Chapter 1

handles cost and financial accounting, tax payments, and management information systems

controller's office

Which one of the following is a primary market transaction? A. Sale of currently outstanding stock by a dealer to an individual investor B. Gift of stock from one shareholder to a previous non-shareholder C. Sale of a new share of stock from a corporation to an individual investor

C. Sale of a new share of stock from a corporation to an individual investor

Corporate dividends represent: A. pretax income from the corporation which becomes taxable income for the recipient. B. tax-free income for the recipient because they are distributions of pretax income. C. after-tax income from the corporation which becomes taxable income for the recipient.

C. after-tax income from the corporation which becomes taxable income for the recipient.

is responsible for managing the firm's cash and credit, [financial planning], and capital expenditures

treasurer's office

Which of the following parties are not considered stakeholders of a firm? A. Competitors B. Customers C. Government

A. Competitors

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? A. A decrease in the net working capital B. An increase in the market value per share C. An increase in the number of shares outstanding D. An increase in the amount of the quarterly dividend

B. An increase in the market value per share

The Sarbanes-Oxley Act of 2002 is a governmental response to: A. decreasing corporate profits. B. the harm caused to stock markets by SARS, MERS, COVID-19, and other pandemics. C. management greed and abuses.

C. management greed and abuses.

A firm's ______ is the firm's mix of short-term assets and short-term liabilities. A. investment capital B. net currency C. net working capital D. net debt

C. net working capital

Usually, the treasurer of a corporation reports directly to the: A. chief executive officer. B. chair of the board. C. vice president of finance. D. president.

C. vice president of finance.

Which one of the following is a disadvantage of the corporate form of business? A. The firm may have unlimited life. B. The firm may issue additional shares of stock. C. Shareholders may experience limited liability. D. Distributed profits may experience double taxation.

D. Distributed profits may experience double taxation.

Which of the following actions would be most likely to decrease agency costs for the firm? A. Pay all employees based on the amount of revenue generated by the firm B. Increase employees' salaries to exceed the salaries paid by competitors C. Prohibit employees from becoming shareholders of the firm D. Reward high performing employees with shares of stock

D. Reward high performing employees with shares of stock

Deciding which long-term investment a firm should make is a ______ decision. A. capital structure B. capital constraints C. cost of capital D. capital budgeting

D. capital budgeting

Ultimately, the ______ control(s) the corporation. A. chief operating officer B. members of the board of directors C. chief executive officer D. shareholders

D. shareholders

Which one of the following best states the primary goal of financial management? A. Maximize the current value per share B. Maximize current dividends per share C. Maintain steady growth while increasing current profits D. Avoid financial distress

A. Maximize the current value per share

Public offerings of debt and equity must be registered with the: A. Securities and Exchange Commission. B. NYSE Registration Office. C. Federal Reserve.

A. Securities and Exchange Commission.

Financial managers should strive to maximize the current value per share of the existing stock to: A. best represent the interests of the current owners of the firm. B. increase the current dividends per share. C. provide the greatest opportunity for employees to earn high salaries.

A. best represent the interests of the current owners of the firm.

A business that is a legal entity separate from the owners, yet treated as a legal person, is called a(n): A. corporation. B. limited partnership. C. general partnership.

A. corporation.

The Sarbanes-Oxley Act of 2002 holds a public company's ______ responsible for the accuracy of the company's financial statements. A. managers B. internal legal counsel C. Securities and Exchange Commission agent

A. managers

Which one of the following statements regarding corporations is correct? A. The majority of firms in the U.S. are structured as corporations. B. Corporations can have an unlimited life. C. Undistributed corporate profits are taxable income to the shareholders. D. Shareholders directly elect the chief financial officer.

B. Corporations can have an unlimited life.

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes. A. Threat of a proxy fight B. Increasing managers' base salaries C. Stock option plans D. Compensation based on the value of the stock

B. Increasing managers' base salaries

Which one of the following is a working capital management decision? A. What amount of long-term debt is required to complete a project? B. Should the firm require immediate payment from customers or offer credit terms? C. Which one of several acceptable projects should be implemented? D. What percentage of the firm's equity should the firm issue to fund an acquisition?

B. Should the firm require immediate payment from customers or offer credit terms?

Which one of the following involves a working capital management decision? A. Should a newly available parcel of land be acquired? B. What is the maximum level of cash to be kept in the firm's bank account? C. When is the appropriate time to replace the delivery fleet? D. What is the most efficient process for producing a product?

B. What is the maximum level of cash to be kept in the firm's bank account?

A firm's mixture of debt and equity financing is the result of its ______ decisions. A. cost analysis B. capital structure C. cash management D. working capital management

B. capital structure

The Sarbanes-Oxley Act of 2002 holds a public company's ______ responsible for the accuracy of the company's financial statements. A. external legal counsel B. managers C. internal legal counsel D. internal auditors

B. managers

Which one of the following questions involves a capital structure decision? A. Which one of two project proposals should the firm implement? B. How much inventory will be needed to support a project? C. How much debt should the firm incur to fund a project? D. How much funding should be allocated to financing customer purchases of a new product?

C. How much debt should the firm incur to fund a project?

Which one of the following questions is a working capital management decision? A. Should the company close one of its current stores? B. Should the company issue new shares of stock or borrow money? C. How much inventory should the company keep on hand?

C. How much inventory should the company keep on hand?

Which one of the following would cause a cash outflow from a corporation? A. Assigning common stock to employees B. Taking out a loan from a bank C. Paying dividends D. Receiving a tax refund from the government

C. Paying dividends

A business that is a legal entity separate from the owners, yet treated as a legal person, is called a(n): A. limited partnership. B. general partnership. C. corporation.

C. corporation.

Which one of the following questions involves a capital budgeting decision? A. How much inventory should the firm keep on hand? B. How much money should be kept in the checking account? C. Should the firm borrow money to acquire new equipment? D. Should the firm purchase a new machine for the production line?

D. Should the firm purchase a new machine for the production line?

Which one of the following questions involves a capital budgeting decision? A. Should the firm borrow money to acquire new equipment? B. How much money should be kept in the checking account? C. How much inventory should the firm keep on hand? D. Should the firm purchase a new machine for the production line?

D. Should the firm purchase a new machine for the production line?

Financial managers should primarily focus on the interests of: A. the vice president of finance. B. themselves. C. their immediate supervisor. D. shareholders.

D. shareholders.

In a typical corporate organizational structure: A. the treasurer reports to the president. B. the vice president of finance reports to the chair of the board. C. the chief operations officer reports to the vice president of production. D. the controller reports to the chief financial officer.

D. the controller reports to the chief financial officer.