Business Finance Homework 1

A firm has $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital?

$720

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

capital budgeting

Net working capital is defined as:

current assets minus current liabilities.

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

income statement

Which of the following individuals have unlimited liability based on their ownership interest?

general partner and sole proprietor

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

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

income tax returns

Which of the following are advantages of the corporate form of business ownership?

limited liability, ability to raise capital and unlimited firm life.

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

maximize the current value per share.

A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200. What is the amount of the shareholders' equity?

$18,700 (fixed assets- total liabilities +currect assets)

A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities?

$6,890

Which of the following questions are addressed by financial managers?

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?

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?

agency problem

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

capital structure

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