Business Finance Reading Assignment - Chapter 1 Connect

______ budgeting is the process of planning and managing a firm's long-term assets. Conventional Performance based Optional Capital

Capital

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

False

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

False

A shareholder's liability is limited to which of these?

The amount the shareholder invested in the corporation

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

corporations

One of the important questions in the area of investments includes the potential risks and reward associated with investing in ________________ assets.

financial

A limited liability company's owners have ______ liability.

limited

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

limited

Who elects the board of directors, and ultimately maintains control of the firm?

stockholders

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

the total value of stock in a corporation

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

legal

Which of the following are true of a sole proprietorship? (Selct all that apply.) A sole proprietor can issue stock to raise capital. The owner has limited liability for business debts. A proprietorship has a limited life. It is one of the simplest types of businesses to form.

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

Which term applies to the mixture of debt and equity maintained by a firm? Capital structure Cash management Reason: The mix of debt and equity is referred to as a firm's capital structure. Net working capital Reason: The mix of debt and equity is referred to as a firm's capital structure. Capital budget Reason: The mix of debt and equity is referred to as a firm's capital structure.

Capital structure

In large firms, financial activity is usually associated with which top officer? Chief financial officer Vice president of production Reason: The chief financial officer oversees a firm's financial activities. Chief management consultant Reason: The chief financial officer oversees a firm's financial activities. Vice president for marketing Reason: The chief financial officer oversees a firm's financial activities.

Chief financial officer

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? Capital budgeting Working capital management Capital structure Debt

Debt

Which of the following is a disadvantage of sole proprietorships and partnerships? Unlimited life of the business Separation of ownership and management Double taxation Difficulty of transferring ownership

Difficulty of transferring ownership

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

Enron Tyco WorldCom

According to the textbook, which of the following is not one of the three main questions to be addressed if you wanted to start your own business? What long-term investments should be made? How many employees will I need? Where will long-term financing be obtained to pay for investments? How will everyday financial activities be handled?

How many employees will I need?

Business finance is broadly concerned with which of the following (select all that apply)? How to finance long-term investments Which long-term investment to make How to manage day-to-day finances of the firm How to set up the audit committee

How to finance long-term investments Which long-term investment to make How to manage day-to-day finances of the firm

Which of the following are considered non-owner stakeholders in a company?

Suppliers Reason: Employees, suppliers, and the government are stakeholders as they have a financial interest in the firm.They are not, however, owners. Employees Reason: Employees, suppliers, and the government are stakeholders as they have a financial interest in the firm. They are not, however, owners. Government Reason: Employees, suppliers, and the government are stakeholders.They are not, however, owners.

Which of the following positions generally report to the chief financial officer (CFO)? Treasurer Director of marketing Chief executive officer (CEO) Controller

Treasurer Reason: Both the treasurer and the controller report to the CFO. Controller Reason: Both the treasurer and the controller report to the CFO.

A corporation borrows money in its own name.

True

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

True

The conflict of interest between an agent and a principal is called a(n)

agency problem. Reason: The conflict of interest between an agent and a principal is called an agency problem.

An organization must prepare ______ and bylaws when forming a corporation. an indenture agreement a partnership agreement a legal will articles of incorporation

articles of incorporation

A partnership must have at least _______ owners. ten three two four

two

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

Agency problem

Which corporate officer is responsible for accurate financial accounting of the firm's activities? Credit manager Controller Corporate secretary Treasurer

Controller

The four basic areas of finance include investments, financial institutions, international finance, and __________________ finance.

Corporate Four Basic Areas of Finance 1. Corporate Finance (Business Finance) 2. Investments 3. Financial Institutions 4. International Finance

The federal government taxes which of the following?

Corporate earnings and shareholder dividends

The controller is responsible for which of the following tasks? Financial accounting Raising capital Capital expenditures Tax reporting and payments

Financial accounting Tax reporting and payments highest-ranking accountant in a company, responsible for overseeing all accounting functions

A good financial decision will do which of the following?

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

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

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

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.

Which one of these is an important mechanism used by unhappy stockholders to replace current management?

Proxy fight

Why would the threat of a takeover motivate a manager to act in stockholders' interest?

Running the firm well and acting in the stockholders' interest makes the firm a less attractive takeover target to begin with.

How is ownership of a corporation represented?

