Finance Smartbook 1

Which of the following can be used to encourage managers to act in the best interests of shareholders?

1. Better prospects of promotion 2. Managerial compensation tied to performance

The federal government taxes which of the following?

corporate earnings and shareholder dividends

The ________ is the most important form, in terms of size, of business organization in the United States.

corporation

Inventory is a:

current asset part of working capital

The goal of the for-profit business is to maximize _____ equity.

existing owner's

The relative ease of transferring ownership, the limited liability for business debts, and the unlimited life of the business are why the corporate form is superior to sole proprietorships or partnerships for _____.

raising cash

Because shareholders get paid last after all other obligations are satisfied, they are often called _____.

residual owners

A partnership must have at least _______ owners.

two

In large firms, financial activity is usually associated with which top officer?

CFO

What is the main goal of financial management?

to maximize current value share per stock

Which of the following is not an important question that must be asked when starting a firm?

which type of operating system should you use for your computers?

which of the following are true of sole proprietorship?

1. It is the simplest type of business to form 2. Proprietorship has a limited life

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

1. Long term debt 2. Equity

Which of the following show why a corporation is the most important form of business?

1. corporations can enter into contracts 2. a corporation is a separate legal entity with the ability to acquire and exchange property. 3. corporations can sue and be sued

which of the following is included in working capital?

1. current short term assets 2. accounts payable 3. accounts receivable

which of the following positions report to the CFO

1. treasurer 2. controller

What are the two factors that impact whether managers will act in the best interest of stockholders?

How closely management goals align with stockholder goals and the way managers are compensated

Organized auction markets include:

The New York Stock Exchange

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

agency problem

In a large corporation, the _____ would be responsible for answering the three main questions that must be asked when starting a firm.

financial manager

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

legal

Businesses are motivated to organize as corporations because stockholders in a corporation have _______ liability for corporate debts.

limited

Stockholders in a corporation have _____ liability for corporate debts.

limited liability

Capital budgeting is concerned with planning and managing a firm's _____.

long-term investments

The liability of a shareholder in a corporation is limited to which of these?

the amount the shareholder invested in the corporation

In a corporation, the stockholders elect _____, who then select the managers. Multiple choice question.

the board of directors

The primary responsibility of financial managers is to increase the value of:

the existing shares of stock

The financial manager acts in the shareholders' best interests by making decisions that increase the value of _____.

the stock

A sole proprietor has ______ personal liability for all business debts and obligations.

unlimited

In a large corporation, the financial manager is primarily responsible for:

1. Financing decisions 2. financial aspects of operations, such as collections of accounts receivables 3. long-term investment decisions

When a corporation is formed, it is granted which of the following rights?

1. Legal Powers to sue 2. State citizenship for jurisdictional purposes 3. the ability to issue stock

Which of the following are among the most important questions to be asked when a business is started?

1. What long-term investments should be made? 2. Where will long-term financing be obtained to pay for investments? 3. How will everyday financial activities be handled?

______ budgeting is the process of making and managing expenditures on long-term assets

capital budgeting

Which term applies to the mixture of debt and equity maintained by a firm?

capital structure

In a shareholder-manager relationship, who is the agent? Multiple choice question.

managers

The goal of a for-profit business is to Blank______ existing owners' equity.

maximize

Most equity shares of large firms in the U.S. trade on:

organized auction markets

A business without separate legal authority formed by two or more people is known as a _____.

partnership

Corporate profits are taxed twice, first at the corporate level when they are earned and again at the ________level when they are paid out.

personal

When a corporation raises funds in the financial markets, the transaction occurs on the _____.

primary market

The relative ease of transferring ownership, the limited liability for business debts, and the unlimited life of the business are why the corporate form is superior to sole proprietorships or partnerships for _____

raising cash

Stockholders are entitled to only what is left after employees, suppliers, and creditors are paid, which makes them _____ owners.

residual

When one owner of a security sells the security to another person, the transaction takes place in the _________ market

secondary

Which one of the following parties would be the last party to receive payment if a firm were to close? Assume all parties have a legitimate claim on the firm's assets.

shareholders

The owners of a corporation are called ______.

stockholders