Chapter 1: Introduction to Financial Management Assignment

Working capital includes which of the following? 1. short-term assets 2. equipment 3. cash 4. inventory

1, 3, 4

A partnership must have at least _______ owners. 1. four 2. two 3. three 4. ten

2. two

The ______ office is responsible for corporate tax reporting. 1. controller's 2. treasurer's 3. chief operating officer's 4. ombudsman's

1

A treasurer's responsibilities typically include: 1. making financial plans. 2. handling cash flows. 3. managing capital expenditure decisions. 4. financial accounting.

1, 2, 3

Which of these topics is not of especial interest to a financial manager? 1. Debt 2. Working capital management 3. Capital structure 4. Capital budgeting

1. Debt Debt Working capital management Reason: Working capital management is a topic of key importance to a financial manager, per the text. Capital structure Reason: Capital structure is a topic of key importance to a financial manager, per the text. Capital budgeting Reason: Capital budgeting is a topic of key importance to a financial manager, per the text.

In large firms, financial activity is usually associated with which top officer? 1. Chief management consultant 2. Chief financial officer 3. Vice president of production 4. Vice president for marketing

2

Which corporate officer is responsible for managing the firm's cash? 1. Cost accounting manager 2. Sales manager 3. Controller 4. Treasurer

4. Treasurer Cost accounting manager Reason: The cost accounting manager helps the firm control manufacturing costs. Sales manager Reason: The sales manager directs the sales force. Controller Reason: The controller handles financial accounting and information systems. Treasurer

The four basic areas of finance include investments, financial institutions, international finance, and [Blank] finance.

Corporate

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

True

In a limited partnership, a limited partner's liability for business debts is ______. 1. unlimited 2. limited by their average annual income over the life of the partnership 3. $0 4. limited to their cash contribution to the partnership

4 unlimited Reason: In a limited partnership, a limited partner's liability for business debts is limited to their cash contribution to the partnership. In a general partnership, each partner is liable for all debts of the partnership. limited by their average annual income over the life of the partnership Reason: In a limited partnership, a limited partner's liability for business debts is limited to their cash contribution to the partnership $0 Reason: In a limited partnership, a limited partner's liability for business debts is limited to their cash contribution to the partnership limited to their cash contribution to the partnership

A corporation borrows money in its own name. True False

True

Capital budgeting is concerned with making and managing expenditures on _____. 1. current assets 2. long-term liabilities 3. current liabilities 4. long-term assets

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. 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. 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. ANSWER: long-term assets

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

financial

______ budgeting is the process of planning and managing a firm's long-term assets. 1. Capital 2. Conventional 3. Optional 4. Performance based

1. Capital

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? 1. What long-term investments should be made? 2. How will everyday financial activities be handled? 3. How many employees will I need? 4. Where will long-term financing be obtained to pay for investments?

3

How is ownership transferred in a corporation? 1. Ownership is transferred only with prior approval from the board of directors. 2. Ownership can be transferred only if the firm is sold. 3. Ownership is transferred by gifting or selling shares of stock. 4. Ownership in a corporation cannot be transferred.

3

A limited liability company is taxed like a _________, but retains ________ ________ for owners. 1. partnership; limited liability 2. partnership; complete liability 3. partnership; ownership interest 4. proprietorship; limited liability 5. proprietorship; complete liability

1

A shareholder's liability is limited to which of these? 1. The amount the shareholder invested in the corporation 2. The corporation's current liabilities 3. The percentage of corporate debt that equals the shareholder's ownership percentage 4. The corporation's outstanding long-term debt

1 The amount the shareholder invested in the corporation The corporation's current liabilities Reason: A shareholder's liability is limited to the amount the shareholder invested in the corporation. This is one advantage of the corporate form. The percentage of corporate debt that equals the shareholder's ownership percentage Reason: A shareholder's liability is limited to the amount the shareholder invested in the corporation. This is one advantage of the corporate form. The corporation's outstanding long-term debt Reason: A shareholder's liability is limited to the amount the shareholder invested in the corporation. This is one advantage of the corporate form.

Public limited companies and joint stock companies are other names for __________. 1. corporations 2. companies 3. partnerships 4. proprietorships

1 corporations companies Reason: These are names for corporations in non-U.S. countries. partnerships Reason: These are names for corporations in non-U.S. countries. proprietorships Reason: These are names for corporations in non-U.S. countries.

A partnership in which partners share in gains or losses, and carry unlimited liability for all partnership debts, is called a: 1. general partnership 2. limited liability partnership 3. corporation 4. propietorship

1 general partnership limited liability partnership Reason: A partnership with these characteristics is a general partnership. corporation Reason: A partnership with these characteristics is a general partnership. propietorship Reason: A partnership with these characteristics is a general partnership.

