FIN320F Part II
The federal government taxes which of the following? A) Corporate earnings but not shareholder dividends. B) Neither corporate earnings nor shareholder dividends. C) Shareholder dividends but not corporate earnings. D) Both corporate earnings and shareholder dividends.
D) BOTH shareholder dividends AND corporate earnings.
The owners of a corporation are called _________. A) partners B) government agents C) bondholders D) shareholders
D) The owners of a corporation are called SHAREHOLDERS.
Which of the following is a disadvantage of sole proprietorships and partnerships? A) separation of ownership and management B) difficulty of transferring ownership C) double taxation D) highly regulated form of organization
B) difficulty of transferring ownership
Which of these are considered non-owner stakeholders in the company? A) stockholders B) employees C) government D) suppliers
B) employees C) government D) suppliers
How is ownership transferred in a corporation? A) Only if the firm is sold. B) Only with prior approval from board of directors. C) By gifting or selling shares of stock. D) Trick question: it cannot be transferred.
C) By gifting or selling shares of stock.
________ budgeting is the process of planning and managing a firm's long-term assets. A) Optional B) conventional C) capital D) performance based
C) CAPITAL budgeting is the process of planning/managing a firm's long-term assets
The officer in charge of managing a firm's cash flows is the ________. A) auditor B) information systems manager C) treasurer D) controller
C) The officer in charge of managing a firm's cash flows is the TREASURER.
True or False: the Sarbanes-Oxley act provides incentives for companies to go public in US markets.
False Due to cost & regulation of Sarbanes-Oxley, most companies turn to foreign markets to go public.
Which of the following are reasons the corporation is the most important form of business? A) Corporations can sue and be sued. B) Corporations are separate legal entities. C) Corporations can vote in general elections. D) Corporations can enter contracts.
A) Corporations can sue and be sued. B) Corporations are separate legal entities. D) Corporations can enter contracts.
A(n) _________ is someone other than an owner or creditor who potentially has a claim on the cash flows of a company. A) bondholder B) stakeholder C) autocrat D) shareholder
A STAKEHOLDER is someone other than an owner or creditor who potentially has a claim on the cash flows of a company.
Sole proprietorship
A business owned by a single person, easy to start. May require permits or licensing but doesn't need a charter or other legal document to get started. The owner IS the business: investor, manager, and worker all at once. Usually these businesses are no larger than 10 people (i.e. convenience stores, dry cleaners, butchers, plumbers). Owner sets all goals and gets all profits (or takes all losses). Obtaining financing is similar to taking out a personal loan. Life of the business directly tied with the (literal) life of the proprietor. Unlimited liability :/
Which one of these is an important mechanism used by unhappy stockholders to replace current management? A) ponzi scheme B) prospectus C) perpetual debt D) proxy fight
D) proxy fight
True or False: "Profit maximization" is the best goal for the management of a corporation.
False "Profit maximization" is too imprecise. Maximizing short-run profit will not increase value for stakeholders.
A ________ is similar to a proprietorship, except that there are two or more owners.
partnership
A _______ gets paid after the suppliers, employees, and creditors. A) bondholder B) shareholder C) CEO
B) A SHAREHOLDER gets paid after the suppliers, employees and creditors.
A corporation is a distinct ________ entity and as such can have a name and take advantage of the legal powers of natural persons. A) illegal B) legal C) patriotic D) retributive
B) A corporation is a distinct LEGAL entity and as such can have a name and take advantage of the legal powers of natural persons.
A sole proprietorship is a business that ________. A) provides limited personal liability to its owner. B) is owned by only one person. C) is similar to a limited partnership. D) is organized with bylaws.
B) A sole proprietorship is a business that IS OWNED BY ONLY ONE PERSON.
A general partnership has which of the following characteristics? (select multiple) A) it is always regulated by a formal partnership agreement. B) All partners share in the gains/losses of the partnership. C) Each owner has unlimited liability for all firm debts. D) Large amounts of cash can be raised easily.
B) All partners share in the gains/losses of the partnership. C) Each owner has unlimited liability for all firm debts.
Which of the following positions generally report to the CFO? A) CEO B) director of marketing C) Treasurer D) controller
C) Treasurer D) controller
Which corporate officer is responsible for accurate financial accounting of the firm's activities? A) credit mgr B) corporate secretary C) controller D) treasurer
C) controller
Which of the following areas of finance is concerned with financial asset allocation? A) corporate finance B) financial institutions C) investments
C) investments
According to the textbook, which one of the following is NOT one of the three main questions to be addressed if you want to start your own business? A) How will everyday financial activities be handled? B) Where will long-term financing be obtained to pay for investments? C) What long-term investments should be made? D) How many employees will I need?
D) How many employees will I need?
In a limited partnership, a limited partner's liability for business debts is _________. A) $0 B) unlimited C) limited by their average annual income over the life of the partnership. D) limited to their cash contribution to the partnership.
D) In a limited partnership, a limited partner's liability for business debts is LIMITED TO THEIR CASH CONTRIBUTION TO THE PARTNERSHIP.
