Financial Management Topic 2

The primary advantage of being a limited partner is:

A partners maximum loss is limited to their capital investment

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?

An increase in the market value per share

Which of the following individuals have unlimited liability for a firm's debts based on their ownership interest?

Both general partners and sole proprietors

Which one of the following terms is defined as the management of a firm's long-term investments?

Capital budgeting

Which one of the following terms is defined as the mixture of a firm's debt and equity financing?

Capital structure

Which business form is best suited to raising large amounts of capital?

Corporation

Which one of the following statements is correct?

Corporations can have an unlimited life.

Which one of the following questions is a working capital management decision?

How much inventory should be on hand for immediate sale?

Which one of the following questions is least likely to be addressed by financial managers?

How should a product be marketed?

Which one of the following statements is correct?

Income from both sole proprietorships and partnerships that is taxable is treated as individual income.

Which one of the following actions by a financial manager is most apt to create an agency problem?

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

The Sarbanes-Oxley Act of 2002 is a governmental response to:

Management greed and abuses

Which one of the following is a working capital management decision?

Should the firm pay cash for a purchase or use the credit offered by the supplier?

Corporate dividends are:

Tax-free since the corporation pays pays tax on that income when it is earned

Which one of the following statements concerning a sole proprietorship is correct?

The life of a sole proprietorship is limited

Which one of the following statements concerning a sole proprietorship is correct?

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

The decision to issue additional shares of stock is an example of:

a capital structure decision

Financial managers should strive to maximize the current value per share of the existing stock to:

best represent the interests of the current shareholders.

A _____ has all the respective rights and privileges of a legal person.

corporation

A business created as a distinct legal entity and treated as a legal "person" is called a(n):

corporation

Agency problems are most associated with:

corporation

Which one of the following is an unintended result of the Sarbanes-Oxley Act?

corporations delisting from major exchanges

The articles of incorporation:

describe the purpose of the firm and set forth the number of shares of stock that can be issued.

Corporate bylaws:

determine how a corporation regulates itself

One disadvantage of the corporate form of business ownership is the:

double taxation of distributed profits

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

general partnership

a limited partnership

has at least one partner who has unlimited liability for all of the partnership's debts.

Capital structure decisions include determining:

how much debt should be assumed to fund a project

The growth of both sole proprietorships and partnerships is frequently limited by the firm's:

inability to raise cash

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.

increasing manager base salaries

The Sarbanes-Oxley Act of 2002 holds a public company's _____ responsible for the accuracy of the company's financial statements.

internal auditors

A general partner

is personally responsible for all partnership debts

Sally and Alicia are equal general partners in a business. They are content with their current management and tax situation but are uncomfortable with their unlimited liability. Which form of business entity should they consider as a replacement to their current arrangement assuming they wish to remain the only two owners of the business?

limited liability company

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

limited partner

Sam, Alfredo, and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt?

limited partnership

Decisions made by financial managers should primarily focus on increasing the:

market value per share of outstanding stock

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

maximize the current value per share

A partnership with four general partners:

must distribute 25% of the profits to each partner

Which one of the following functions should be the responsibility of the controller rather than the treasurer?

processing reports

Financial managers should primarily focus on the interests of:

shareholders

Which one of the following parties has ultimate control of a corporation?

shareholders

A business owned by a solitary individual who has unlimited liability for the firm's debt is called a:

sole proprietorship.

Working capital management decisions include determining:

the minimum level of cash to be kept in a checking account

An example of a capital budgeting decision is deciding:

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

A firm's short-term assets and its short-term liabilities are referred to as the firm's:

working capital