Shares of stock

_______ ______ can be used to encourage managers to maximize the value of the stock.

Stock options

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

Which corporate officer is responsible for managing the firm's cash? Treasurer Cost accounting manager Sales manager Controller

Treasurer

The threat of ______ motivates managers to make good decisions.

a takeover

The costs incurred due to a conflict of interest between stockholders and management are called ______ costs.

agency

The relationship between stockholders and management can best be described as a(n) ______ relationship.

agency

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

auction market

The Sarbanes-Oxley Act requires corporate officers to:

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

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

corporate accounting fraud and financial malpractice

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

decreases

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

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

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

general partnership

Working capital includes which of the following? inventory cash short-term assets equipment

inventory cash short-term assets

A sole proprietorship is a business that _______. is similar to a limited partnership is organized with bylaws is owned by one person provides limited personal liability to its owner

is owned by one person

In a limited partnership, a limited partner's liability for business debts is ______. limited to their cash contribution to the partnership limited by their average annual income over the life of the partnership $0 unlimited

limited to their cash contribution to the partnership

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

maximize

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

partnership; limited liability

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

secondary

The owners of a corporation are called ______. shareholders bondholders partners government agents

shareholders

A(n) ______ is someone other than an owner or a creditor who potentially has a claim on the cash flows of the firm.

stakeholder

Managerial compensation is often tied to financial performance. One way to make this tie explicit is to offer payment in terms of:

stock options

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

stocks bonds

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

the existing shares of stock

The officer responsible for managing the firm's cash flows is the ______. auditor treasurer controller information systems manager

treasurer

A sole proprietor has ______ personal liability for all business debts and obligations. little limited no unlimited

unlimited

Ensuring that the firm has sufficient funds to continue operations on a day-to-day basis comes under the heading of __________ management. working capital accounts receivables total asset fixed asset

working capital

What three subjects is the financial manager concerned with? working capital management capital budgeting designing new products capital structure

working capital management capital structure capital budgeting

A treasurer's responsibilities typically include: making financial plans. managing capital expenditure decisions. handling cash flows. financial accounting.

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

A general partnership has which of the following characteristics? All the partners share in gains or losses of the partnership. It is always regulated by a formal partnership agreement. Each owner has unlimited liability for all firm debts. Large amounts of cash can be raised easily.

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

Which of the following are key questions for investments? Select all that apply. What are the risks and rewards associated with investing? What are stocks? How much money should you have to open a portfolio? What is the best mixture of financial assets to hold? What determines the price of a financial asset?

Investments Important Questions 1. What determines the price of a financial asset, such as share of stock. 2. What are the potential risks and rewards associated with investing financial assets 3. What is the best mixture of the different financial assets to hold?

Why don't large businesses organize as sole proprietorships or partnerships? Businesses want to maximize their liability. These forms of business organization are too complicated to manage on a large scale. It can be difficult to raise cash for investment in these forms, and that limits the ability of the business to grow. It is too easy to transfer ownership from one party to another.

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.

Corporations in other countries are often called: (Select all that apply.)

Joint stock companies Limited liability companies Public limited companies

Which of the following are included in a firm's capital structure? Current assets Long-term debt Net sales Equity

Long-term debt Reason: The mix of debt and equity is referred to as a firm's capital structure. Equity Reason: The mix of debt and equity is referred to as a firm's capital structure.

In a shareholder-manager relationship, who is the agent?

Managers

Which of the following is NOT one of the basic areas of finance? Investments Financial institutions International finance Corporate finance Personal 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

What type of partnership involves both general and limited partners to run the business? sole propietorship Reason: Both general and limited partners are part of the management structure within a limited partnership. corporation Reason: Both general and limited partners are part of the management structure within a limited partnership. limited partnership general partnership Reason: Both general and limited partners are part of the management structure within a limited partnership.

limited partnership

Capital budgeting is concerned with making and managing expenditures on _____. current assets Reason: Managing expenditures on long-term assets is known as capital budgeting. Managing current assets is part of the function of working capital management. current liabilities Reason: Managing expenditures on long-term assets is known as capital budgeting. Decisions about current liabilities, long-term liabilities, and shareholders' equity are called capital structure decisions. long-term assets long-term liabilities Reason: Managing expenditures on long-term assets is known as capital budgeting. Decisions about current liabilities, long-term liabilities, and shareholders' equity are called capital structure decisions.

long-term assets

Agency costs occur when _________ and stockholder interests are not in line with one another.

management

Since ________ and ownership are separated, a corporation's life is unlimited. profitability taxation management debt

management

A business without separate legal authority formed by two or more people is known as a _____. partnership sole proprietorship conglomerate corporation

partnership