FIN Exam 1 CH1

The primary goal of financial management is most associated with increasing the: market value of the firm. fixed costs while lowering the variable costs. traffic flow within the firm's stores. firm's liquidity. dollar amount of each sale.

market value of the firm.

The goal of financial management is to?

maximize stockholders' wealth

The issuer of a security must be involved in all _____________blank transactions involving that security. Multiple Choice dealer market over-the-counter secondary market exchange-listed primary market

primary market

Which of the following statements is false? Multiple Choice Apps allow small investors to participate in the stock market much more easily. Acorns is a creative crowdfunding app, allowing smaller investors to join together to fund design ventures. Budgeting apps allow people to keep track of income, monthly payments, expenditures, and more, right on a mobile phone. Robo-advisors provide investment advice based on mathematical rules or algorithms. Stock trading apps allow investors to trade stocks commission-free.

Acorns is a creative crowdfunding app, allowing smaller investors to join together to fund design ventures.

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? Sell the inventory and apply the proceeds to the debt Sell the lighting fixtures from the building and apply the proceeds to the debt Withdraw funds from Maria's personal account at the bank to pay the store's debt Sell any assets Maria personally owns and apply the proceeds to the store's debt

1,3,4

What are primary vs secondary markets?

A market in which securities are sold for the first time is known as a Primary Market. A market in which the sale and purchase of newly issued securities and second-hand securities are made is known as a Secondary Market.

Which one of the following is most apt to align management's priorities with shareholders' interests? Multiple Choice Allowing employees to retire early with full retirement benefits Compensating managers with shares of stock that must be held for a minimum of three years Holding corporate and shareholder meetings at high-end resort-type locations preferred by managers Paying a special management bonus on every fifth year of employment Increasing the number of paid holidays that long-term employees are entitled to receive

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

What are some ways to solve agency problems?

Government regulation (Laws), Loss of job, compensation/bonuses

Which one of the following is an advantage of being a limited partner? Multiple Choice Control over the daily operations of the firm Unlimited profits without risk of incurring a loss Active market for ownership interest Nontaxable share of any profits Losses limited to capital invested

Losses limited to capital invested

What is the primary goal of financial management for a sole proprietorship? Multiple Choice Maximize net income given the current resources of the firm Minimize the reliance on fixed costs Minimize the tax impact on the proprietor Decrease long-term debt to reduce the risk to the owner Maximize the market value of the equity

Maximize the market value of the equity

Which one of the following statements correctly applies to a sole proprietorship? Multiple Choice The owner enjoys limited liability for the firm's debts. The ownership can easily be transferred to another individual. Obtaining additional equity is dependent on the owner's personal finances. Debt financing is easy to arrange in the firm's name. The business entity has an unlimited life.

Obtaining additional equity is dependent on the owner's personal finances.

Which one of the following is contained in the corporate bylaws? Multiple Choice Business purpose of the corporation Number of authorized shares Procedures for electing corporate directors Intended life of the corporation State of incorporation

Procedures for electing corporate directors

Which one of the following correctly defines a common chain of command within a corporation? Multiple Choice The credit manager reports directly to the controller. The treasurer reports directly to the board of directors. The controller reports directly to the chief financial officer. The controller reports directly to the corporate treasurer. The chief financial officer reports directly to the board of directors.

The controller reports directly to the chief financial officer.

Which one of the following statements about a limited partnership is correct? Equity financing is easy to obtain and unlimited. There must be at least one general partner. Any partner can transfer his or her ownership interest without ending the partnership. All partners are treated equally. All partners have their losses limited to their capital investment in the partnership.

There must be at least one general partner.

The shareholders of Qiang's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of: Multiple Choice a working capital decision. a capital structure issue. a corporate takeover. an agency conflict. a compensation issue.

an agency conflict.

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: Multiple Choice capital structure. risk structure. capital budget. asset allocation. working capital.

capital structure

Security dealers: Multiple Choice operate on a physical trading floor. are limited to trading non-listed stocks. match buyers with sellers. operate exclusively in auction markets. buy and sell from their own inventory.

buy and sell from their own inventory.

The Sarbanes-Oxley Act of 2002 has: Multiple Choice essentially made officers of publicly traded firms personally responsible for the firm's financial statements. decreased the number of U.S. firms going public on foreign exchanges. reduced the annual compliance costs of all publicly traded firms in the U.S. decreased senior management's involvement in the corporate annual report. greatly increased the number of U.S. firms that are going public for the first time.

essentially made officers of publicly traded firms personally responsible for the firm's financial statements.

In a general partnership, each partner is personally liable for: Multiple Choice his or her proportionate share of all partnership debts regardless of which partner incurred that debt. the debts of the partnership up to the amount he or she invested in the firm. the total debts of the partnership, even if he or she was unaware of those debts. only the partnership debts that he or she personally created. all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts.

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

The daily financial operations of a firm are primarily controlled by managing the: Multiple Choice working capital. capital budget. capital structure. total debt level. long-term liabilities.

working capital.

Which one of the following situations is most apt to create an agency conflict? Multiple Choice Giving all employees a bonus if a certain level of efficiency is maintained Laying off employees during a slack period Basing management bonuses on the length of employment Hiring an independent consultant to study the operating efficiency of the firm Compensating a manager based on his or her division's net income

Basing management bonuses on the length of employment

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s? Multiple Choice Increased use of tax loopholes Corporate accounting and financial fraud Increased executive compensation Increased foreign investment in U.S. stock markets Increased stock market volatility

Corporate accounting and financial fraud

Working capital management includes which one of the following? Multiple Choice Deciding whether to purchase a new machine or fix a currently owned machine Establishing the target debt-equity ratio Determining which customers will be granted credit Determining how many new shares of stock should be issued Deciding which new projects to accept

Determining which customers will be granted credit

Which one of the following is a capital structure decision? Multiple Choice Determining when suppliers should be paid Setting the terms of sale for credit sales Selecting new equipment to purchase Determining the optimal inventory level Establishing the preferred debt-equity level

Establishing the preferred debt-equity level

A private placement is most apt to involve: Multiple Choice several private securities dealers. only foreign investors. a large number of private investors. a life-insurance company the U.S. Treasury department.

a life-insurance company