Finance Chapter 1

Which one of the following terms is defined as the management of a firm's long-term investments? Working capital management. Financial allocation. Agency cost analysis. Incorrect Capital budgeting. Correct Capital structure.

Capital Budgeting

Which one of the following terms is defined as the mixture of a firm's debt and equity financing? Working capital management. Cash management. Cost analysis. Capital budgeting. Capital structure.

Capital Structure

The decision to issue additional shares of stock is an example of which one of the following? Working capital management. Net working capital decision. Capital budgeting. Controller's duties. Capital structure decision.

Capital structure decision.

Which form of business structure is most associated with agency problems? Sole proprietorship. General partnership. Limited partnership. Corporation. Limited liability company.

Corporation

A business created as a distinct legal entity and treated as a legal "person" is called a: Corporation. Correct Sole proprietorship. General partnership. Limited partnership. Unlimited liability company.

Corporation.

Which one of the following is a capital budgeting decision? Determining how many shares of stock to issue. Deciding whether or not to purchase a new machine for the production line. Correct Deciding how to refinance a debt issue that is maturing. Determining how much inventory to keep on hand. Determining how much money should be kept in the checking account.

Deciding whether or not to purchase a new machine for the production line.

Which one of the following is a capital structure decision? Determining which one of two projects to accept. Determining how to allocate investment funds to multiple projects. Determining the amount of funds needed to finance customer purchases of a new product. Determining how much debt should be assumed to fund a project. Correct Determining how much inventory will be needed to support a project.

Determining how much debt should be assumed to fund a project.

Which one of the following is a working capital management decision? Determining the amount of equipment needed to complete a job. Determining whether to pay cash for a purchase or use the credit offered by the supplier. Correct Determining the amount of long-term debt required to complete a project. Determining the number of shares of stock to issue to fund an acquisition. Determining whether or not a project should be accepted.

Determining whether to pay cash for a purchase or use the credit offered by the supplier.

Which one of the following is an agency cost? Accepting an investment opportunity that will add value to the firm. Increasing the quarterly dividend. Investing in a new project that creates firm value. Hiring outside accountants to audit the company's financial statements. Correct Closing a division of the firm that is operating at a loss.

Hiring outside accountants to audit the company's financial statements.

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 and II only. III and IV only. I, III, and IV only. II, III, and IV only. I, II, III, and IV.

I, III, and IV only.

Which of the following questions are addressed by financial managers? I. How should a product be marketed? II. Should customers be given 30 or 45 days to pay for their credit purchases? III. Should the firm borrow more money?IV. Should the firm acquire new equipment? I and IV only. II and III only. I, II, and III only. II, III, and IV only. Correct I, II, III, and IV.

II, III, and IV only.

Which one of the following actions by a financial manager is most apt to create an agency problem? Refusing to borrow money when doing so will create losses for the firm. Refusing to lower selling prices if doing so will reduce the net profits. Refusing to expand the company if doing so will lower the value of the equity. Agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales. Increasing current profits when doing so lowers the value of the firm's equity.

Increasing current profits when doing so lowers the value of the firm's equity.

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

Maximize the current value per share.

Which one of the following is a primary market transaction? Sale of currently outstanding stock by a dealer to an individual investor. Sale of a new share of stock to an individual investor. Stock ownership transfer from one shareholder to another shareholder. Gift of stock from one shareholder to another shareholder. Gift of stock by a shareholder to a family member.

Sale of a new share of stock to an individual investor.

Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following? Primary, dealer market. Secondary, dealer market. Primary, auction market. Secondary, auction market. Secondary, OTC market.

Secondary, auction market.

Which one of the following parties has ultimate control of a corporation? Chairman of the board. Board of directors. Chief executive officer. Chief operating office. Shareholders.

Shareholders.

Which one of the following statements concerning a sole proprietorship is correct? A sole proprietorship is designed to protect the personal assets of the owner. The profits of a sole proprietorship are subject to double taxation. The owner of a sole proprietorship is personally responsible for all of the company's debts. There are very few sole proprietorships remaining in the U.S. today. A sole proprietorship is structured the same as a limited liability company.

The owner of a sole proprietorship is personally responsible for all of the company's debts.

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction: Took place in the primary market. Occurred in a dealer market. Was facilitated in the secondary market. Involved a proxy. Was a private placement.

Was facilitated in the secondary market.

Which one of the following is defined as a firm's short-term assets and its short-term liabilities? Working capital. Correct Debt. Investment capital. Net capital. Capital structure.

Working capital.