Which term applies to the mixture of debt and equity maintained by a firm? 1. Capital structure 2. Cash management 3. Capital budget 4. Net working capital

1 Capital structure Cash management 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. Net working capital Reason: The mix of debt and equity is referred to as a firm's capital structure.

Which of the following are included in a firm's capital structure? 1. Equity 2. Current assets 3. Long-term debt 4. Net sales

1 & 2 Equity Reason: The mix of debt and equity is referred to as a firm's capital structure. Current assets Reason: The mix of debt and equity is referred to as a firm's capital structure. Long-term debt Reason: The mix of debt and equity is referred to as a firm's capital structure. Net sales Reason: The mix of debt and equity is referred to as a firm's capital structure.

When are corporate profits taxed? 1. Individuals pay taxes on corporate dividends. 2. Corporations pay taxes on corporate profits. 3. Corporations pay taxes on all money coming in. 4. Corporations don't pay taxes.

1, 2

Working capital includes which of the following? 1. cash 2. inventory 3. equipment 4. short-term assets

1, 2, 4

Which of the following is NOT one of the basic areas of finance? 1. International finance 2. Financial institutions 3. Investments 4. Personal finance 5. Corporate finance

4

How is ownership of a corporation represented? 1. Bonds 2. Buying a company's products 3. Shares of stock

3

Which of the following are reasons that the corporation is the most important form of business? 1. Corporations can vote in general elections 2. Corporations can sue and be sued. 3. Corporations are separate legal entities. 4. Corporations can enter contracts.

2, 3, 4

What three subjects is the financial manager concerned with? 1. capital budgeting 2. designing new products 3. capital structure 4. working capital management

1, 3, 4

Business finance is broadly concerned with which of the following (select all that apply)? 1. How to manage day-to-day finances of the firm. 2. How to set up the audit committee. 3. Which long-term investment to make. 4. How to finance long-term investments.

1, 3, &

Which of the following are reasons that the corporation is the most important form of business? 1. Corporations can enter contracts. 2. Corporations can vote in general elections 3. Corporations are separate legal entities. 4. Corporations can sue and be sued.

1, 3, 4

A sole proprietorship is a business that _______. 1. is similar to a limited partnership 2. is owned by one person 3. provides limited personal liability to its owner 4. is organized with bylaws

2 is similar to a limited partnership Reason: A sole proprietorship is owned by one person, who has unlimited liability for business debts and obligations. is owned by one person provides limited personal liability to its owner Reason: A sole proprietorship is owned by one person, who has unlimited liability for business debts and obligations. is organized with bylaws Reason: A sole proprietorship is owned by one person. Bylaws are normally not required.

Which of the following are key questions for investments? Select all that apply. 1. How much money should you have to open a portfolio? 2. What are the risks and rewards associated with investing? 3. What are stocks? 4. What determines the price of a financial asset? 5. What is the best mixture of financial assets to hold?

2, 4, 5

The owners of a corporation are called ______. 1. partners 2. bondholders 3. shareholders 4. government agents

3

The controller is responsible for which of the following tasks? 1. Tax reporting and payments 2. Raising capital 3. Financial accounting 4. Capital expenditures

1, 3

The goal of the financial management is to increase the value of _____. 1. future profits 2. their total compensation package. 3. the existing shares of stock 4. current earnings

3

Which of the following positions generally report to the chief financial officer (CFO)? 1. Director of marketing 2. Treasurer 3. Controller 4. Chief executive officer (CEO)

2 & 3

Business finance is broadly concerned with which of the following (select all that apply)? 1. How to finance long-term investments 2. How to manage day-to-day finances of the firm 3. Which long-term investment to make 4. How to set up the audit committee

1, 2, 3

Which of the following is a disadvantage of sole proprietorships and partnerships? 1. Unlimited life of the business 2. Difficulty of transferring ownership 3. Double taxation 4. Separation of ownership and management

2

What type of partnership involves both general and limited partners to run the business? 1. corporation 2. limited partnership 3. sole propietorship 4. general partnership

2 corporation Reason: Both general and limited partners are part of the management structure within a limited partnership. limited partnership sole propietorship Reason: Both general and limited partners are part of the management structure within a limited partnership. general partnership Reason: Both general and limited partners are part of the management structure within a limited partnership.

An organization must prepare ______ and bylaws when forming a corporation. 1. an indenture agreement 2. a partnership agreement 3. articles of incorporation 4. a legal will

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

A business without separate legal authority formed by two or more people is known as a _____. 1. sole proprietorship 2. conglomerate 3. corporation 4. partnership

4

A sole proprietor has ______ personal liability for all business debts and obligations. 1. little 2. limited 3. unlimited 4. no

3. Unlimited little Reason: A sole proprietor has unlimited personal liability for all business debts and obligations. limited Reason: A sole proprietor has unlimited personal liability for all business debts and obligations. unlimited no Reason: A sole proprietor has unlimited personal liability for all business debts and obligations.

