FIN300 Ch 1 Review

Which one of the following statements concerning financial markets is correct? A. The NYSE is an auction market. B. All dealer markets require a physical trading floor. C. Corporations initially sell shares of stock in the secondary market, which is an auction market. D. All private sales of stock must first be registered with the SEC.

A. The NYSE is an auction market.

Which one of the following statements concerning corporations is correct? A. The rules describing how a corporation regulates its own existence are set forth in the bylaws. B. The procedures to be followed for electing corporate directors are included in the articles of incorporation. C. Corporate income is taxed only when the corporate earnings are distributed to shareholders. D. A corporation is the easiest form of business entity to create.

A. The rules describing how a corporation regulates its own existence are set forth in the bylaws.

When evaluating a project in which a firm might invest, both the size and the timing of the cash flows are important. A. True B. False

A. True

The management of a firm's long-term debt and equity is referred to as: A. capital structure management. B. capital budgeting. C. working capital management. D. investment management.

A. capital structure management.

A corporation borrows money using: A. its own name. B. the names of its directors. C. the name of its CEO.

A. its own name.

Milo, Inc. spends approximately $3 million annually to hire auditors to review the firm's financial statements. This is an example of an indirect agency cost. A. True B. False

B. False

The board of directors has the power to act on behalf of the shareholders to hire and fire the operating management of a firm. In a legal sense, the directors are "principals" and the shareholders are "agents." A. True B. False

B. False

Which one of the following statements is correct? A. All partners enjoy limited liability when a partnership is created as a limited partnership. B. Large accounting firms are frequently organized as LLCs. C. Both general partnerships and corporations have unlimited lives. D. A public limited company is the foreign equivalent of a limited partnership in the U.S.

B. Large accounting firms are frequently organized as LLCs.

Which one of the following statements concerning the financial markets is correct? A. Shareholders exchange shares with each other in the primary market. B. The New York Stock Exchange is an auction market. C. Dealer markets have a physical trading floor. D. Stocks traded in auction markets are said to trade over-the-counter.

B. The New York Stock Exchange is an auction market.

Which one of the following is an advantage of a sole proprietorship? A. double taxation B. ease of business formation C. limited equity D. limited life

B. ease of business formation

A manager in charge of working capital determines: A. how to raise the money required to fund a project. B. how much inventory a firm should maintain. C. how many additional shares of stock should be sold. D. which projects a firm should undertake. E. which fixed assets a firm should purchase.

B. how much inventory a firm should maintain.

The owner of a sole proprietorship: ' A. has unlimited legal liability only if she is actively involved in the daily operations of the business. B. is personally liable for all of the company's debts. C. has created an organization with an unlimited life. D. suffers from double taxation

B. is personally liable for all of the company's debts.

Which one of the following statements concerning partnerships is correct? A. All partners enjoy limited liability if they create a general partnership of equal shares. B. A limited partner actively participates in running the partnership on a daily basis. C. A general partnership terminates whenever one general partner decides to sell her share of the business. D. A general partnership has an unlimited life while a limited partnership has a limited life.

C. A general partnership terminates whenever one general partner decides to sell her share of the business.

Which one of the following statements concerning financial markets is correct? A. NASDAQ is an organized OTC market. B. All dealer markets require a physical location. C. Most new corporations generally choose to list their stocks immediately on the NYSE. D. All public offerings of stock must be registered with both the NYSE and NASD.

C. Most new corporations generally choose to list their stocks immediately on the NYSE.

Determining the mix of debt and equity to be used to finance a firm is a: A. capital budgeting decision. B. working capital management decision. C. capital structure decision.

C. capital structure decision.

Firms that "went dark" following the enactment of the Sarbanes-Oxley Act in 2002: A. must still comply with all the terms of that act. B. did not meet the requirements of the act and were delisted by the SEC. C. generally did so to avoid the high cost of compliance. D. now trade on NASDAQ where previously they traded on the NYSE

C. generally did so to avoid the high cost of compliance.

Which one of the following is taxed at the personal level while providing limited liability for all of its owners? A. general partnership B. limited partnership C. limited liability company D. sole proprietorship

C. limited liability company

The Sarbanes-Oxley Act in 2002 was adopted primarily to: A. eliminate costly accounting reports. B. replace the need for accounting audits by external auditors. C. protect investors from corporate abuse. D. protect corporate directors from legal liability.

C. protect investors from corporate abuse.

Which one of the following correctly describes the management structure of a firm as presented in the textbook? A. the data processing manager reports to the treasurer B. the treasurer reports to the controller C. the cash manager reports to the treasurer D. the treasurer reports to the president

C. the cash manager reports to the treasurer

The management of a firm's accounts receivables is referred to as: A. capital structure management. B. capital budgeting. C. working capital management. D. investment management.

C. working capital management.

Ann is interested in purchasing Ted's factory. Since Ann is a poor negotiator, she hires Mary to negotiate a purchase price. Identify the parties to this transaction. A. Mary is the principal and Ann is the agent. B. Ted is the principal and Ann is the agent. C. Ted is the agent and Ann is the principal. D. Ann is the principal and Mary is the agent. E. Ann is the principal and Ted is the agent.

D. Ann is the principal and Mary is the agent.

The duties of a financial manager include determining: I. which marketing strategy to use to promote a product. II. the most appropriate mix of long-term debt and equity. III. which projects a firm should undertake. IV. how much short-term debt to utilize. A. I and II only B. I, II, and III only C. II and III only D. II, III, and IV only E. I, II, III, and IV

D. II, III, and IV only

The primary goal of financial management is to: A. ensure the firm has sufficient cash to pay its bills in a timely manner. B. ensure the firm has sufficient cash to pay a regular dividend to shareholders. C. maximize the current net profits of the firm. D. maximize the current value per share of outstanding stock.

D. maximize the current value per share of outstanding stock.

Which one is most apt to create an agency problem? A. allowing the CEO to own shares of the company's stock B. providing free air travel for corporate executives to attend the annual shareholders' meeting C. granting stock bonuses to all employees within the firm D. paying the CEO a salary based on the growth rate of the firm's sales

D. paying the CEO a salary based on the growth rate of the firm's sales

Capital budgeting is the process of: A. determining how to raise the money required to fund a project. B. choosing how much cash to keep on hand. C. deciding the amount of earnings that a firm should retain. D. planning and managing a firm's long-term investments. E. deciding what marketable securities to purchase.

D. planning and managing a firm's long-term investments.

Financial managers are concerned with which of the following aspects of future cash flows? A. timing only B. risk only C. risk and size only D. timing, risk, and size

D. timing, risk, and size

The goal of financial management is to maximize the current: A. net income of the firm. B. dividends per share. C. resources of the firm. D. value of the existing stock.

D. value of the existing stock.

A financial manager is responsible for deciding whether or not new manufacturing equipment should be purchased to replace existing equipment. The firm will put cash down on 20% of the purchase price and take out a loan for the rest. The new equipment would reduce labor expenses and would allow the firm to reduce its investment in inventory. Which of the financial management areas would be involved in this decision? I. capital budgeting II. capital structure III. working capital A. I only B. I and II only C. II and III only D. I and III only E. I, II, and III

E. I, II, and III

Which one of the following is the best description of the goal of a financial manager in a corporation where shares are publicly traded? A. maximize sales growth over the short-term B. maximize profits over the short-term C. avoid financial distress D. maintain steady earnings growth E. maximize the current value per share of the existing stock

E. maximize the current value per share of the existing stock