Business Finance Ch 1

Which of these have been noted as unintended consequences of the Sarbanes-Oxley Act?

public firms "going dark" and leaving the stock market eliminating public disclosure for many firms firms going public outside of the U.S. market

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

working capital

Which of the following are true of a sole proprietorship?

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

When one owner or creditor sells to another, the transaction takes place in the _________ market

secondary

What three subjects is the financial manager concerned with?

Capital Budgeting, Capital Structure, Working Capital Management

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

Capital Structure

The federal government taxes which of the following?

Corporate earnings and shareholder dividends

Is profit maximization the primary objective of a business?

No; profit maximization may not take into account other strategic objectives necessary to maximize shareholder value.

How is ownership transferred in a corporation?

Ownership is transferred by gifting or selling shares of stock.

How is ownership of a corporation represented?

Shares of stock

The controller is responsible for which of the following tasks?

Tax reporting and payments Financial accounting

An organization must prepare ______ and bylaws when forming a corporation.

articles of incorporation

The New York Stock Exchange is a(n) _____.

auction market

The Sarbanes-Oxley Act requires corporate officers to:

confirm the validity of the financial statements be responsible for errors in the annual report

The ______ office is responsible for corporate tax reporting.

controller

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

controller

The Sarbanes-Oxley Act is intended to strengthen protection against:

corporate accounting fraud and financial malpractice

Public limited companies and joint stock companies are other names for __________

corporations

"Increasing shareholder wealth" means increasing the _________.

current common stock value

A bad financial decision is defined as a decision that ______ shareholder wealth.

decreases

True or false: The Sarbanes-Oxley Act provides incentives for companies to go public in US markets.

false

A partnership in which partners share in gains or losses, and carry unlimited liability for all partnership debts, is called a:

general partnership

Working capital includes which of the following?

inventory short-term assets cash

A sole proprietorship is a business that _______.

is owned by one person

A limited liability company's owners have ______ liability.

limited

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

limited to their cash contribution to the partnership

Capital budgeting is concerned with making and managing expenditures on _____.

long-term assets

Since ________ and ownership are separated, a corporation's life is unlimited.

management

A treasurer's responsibilities typically include:

managing capital expenditure decisions. making financial plans. handling cash flows.

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

maximize

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

partnership

A limited liability company is taxed like a _________, but retains ________ ________ for owners.

partnership; limited liability

Which of the following are reasons that the corporation is the most important form of business?

Corporations are separate legal entities. Corporations can enter contracts. Corporations can sue and be sued.

In a for-profit business, owners' equity is equivalent to

the total value of stock in a corporation

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

Long Term Debt and Equity

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

Treasurer

The officer responsible for managing the firm's cash flows is the ______.

treasurer

A partnership must have at least ____ owners

two

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

unlimited

A general partnership has which of the following characteristics?

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

A corporation borrows money in its own name.

True

When are corporate profits taxed?

Corporations pay taxes on corporate profits. Individuals pay taxes on corporate dividends.

Which of these topics is not of especial interest to a financial manager?

Debt

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

Difficulty of transferring ownership

True or False: "Profit maximization" is the goal for the management of a corporation in short-run only.

False

A good financial decision will do which of the following?

Increase the value of the firm's existing stock Increase market value of shareholders' equity

Why don't large businesses organize as sole proprietorships or partnerships?

It can be difficult to raise cash for investment in these forms, and that limits the ability of the business to grow.

How does the Sarbanes-Oxley Act primarily work to make sure that companies tell the truth in financial statements?

It makes management personally responsible for the accuracy of a company's financial statements.

What type of partnership involves both general and limited partners to run the business?

Limited Partnership

Corporations in other countries are often called:

Limited liability company Public limited companies Joint stock companies

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

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

To pay corporate taxes Reinvested in the firm Paid to shareholders and creditors

In an over-the-counter market, which of the following is true?

Many dealers are also connected electronically. Most of the buying and selling is done by the dealer

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

Personal Finance

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

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

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

The ability to issue stock Legal Power To Sue

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

Tyco, Eron, WorldCom

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

limited

The owners of a corporation are called ______.

shareholders

A corporation receives cash from financial markets by selling ______ and ______.

stocks and bonds

The goal of the financial management is to increase the value of _____.

the existing shares of stock

True or false: In a large corporation, stockholders and managers are usually separate groups.

True