Chapter 1
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.
Which of the following are reasons that the corporation is the most important form of business?
Corporations can sue and be sued. Corporations can enter contracts. Corporations are separate legal entities.
Business finance is broadly concerned with which of the following?
How to finance long-term investments? Which long-term investment to make? How to manage day-to-day finances of the firm?
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.
Which of the following are defining features of the primary market?
Proceeds from the sale of securities go to the issuing firm. It is the market where initial public offerings are made.
Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley?
Tyco Enron WorldCom
The relationship between stockholders and management can best be described as a(n) Blank______ relationship.
agency
If you hire a real estate company to sell your house, you are most apt to encounter which one of the following?
agency problem
The conflict of interest between an agent and a principal is called a(n):
agency problem
A corporation receives cash from financial markets by selling Blank______ and Blank______.
bonds and stocks
In large firms, financial activity is usually associated with which top officer?
chief financial officer
The four basic areas of finance include investments, financial institutions, international finance, and ___ finance.
corporate
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 Blank______.
corporations
A bad financial decision is defined as a decision that Blank______ shareholders wealth.
decreases
True or false: "Profit maximization" is the goal for the management of a corporation in the short run only.
false, maximizing short-term profit will not increase value for stakeholders
Which of the following are considered non-owner stakeholders in a company? -government -suppliers -employees -stockholders
government suppliers employees
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? -how many employees will I need? -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?
how many employees will I need?
A sole proprietorship is a business that Blank______.
is owned by one person
Corporations in other countries are often called:
limited liability companies joint stock companies public limited companies
Since _____ and ownership are separated, a corporation's life is unlimited.
management
In a shareholder-manager relationship, who is the agent?
managers
A business without separate legal authority formed by two or more people is known as a Blank______.
partnership
Which of the following is not one of the basic areas of finance? -financial institutions -corporate finance -international finance -personal finance -investments
personal finance
Which of these topics is not of especial interest to a financial manager? -capital budgeting -product development -working capital management -capital structure
product development
When one owner or creditor sells to another, the transaction takes place in the Blank______ market
secondary
A(n) Blank______ 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
______ can be used to encourage managers to maximize the value of the stock.
stock options
A shareholder's liability is limited to which of these?
the amount the shareholder invested in the corporation
The goal of the financial management is to increase the value of Blank______.
the existing shares of the stock
What is the main goal of financial management?
to maximize the current share value
According to Figure 1.2, where does cash generated by a corporation typically go?
to pay corporate taxes paid to shareholders and creditors reinvested in the firm
Which of the following positions generally report to the chief financial officer (CFO)?
treasurer and controller
A partnership must have at least ______ owners
two
What three subjects is the financial manager concerned with?
working capital management capital budgeting capital structure
