth of both sole proprietorships and partnerships is frequently limited by the firm's: Select one: a. double taxation. b. bylaws. c. inability to raise cash. d. limited liability. e. agency problems.

C

Capital structure decisions include determining: Select one: a. which one of two projects to accept. b. how to allocate investment funds to multiple projects. c. the amount of funds needed to finance customer purchases of a new product. d. how much debt should be assumed to fund a project. e. how much inventory will be needed to support a project.

D

Financial managers should primarily focus on the interests of: Select one: a. stakeholders b. the vice president of finance. c. their immediate supervisor. d. shareholders. e. the board of directors.

D

The decision to issue additional shares of stock is an example of: Select one: a. working capital management. b. a net working capital decision. c. capital budgeting. d. a controller's duties. e. a capital structure decision.

E

Which one of the following parties has ultimate control of a corporation? Select one: a. Chairman of the board b. Board of directors c. Chief executive officer d. Chief operating officer e. Shareholders

E

Working capital management

How do we manage the day-to-day finances of the firm?

Capital structure (aka financial structure)

How should we pay for our assets? Should we use debt or equity?