Ensuring that the firm has sufficient funds to continue operations on a day-to-day basis comes under the heading of __________ management. 1. fixed asset 2. accounts receivables 3. total asset 4. working capital

4

The federal government taxes which of the following? 1. Shareholder dividends but not corporate earnings 2. Neither corporate earnings nor shareholder dividends 3. Corporate earnings but not shareholder dividends 4. Corporate earnings and shareholder dividends

4 Shareholder dividends but not corporate earnings Reason: For corporations, shareholders (owners) are taxed on their dividends after the income has been taxed to the corporation. Sole proprietors and partners, who are also owners, are taxed on the income of the company rather than on withdrawals from the company. Hence the income is taxed only once, at the personal level. Neither corporate earnings nor shareholder dividends Reason: For corporations, shareholders (owners) are taxed on their dividends after the income has been taxed to the corporation. Sole proprietors and partners, who are also owners, are taxed on the income of the company rather than on withdrawals from the company. Hence the income is taxed only once, at the personal level. Corporate earnings but not shareholder dividends Reason: For corporations, shareholders (owners) are taxed on their dividends after the income has been taxed to the corporation. Sole proprietors and partners, who are also owners, are taxed on the income of the company rather than on withdrawals from the company. Hence the income is taxed only once, at the personal level. Corporate earnings and shareholder dividends

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? 1. How many employees will I need? 2. Where will long-term financing be obtained to pay for investments? 3. How will everyday financial activities be handled? 4. What long-term investments should be made?

1 How many employees will I need? Where will long-term financing be obtained to pay for investments? Reason: Capital structure decisions How will everyday financial activities be handled? Reason: Working capital management What long-term investments should be made? Reason: Capital budgeting decisions

Businesses are motivated to organize as corporations because stockholders in a corporation have _______ liability for corporate debts. 1. no 2. limited 3. unlimited 4. personal

2 no Reason: Unlike partners and sole proprietors, stockholders' liability is limited to their investment in the company. limited unlimited Reason: Unlike partners and sole proprietors, stockholders' liability is limited to their investment in the company. personal Reason: Unlike partners and sole proprietors, stockholders' liability is limited to their investment in the company.

A corporation is a distinct ______ entity and as such can have a name and take advantage of the legal powers of natural persons. 1. patriotic 2. retributive 3. legal 4. illegal

3

Why don't large businesses organize as sole proprietorships or partnerships? 1. It is too easy to transfer ownership from one party to another. 2. Businesses want to maximize their liability. 3. It can be difficult to raise cash for investment in these forms, and that limits the ability of the business to grow. 4. These forms of business organization are too complicated to manage on a large scale.

3 It is too easy to transfer ownership from one party to another. Reason: It is often very difficult for sole proprietorships or partnerships to transfer ownership. Businesses want to maximize their liability. Reason: Businesses do not benefit from maximizing liabilities. It can be difficult to raise cash for investment in these forms, and that limits the ability of the business to grow. These forms of business organization are too complicated to manage on a large scale. Reason: Sole proprietorships and partnerships are among the simplest forms of organization.

A business without separate legal authority formed by two or more people is known as a _____. 1. conglomerate 2. sole proprietorship 3. partnership 4. corporation

3 conglomerate Reason: A business without separate legal authority formed by two or more people is known as a partnership. sole proprietorship Reason: A business without separate legal authority formed by two or more people is known as a partnership. A business owned by only one person is a sole proprietorship. partnership corporation Reason: A business without separate legal authority formed by two or more people is known as a partnership. A corporation is a legal entity.

A general partnership has which of the following characteristics? 1. It is always regulated by a formal partnership agreement. 2. Large amounts of cash can be raised easily. 3. All the partners share in gains or losses of the partnership. 4. Each owner has unlimited liability for all firm debts.

3 & 4 It is always regulated by a formal partnership agreement. Reason: A general partnership is easy and inexpensive to form. It can even be an oral agreement. Large amounts of cash can be raised easily. Reason: In a general partnership the cash raised is limited to that provided by the partners. All the partners share in gains or losses of the partnership. Each owner has unlimited liability for all firm debts.

Is profit maximization the primary objective of a business? 1. No; profit maximization may not take into account other strategic objectives necessary to maximize shareholder value. 2. Yes; the entire point of running a business is to make as much money as possible for everyone involved. 3. It depends; sometimes profit maximization is the most important objective, and sometimes it isn't.

1 No; profit maximization may not take into account other strategic objectives necessary to maximize shareholder value. Yes; the entire point of running a business is to make as much money as possible for everyone involved. Reason: Profit maximization may not take into account other strategic objectives necessary to maximize shareholder value. It depends; sometimes profit maximization is the most important objective, and sometimes it isn't. Reason: Profit maximization may not take into account other strategic objectives necessary to maximize shareholder value.