FIN3000 Chapter 1

The Sarbanes-Oxley Act requires corporate officers to do which of the following?

-Confirm the validity of the annual financial report -List any deficiencies in internal controls -Accept responsibility for material errors in the annual report

Which of the following are among the most important questions to be asked when a business is started?

-What long-term investments should be made? -Where long-term financing be obtained to pay for investments? -How will everyday financial activities be handled?

Which of the following are true of a sole proprietorship?

-a proprietorship has a limited life -it is the simplest type of business to form

Inventory is a:

-part of working capital -current asset

Organized auction markets include:

New York Stock Exchange

How is ownership transferred in a corporation?

Ownership is transferred by gifting or selling shares of stock.

Which one of the following parties would be the last party to receive payment if a firm were to close? Assume all parties have a legitimate claim on the firm's assets.

Shareholders

The liability of a shareholder in a corporation is limited to which of these?

The amount the shareholder invested in the corporation

The primary responsibility of financial managers is to increase the value of _____.

The existing shares of stock

The cost incurred due to a conflict of interest between stockholders and management are called _____.

agency costs

An organization must prepare _____ and bylaws when forming a corporation.

articles of incorporation

The rules used by a corporation to regulate its existence are known as _____.

bylaws

In financial markets, debt and _____ securities are bought and sold.

equity

The life of a corporation _____.

is unlimited

A corporation is a distinct _____ entity and as such can have a name and take advantage of the legal powers of natural persons.

legal

Businesses are motivated to organize as corporations because stockholders in a corporation have _____ liability for corporate debts.

limited

In a limited partnership, a limited partner's liability for business debts is _____.

limited to their cash contribution to the partnership

Capital budgeting is concerned with planning and managing a firm's _____.

long-term investments

Since ownership in a corporation can be dispersed over a huge number of stockholders, it can be argued that _____ effectively controls the firm.

management

The goal of a for-profit business is to _____ existing owners equity.

maximize

What is the main goal of financial management?

maximize the current value per share of existing stock

A sole proprietorship is a business owned by _____ person(s).

one

Indirect agency costs are often due to lost ______.

opportunities

A business without separate legal authority formed by two or more people is known as a _____.

partnership

A limited liability company is taxed like a _____ and its owners have _____ liability.

partnership; limited

When a corporation raises funds in the financial markets, the transaction occurs on the:

primary market

Which one of the following provides a manager an incentive to perform well?

promotions

Which one of these is an important mechanism used by unhappy stockholders to replace current management?

proxy fight

The owners of a corporation are called _____.

shareholders

Which one of these motivates managers to make good decisions?

threat of a hostile takeover

From the stockholders' perspective, what is the primary purpose of awarding stock options to managers?

to increase shareholders' wealth

The officer responsible for managing the firm's cash flows is the _____.

treasurer

A sole proprietorship has _____ personal liability for all business debts and obligations.

unlimited

Which of the following show why a corporation is the most important form of business?

-corporations can enter into contracts -a corporation is a separate legal entity with the ability to acquire and exchange property -corporations can sue and be sued

What are the two basic classifications under which most potential financial goals fall?

-earning or increasing profits -controlling risk

Which of the following are considering stakeholders in a company?

-government -employees -suppliers

In a large corporation, the financial manager is primarily responsible for:

-financial aspects of operations, such as collections of accounts receivables -long-term investment decisions -financing decisions

A good financial decision will do which of the following?

-increase the value of the firm's existing stock -increase market value of shareholders' equity

A general partnership has which of the following characteristics?

-it is difficult to transfer ownership -each owner has unlimited liability for all firm debts

Which of the following can be used to encourage managers to act in the best interests of shareholders?

-managerial compensation tied to performance -better prospects of promotion -stock options and bonuses

A treasurer's responsibilities typically include:

-managing capital expenditure decisions -making financial plans -handling cash flows

Which of the following are important when considering a partnership?

-personal liability for firm debts -fundraising limitations -taxation of partnership income

Corporations in other countries are often called:

-public limited companies -joint stock companies

A corporation receives cash from financial markets by selling _____ and _____.

-stocks -bonds

Which of the following, according to the textbook, are possible financial goals for a company?

-survival -minimize costs -maximize profits

The controller is responsible for which of the following tasks?

-tax reporting -financial accounting

Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley?

-worldcom -tyco -enron

The possible goal of profit maximization _____.

-would probably be the most commonly sighted goal for a business -can be achieved by cost-cutting

It is sometimes argued that, left to themselves, managers tend to minimize the amount of resources over which they have control.

False

If you hire a real estate company to sell your house, you are most apt to encounter which one of the following?

Agency problem

In large firms, financial activity is usually associated with which top officer?

Chief financial officer

The federal government taxes which of the following?

Corporate earnings and shareholder dividends

The Sarbanes-Oxley Act provides incentives for companies to go public in US markets

False

_____ budgeting is the process of making and managing expenditures on long-term assets.

capital

Which term applies to the mixture of debt and equity maintained by a firm?

capital structure