FIN 3403 Chapter 1

Which one of the following business types is best suited to raising large amounts of capital? Sole proprietorship. Limited liability company. Corporation. General partnership. Limited partnership.

Corporation

Which type of business organization has all the respective rights and privileges of a legal person? Sole proprietorship. General partnership. Limited partnership. Corporation. Limited liability company.

Corporation

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? Articles of incorporation. Corporate breakdown. Agency problem. Bylaws. Legal liability.

Agency Problem

Which one of the following terms is defined as the mixture of a firm's debt and equity financing? Working capital management. Cash management. Cost analysis. Capital budgeting. Capital structure.

Capital Structure

Decisions made by financial managers should primarily focus on increasing which one of the following? Size of the firm. Growth rate of the firm. Gross profit per unit produced. Market value per share of outstanding stock. Total sales.

Market value per share of outstanding stock

Public offerings of debt and equity must be registered with which one of the following? New York Board of Governors. Federal Reserve. NYSE Registration Office. Securities and Exchange Commission. Market Dealers Exchange.

Securities and Exchange Commission

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction: Took place in the primary market. Occurred in a dealer market. Was facilitated in the secondary market. Involved a proxy. Was a private placement.

Was facilitated in the secondary market.

A stakeholder is:

Any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.

Which form of business structure is most associated with agency problems? Sole proprietorship. General partnership. Limited partnership. Corporation. Limited liability company.

Corporation

Which one of the following is a capital budgeting decision? Determining how many shares of stock to issue. Deciding whether or not to purchase a new machine for the production line. Deciding how to refinance a debt issue that is maturing. Determining how much inventory to keep on hand. Determining how much money should be kept in the checking account.

Deciding whether or not to purchase a new machine for the production line.

Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes. I. Compensation based on the value of the stock. II. Stock option plans. III. Threat of a company takeover. IV. Threat of a proxy fight. I and II only. III and IV only. I, II, and III only. I, III, and IV only. I, II, III, and IV.

I, II, III, IV

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? Increase in the amount of the quarterly dividend. Decrease in the per unit production costs. Increase in the number of shares outstanding. Decrease in the net working capital. Increase in the market value per share.

Increase in the market value per share.

Why should financial managers strive to maximize the current value per share of the existing stock? Doing so guarantees the company will grow in size at the maximum possible rate. Doing so increases employee salaries. Because they have been hired to represent the interests of the current shareholders. Because this will increase the current dividends per share. Because managers often receive shares of stock as part of their compensation.

Because they have been hired to represent the interests of the current shareholders.

The decision to issue additional shares of stock is an example of which one of the following? Working capital management. Net working capital decision. Capital budgeting. Controller's duties. Capital structure decision.

Capital structure decision.

A business created as a distinct legal entity and treated as a legal "person" is called a:

Corporation

Which one of the following is a capital structure decision? Determining how to allocate investment funds to multiple projects. Determining the amount of funds needed to finance customer purchases of a new product. Determining how much debt should be assumed to fund a project. Determining how much inventory will be needed to support a project.

Determining how much debt should be assumed to fund a project.

Which one of the following is a working capital management decision? Determining the amount of equipment needed to complete a job. Determining whether to pay cash for a purchase or use the credit offered by the supplier. Determining the amount of long-term debt required to complete a project. Determining the number of shares of stock to issue to fund an acquisition. Determining whether or not a project should be accepted.

Determining whether to pay cash for a purchase or use the credit offered by the supplier.

Which of the following are advantages of the corporate form of business ownership? I. Limited liability for firm debt. II. Double taxation. III. Ability to raise capital. IV. Unlimited firm life.

I, III, IV

Which one of the following actions by a financial manager is most apt to create an agency problem? Refusing to borrow money when doing so will create losses for the firm. Refusing to lower selling prices if doing so will reduce the net profits. Refusing to expand the company if doing so will lower the value of the equity. Agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales. Increasing current profits when doing so lowers the value of the firm's equity.

Increasing current profits when doing so lowers the value of the firm's equity.

Which one of the following best states the primary goal of financial management? Maximize current dividends per share. Maximize the current value per share. Increase cash flow and avoid financial distress. Minimize operational costs while maximizing firm efficiency. Maintain steady growth while increasing current profits.

Maximize the current value per share

Which one of the following parties has ultimate control of a corporation? Chairman of the board. Board of directors. Chief executive officer. Chief operating office. Shareholders.

Shareholders

Which one of the following is defined as a firm's short-term assets and its short-term liabilities? Working capital. Debt. Investment capital. Net capital. Capital structure.

Working capital

Which one of the following terms is defined as the management of a firm's long-term investments?

capital budgeting

Which of the following accounts are included in working capital management? I. Accounts Payable II. Accounts Receivable III. Fixed Assets IV. Inventory

i, II, IV