Corporate Finance Test 1

Which one of the following is a capital structure decision?

B. Establishing the preferred debt-equity level

An auction market:

B. has a physical trading floor.

The daily financial operations of a firm are primarily controlled by managing the

B. working capital.

Which one of the following occupations best fits into the corporate area of finance?

C. Chief financial officer

Working capital management includes which one of the following?

C. Determining which customers will be granted credit

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

C. Limited partnership

One example of a primary market transaction would be the

C. sale of 1,000 shares of newly issued stock by Alt Company to Miquel.

5. You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the:

C. secondary market.

An agency issue is most apt to develop when:

C. the control of a firm is separated from the firm's ownership.

In a general partnership, each partner is personally liable for:

C. the total debts of the partnership, even if he or she was unaware of those debts.

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

D. Agency

What is the primary goal of financial management for a sole proprietorship?

D. Maximize the market value of the equity

One advantage of the corporate form of organization is the:

D. ability to raise larger sums of equity capital than other organizational forms.

Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n):

D. stakeholder.

The primary goal of financial management is to maximize:

D. the market value of existing stock.

Which one of the following is a working capital decision?

E. How much cash should the firm keep in reserve?

Maria is the sole proprietor of an antique store that is located in a rented warehouse. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed? I. Sell the inventory and apply the proceeds to the debt II. Sell the lighting fixtures from the building and apply the proceeds to the debt III. Withdraw funds from Maria's personal account at the bank to pay the store's debt IV. Sell any assets Maria personally owns and apply the proceeds to the store's debt

E. I, III, and IV only

Capital budgeting includes the evaluation of which of the following?

E. Size, timing, and risk of future cash flows

Which one of the following correctly defines a common chain of command within a corporation?

E. The controller reports directly to the chief financial officer.

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

B. Corporation

Which one of the following parties can sell shares of ABC stock in the primary market?

A. ABC company

Which one of the following is contained in the corporate bylaws?

A. Procedures for electing corporate directors

Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts?

A. Sole proprietorship

Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm's:

A. capital structure.

The Sarbanes-Oxley Act:

A. require the corporate officers to personally attest that the financial statements are a fair representation of the company's financial results.

The issuer of a security must be involved in all _____ transactions involving that security.

E. primary market

An employee has a claim on the cash flows of Martin's Machines. This claim is defined as a claim by one of the firm's:

E. stakeholders.

Which one of the following is most apt to align management's priorities with shareholders' interests?

B. Compensating managers with shares of stock that must be held for a minimum of three years

When conducting a financial analysis of a firm, financial analysts:

C. frequently use accounting information.

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts as referred to as:

C. working capital management.