Finance 320 Chapter 1

Which corporate officer is responsible for accurate financial accounting of the firm's activity?

Controller

A __________ is similar to a proprietorship, except that there are two or more owners.

Partnership

Which of the following is NOT one of the basic areas of finance?

Personal Finance

A shareholder's liability is limited to which of these?

The amount the shareholder invested in the corporation

Which one of the following statements about a limited partnership is correct?

There must be at least one general partner.

Which one of the following occupations best fits into the corporate area of finance?

• Chief financial officer

Which one of the following is most apt to align management's priorities with shareholders' interests?

• Compensating managers with shares of stock that must be held for a minimum of three years

The Sarbanes-Oxley Act requires corporate officers to:

• Confirm the validity of the financial statements • Be responsible for errors in the annual report

Which of the following positions generally report to the chief financial officer (CFO)?

• Controller • Treasurer

Which are the basic areas of finance?

• Corporate Finance • Investments • Financial Institutions • International Finance

The federal government taxes which of the following?

• Corporate earnings and shareholder dividends

True or False: Profit maximization is the best goal for the management of the corporation.

False

Which one of the following best matches the primary goal of financial management?

Increasing the market value of firm

Which of the following areas of finance is concerned with financial asset allocation?

Investments

A limited liability company:

prefers its profits be taxed as personal income to its owners.

The Sarbanes-Oxley Act: •

require the corporate officers to personally attest that the financial statements are a fair representation of the company's financial results.

The daily financial operations of a firm are primarily controlled by managing the:

working capital.

The threat of __________ motivates managers to make good decisions.

• A hostile takeover

A limited liability company's owners have ________ liability.

• Limited

A corporation receives cash from financial markets by selling _______ and _________.

• Stocks • Bonds

The Sarbanes-Oxley Act in 2002 was prompted by which one of the following from the 1990's?

Corporate accounting and financial fraud

Which of the following is a disadvantage of sole proprietorships and partnerships? •

Difficulty of transferring ownership

If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?

investments

The costs incurred due to conflict of interests between stockholders and management are called ________ costs.

• Agency

Which one of the following statements about a limited partnership is correct?

• There must be at least one general partner.

If you hire a real estate company to sell your house, you are most apt to encounter which one of the following?

• Agency Problem

Working capital management includes which one of the following?

• Determining which customers will be granted credit

Which of the following is true of a sole proprietorship? (Check all that apply)

• It is one of the simplest types of businesses to form. • A proprietorship has a limited life.

Which of the following are defining features of the primary market?

• It is the market where initial public offerings are made • Proceeds from the sale of securities goes to the issuing firm

Corporations in other countries are often called

• Limited liability company • Public limited company • Joint stock companies

In a limited partnership, a limited partner's liability for business debts is _________.

• Limited to their cash contribution to the partnership

Which of the following are included in a firm's capital structure?

• Long-term debt • Equity

The goal of a "for profit" business is to _________ the value of shareholder wealth.

• Maximize

According to Figure 1.2. where does the cash generated by a corporation typically go?

• Pay to shareholders and creditors • Pay corporate taxes • Reinvest in the firm

The owners of a corporation are called

• Shareholders

What is the primary objective of an auction market?

• To bring buyers and sellers together

What is the main goal of financial management?

• To maximize current share value

Business finance is broadly concerned with which of the following (select all that apply).

• Which long-term investments to make • How to finance long-term investments • How to manage day-to-day finances

An agency issue is most apt to develop when:

• the control of a firm is separated from the firm's ownership.

Which one of the following applies to a general partnership?

• Any one of the partners can be held solely liable for all of the partnership's debt.

What three questions are the financial manager concerned with?

• Capital structure • Working capital management • Capital budgeting

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts? •

• Corporation

Which of the following companies were involved in the corporate scandals that led to Sarbanes-Oxley?

• Enron, Worldcom, Tyco

True or False: The Sarbanes-Oxley Act provides incentives for companies to go public in the U.S. markets.

• False

A good financial decision will do which of the following?

• Increase the value of the firm's existing stock • Increase the market value of shareholder's equity

How is ownership transferred in a corporation?

• Ownership is transferred by gifting or selling shares of stock.

Which one of these is an important mechanism used by unhappy stockholders to replace current management?

• Proxy Fight

A __________ gets paid after employees, suppliers, and creditors.

• Shareholder

________ _________ can be used to encourage managers to maximize the value of the stock.

• Stock options

A general partnership has which of the following characteristics

• The partners share in gains or losses of the partnership • Each owner has unlimited liability for all firm debts.

The relationship between stockholders and management can best be described as a ______ relationship. •

Agency

Which one of the following statements is correct? •

All over-the-counter sales occur in dealer markets.

Which one of the following applies to a general partnership?

Any one of the partners can be held solely liable for all of the partnership's debt.

_________ budgeting is the process of planning and managing a firm's long-term asset.

Capital

A corporation is a distinct __________ entity and as such can have a name and take advantage of the legal powers of natural persons. • Legal

Legal

Which one of the following statements correctly applies to a sole proprietorship?

Obtaining additional equity is dependent on the owner's personal finances.

The issuer of a security must be involved in all _____ transactions involving that security. •

Primary market

Which corporate officer is responsible for managing a firm's cash?

Treasurer

Ensuring that the firm has sufficient funds to continue operations on a day-to-day basis comes under the heading of ________________________ management

Working capital management

The goal of financial management is to increase the:

current market value per share.

In a general partnership, each partner is personally liable for:

the total debts of the partnership, even if he or she was unaware of those debts.

Which of the following are considered non-owner stakeholders in a company?

• Suppliers • Government • Employees