The costs incurred due to a conflict of interest between stockholders and management are called _________ costs. A) sunk B) hidden C) opportunity D) agency
D) The costs incurred due to a conflict of interest between stockholders and management are called AGENCY costs.
A limited liability company's owners have _________ liability. A) Unlimited. B) No liability. C) Limited. D) Narrowly defined limited.
C) A limited liability company's owners have LIMITED liability.
Partnership
A group of 2 or more people running a business, the relationship between whom is outlined by a legal document. The partners establish, manage, work, and receive the profit. Great for small professional businesses (i.e. doctors, lawyers, accountants, architects). May require more financing, the availability of which is dependent on the credit-worthiness of the partners as individuals. Limited life similar to proprietorship, and unlimited capital liability.
Which of the following are included in a firm's capital structure? A) Equity B) net sales C) current assets D) long-term debt
A) Equity D) long-term debt The mix of debt & equity is referred to as the firm's capital structure.
Increasing shareholder wealth means increasing the _________. A) current common stock value B) book value of equity C) total value of assets D) current bond value
A) Increasing shareholder wealth means increasing the CURRENT COMMON STOCK VALUE.
Corporations in other countries are often called (select multiple): A) Public limited companies B) re-calibrated partnerships C) Autonomous entities D) Joint stock companies E) Limited liability company
A) Public limited companies D) Joint stock companies E) Limited liability company
Working capital includes which of the following? (select multiple) A) equipment B) short-term assets C) inventory D) cash
B) short-term assets C) inventory D) cash
_________ can be used to encourage managers to maximize the value of the stock. A) stock options B) poison pills C) green mail D) stock splits
A) STOCK OPTIONS can be used to encourage managers to maximize the value of the stock.
Corporations
A legal entity-- seen as persons before the law, but not actual, individual people. Separate from owners. Established by corporate charter, which is approved by government. Charter specifies type of business, governance structure, and shares issued. Ownership & management separated: allows for skilled management to grow the corporation to extremely large levels. Complex organizational/mgmt structure, leading to multiple divisions & subsidiaries. Can have many owners, who reap profits while managers are compensated for running the company. Designed to raise capital for unlimited needs. Investors/shareholders do not risk losing all their assets if corporation fails-- only their investment. Unlimited life. Limited liability.
The conflict of interest between a manager and a principle is often called a/an _________. A) agency problem. B) moral agency. C) agency relationship. D) moral hazard problem.
A) The conflict of interest between a manager and a principle is often called a/an AGENCY PROBLEM.
The relationship between stockholders and management can best be described as _________. A) agency B) irrelevant C) contradictory D) mentoring
A) The relationship between stockholders and management can best be described as AGENCY.
The threat of _________ motivates managers to make good decisions. A) hostile takeover B) emails C) retribution D) customer complaints
A) The threat of a HOSTILE TAKEOVER motivates managers to make good decisions.
Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley? (select multiple) A) WorldCom B) Enron C) Tyco D) Disney
A) WorldCom B) Enron C) Tyco
The Sarbanes-Oxley act requires corporate officers to (select multiple): A) be responsible for errors in the annual report. B) limit their compensation and stock options. C) confirm the validity of their financial statements. D) personally prepare all financial statements.
A) be responsible for errors in the annual report. C) confirm the validity of their financial statements.
Which of the following are included in a firm's capital structure? A) equity B) long-term debt C) current assets D) net sales
A) equity B) long-term debt
A treasurer's responsibilities typically include (select multiple): A) managing capital expenditure decisions B) making financial plans C) handling cash flows D) financial accounting
A) managing capital expenditure decisions B) making financial plans C) handling cash flows
Which of the following is NOT one of the basic areas of finance? A) personal finance B) investments C) international finance D) corporate finance E) financial institutions
A) personal finance
A bad financial decision is defined as a decision that _______ shareholder wealth. A) increases B) decreases C) maximizes
B) A bad financial decision is defined as a decision that DECREASES shareholder wealth.
A general partnership has which of the following characteristics? (select multiple) A) It is always regulated by a formal partnership agreement. B) Each owner has unlimited liability for all firm debts. C) All the partners share in the gains and losses of the partnership. D) Large amounts of cash can be raised easily.
B) Each owner has unlimited liability for all firm debts. C) All the partners share in the gains and losses of the partnership.
The goal of a for-profit business is to _________ the value of shareholder wealth. A) recognize B) maximize C) maintain D) minimize
B) the goal of a for-profit business is to MAXIMIZE the value of shareholder wealth.
What is the main goal of financial management? A) to maximize market share B) to maximize current share value C) to maximize current profits D) to minimize expenses
B) to maximize current share value
What 3 questions are the financial manager concerned with? A) designing new products B) working capital management C) capital structure D) capital budgeting
B) working capital management C) capital structure D) capital budgeting
Businesses are motivated to organize as corporations because stockholders in a corporation have ________ liability for corporate debts. A) personal B) no C) unlimited D) limited
D) limited A stockholders liability is limited to their investment in the company.
