Chapter 1 Finance 450
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 is NOT one of the basic areas of finance?
personal finance
What is the primary objective of an auction market?
to bring buyers and sellers together
A partnership in which partners share in gains or losses, and carry unlimited liability for all partnership debts, is called a:
general partnership
Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley?
1.) Enron 2.) World Com 3.) Tyco
Which of the following are considered non-owner stakeholders in a company?
1.) Government 2.) suppliers 3.) employees
A good financial decision will do which of the following?
1.) Increase Value of Shareholder Equity 2.) increase value of the firms existing stock
When a corporation is formed, it is granted which of the following rights?
1.) Legal right to sue 2.) ability to issue stock
The threat of ______ motivates managers to make good decisions.
a takeover
In a shareholder-manager relationship, who is the agent?
Manager
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.
A limited liability company is taxed like a _________, but retains ________ ________ for owners.
Partnership; limited liability
A corporation receives cash from financial markets by selling ______ and ______.
Stocks and Bonds
Ensuring that the firm has sufficient funds to continue operations on a day-to-day basis comes under the heading of __________ management.
Working Capital
The relationship between stockholders and management can best be described as a(n) ______ 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 four basic areas of finance include investments, financial institutions, international finance, and
corporate finance
True or False: "Profit maximization" is the goal for the management of a corporation in short-run only.
false
One of the important questions in the area of investments includes the potential risks and reward associated with investing in
financial assets
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
Agency costs occur when _________ and stockholder interests are not in line with one another.
management
When one owner or creditor sells to another, the transaction takes place in the _________ market
secondary
A corporation borrows money in its own name.
true
In a for-profit business, owners' equity is equivalent to:
the value of stock in a corporation
A sole proprietor has ______ personal liability for all business debts and obligations.
unlimited
Who elects the board of directors, and ultimately maintains control of the firm?
stockholders
he goal of the financial management is to increase the value of _____.
the existing shares of stock.
"Increasing shareholder wealth" means increasing the _________.
Current common stock
True or false: The Sarbanes-Oxley Act provides incentives for companies to go public in US markets.
False
What is the main goal of financial management?
To maximize current share value
Which of the following are defining features of the primary market?
1.) It is the market where initial public offerings are made 2.) Proceeds from the sale of securities goes to the issuing firm
Which of the following are included in a firm's capital structure?
1.) Long term debt 2.) Equity
Which of the following are key questions for investments? Select all that apply.
1.) What are the risks and rewards associated with investing? 2.)What is the best mixture of financial assets to hold? 3.) What determines the price of a financial asset?
The Sarbanes-Oxley Act requires corporate officers to:
1.) confirm the validity of the financial statement 2.) be responsible for the errors in annual report
The goal of a "for profit" business is to ______ the value of shareholder wealth.
Maximize
_______ ______ can be used to encourage managers to maximize the value of the stock.
Stock Options
A(n) ______ is someone other than an owner or a creditor who potentially has a claim on the cash flows of the firm.
stakeholder