Chapter 1: The Goals and Activities of Financial Management
Which of the following is not a motivation for corporate managers to follow the goal of maximizing shareholder wealth?
Corporate merger
LLCs can be taxed as sole proprietorships, partnerships, corporations, or S corporations, depending upon what?
Elections made by owners
National, state, and local governments are primarily suppliers of funds to the public financial markets.
False
There are four primary forms of organizations.
False
True or false: Financial markets exist as a small, local network of individuals and financial institutions
False
True or false: The ultimate measure of performance of the firm is what the firm earns.
False
markets are the meeting place for people, corporations, and institutions that either need money or have money to lend or invest.
Financial
The Dodd-Frank Act was passed by congress in response to:
Financial crisis
Capital markets deal with securities that
Have a life of one year or more
What are some of the drawback(s) to profit maximization as the primary goal of the firm?
It fails to consider the timing of the benefits. It may not account for increases in risk with higher profits.
Select the components of a corporation that distinguish it from a sole proprietorship and a partnership.
It is a legal entity unto itself It has a continual life It is formed through articles of incorporation
An advantage of a sole proprietorship
Low organizational and operating costs
Markets dealing with short-term securities are referred to as markets
Money
An initial public offering takes place in which market?
Primary
Which of the following is true of a sole proprietorship?
Profits or losses are taxed at the owner's personal tax rate
Management, being representative of all the owners, is in the agency position of making decisions that are in the best interest of the firm's:
Shareholders
Which of the following statements are true in relation to valuation approach?
Shareholders are interested in all of the firm's future earnings The firm's current overall value is actually the present value of all the firm's future cash flows. Businesses are valued in the present value of the cash flows that a business might produce in the future.
Corporations can raise capital through the issuance of which of the following?
Short-term notes Bonds Common stock
Which of the following is true of a partnership?
There are 2 or more owners Unlimited liability
Double taxation can be circumvented through the formation of an S corporation.
True
One disadvantage to the corporate form of organization is double taxation of earnings. The company pays taxes on its income and, when stockholders receive their dividends, they pay a second tax.
True
The term financial management can be used interchangeably with corporate finance.
True
Today's dollar value is referred to as the present value.
True
True or false: As the corporate financial manager has an increasing number of external impacts to consider, future financial managers will need to understand international capital flows, computerized electronic funds transfer systems, foreign currency hedging strategies, and many other functions.
True
True or false: Capital markets foster the efficient allocation of resources.
True
True or false: Coca-Cola, Nike, and Ford raise funds in the corporate financial markets.
True
True or false: Firms in which shareholder wealth maximization is not the primary goal may be susceptible to poor stock price performance.
True
The financial manager should attempt to maximize the wealth of the firm's shareholders through achieving the highest possible ______ for the firm.
Value
A special form of partnership that circumvents shared unlimited liability is:
a limited liability partnership
The Dodd-Frank Act was passed by Congress to promote financial stability by improving:
accountability transparency
Issues of corporate governance are problems related to which theory
agency theory
Finance pioneers were concerned with how investors after understanding the nature of various risks would set the price of:
bonds options stocks
The growth of the global company has led to the growth of global fund raising as companies seek low-priced sources of funds through international
capital markets money markets
Capital market securities include all of the following except
commercial paper
Money market securities include all of the following except:
common stocks bonds
A legal entity that may sue or be sued, engage in contracts, and acquire property is known as a
corporation
The primary organizational forms include:
corporation, partnership, sole proprietorship
Participants in the corporate financial markets include:
corporations
The more frequent daily activities of financial management include:
credit management inventory control receipt and disbursement of funds
Financial managers must know how to interpret a company's financial statements in order to
effectively allocate the firm's financial resources generate the best return possible for the company in the long-run
Directors serve in a ________ capacity for the shareholders and may be liable for the mismanagement of the firm.
fiduciary
The Dodd--Frank Act was passed to reform the Blank______ industry.
financial
The major focus of the Sarbanes-Oxley Act is to ensure the accuracy of the
financial statements
A corporation relies on markets to provide funds for short-term operations and for new plant and equipment.
financial, stock, or money
In a limited liability partnership, one or more of the partners is designated as a
general partner with unlimited liability
Money markets deal with securities that
have a life of one year or less
______ occurs when someone has information that is not available to the public and then uses this information to profit from trading in a company's publicly traded securities.
illegal insider trading
The purpose of the Dodd-Frank Act is to
improve accountability and transparency in the financial system
Accounting provides financial data through the
income statement, balance sheet, and statement of cash flows
The finance field is often divided into two general subcategories, ____________ and ____________________
investments corporate finance
Insider trading, using information that is not available to the public to make a profit,
is illegal is unethical can destroy confidence in the securities markets
A firm may go to the markets to raise financial capital by:
issuing short-term notes issuing bonds selling common stock.
A corporation is a ______ entity unto itself. Therefore, it may sue or be sued, engage in contracts, and acquire property.
legal
A corporation has a continual life which means that it is not dependent upon any one shareholder for maintaining its
legal existence
The stockholder of a corporation has ______ liability for the business debts and obligations.
limited
An LLC provides the advantage of Blank______ for its owners.
limited liability
Global companies can utilize the international financial markets in their search for sources of financing.
low-cost
The goal of shareholders wealth maximization can be consistent with the concern of social responsibility if management adopts policies that ___________ values in the market.
maximize or increase
The primary concern of the financial manager should be to:
maximize shareholder wealth
Money is considered to have a time value because:
money has more value in your possession today than at a later point in the future
Participants in public financial markets include:
national governments local governments state governments
A firm that adopts policies to maximize values in the market can:
offer benefits to its community attract capital provide employment
Which of the following is not a phenomenon that has influenced the importance of internationalization by managers
rational investors
Economics provides a structure for decision making in which of the following areas:
risk analysis, pricing theory, and comparative return analysis
The focus of modern financial management is on:
risk-return relationships and the maximization of return for a given level of risk
Management of shareholders' interests is ultimately the responsibility of
the corporation's board of directors
A key difference between a partnership and a sole proprietorship is:
the number of owners
A financial manager's functions must be carried out while also balancing:
the profitability and risk components of the firm
Allocation of capital in the financial markets is based on:
the risk-return trade off
In case of a limited liability partnership. general partners have Blank______ liability for the debts and obligations of the company.
unlimited
The S corporation designation can apply to domestic corporations with up to how many stockholders?
100
The Sarbanes-Oxley Act was by congress in which year?
2002