CH.1: INTRODUCTION TO CORPORATE FINANCE

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

-Financial aspects of operations, such as collections of accounts receivables -long-term investment decisions -financing decisions

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

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

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

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

Better prospects of promotion, managerial compensation tied to performance, and stock options and bonuses

Which of the following positions generally report to the chief financial officer?

Controller, Treasurer

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

Enron, Tyco, WorldCom

True or False: the Sarbanes-Oxley Act provides incentives for companies to go public in U.S. markets.

False

It is sometimes argued that, left to themselves, managers tend to minimize the amount of resources over which they have control.

False.

The controller is responsible for which of the following tasks?

Financial accounting, tax reporting

Which of the following are important when considering a partnership?

Fund raising limitations, taxation of partnership income, and personal liability for firm debts

A general partnership has which of the following characteristics?

It is difficult to transfer ownership, each owner has unlimited liability for all firm debts

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

Which of the following are considered stakeholders in a company?

Suppliers, Government, and Employees

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

The amount the shareholder invested in the corporation

Which one of these motivates managers to make good decisions?

Threat of a hostile takeover

What is the main goal of financial management?

To maximize current value per share of existing stock.

The Sarbanes-Oxley Act requires corporate officers to do which of the following?

accept responsibility for material errors in the annual report, confirm the validity of the annual financial report, and list any deficiencies in internal controls

Which of the following is included in working capital?

accounts receivable, accounts payable, and current (short-term) assets

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

agency costs

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

agency problem

An organization must prepare __________ and bylaws when forming a corporation

articles of incorporation

the rules used by a corporation to regulate its existence are known as ________.

bylaws

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

chief financial officer

What are the two basic classifications under which most potential financial goals fall?

controlling risk and earning or increasing profits

The federal government taxes which of the following?

corporate earnings and shareholder dividends

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

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

Inventory is a:

current asset, part of working capital

The need to monitor management actions is an example of a(n) __________ cost.

direct

A treasurer's responsibilities typically include:

handling cash flows, managing capital expenditure decisions, and making financial plans

A sole proprietorship is a business that _________.

is owned by one person

Corporations in other countries are often called:

joint stock companies, public limited companies

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

legal

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

legal powers to sue, the ability to issue stock, and state citizenship for jurisdictional purposes

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

limited

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

limited to their cash distribution of the partnership

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

long-term debt and equity

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

long-term investments

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

management

Since ownership in a corporation can be dispersed over a huge number of stockholders, it can be argued that __________ effectively controls the firm

management

The goal of a for-profit business is to ___________ existing owner's equity.

maximize

Which of the following, according to the textbook, are possible financial goals for a company?

minimize costs, survival, and maximize profits

How is ownership transferred in a corporation?

ownership is transferred by gifting or selling shares of stock.

A limited liability company is taxed like a _________ and its owners have __________ liability

partnership; limited

Which one of these provides a manager incentive to perform well?

promotions

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

proxy fight

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

residual owners

The owners of a corporation are called __________

shareholders

From the stockholders' perspective, what is the primary purpose of awarding stock options to managers?

to increase shareholders' wealth

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