Set 1 Finance Management – Flashcards
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Which one of the following terms is defined as the management of a firm's long-term investments?
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capital budgeting
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Which one of the following terms is defined as the mixture of a firm's debt and equity financing?
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capital structure
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Which one of the following is defined as a firm's short-term assets and its short-term liabilities?
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working capital
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A business owned by a solitary individual who has unlimited liability for its debt is called a:
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sole proprietorship
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A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:
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general partnership
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A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:
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limited partner
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A business created as a distinct legal entity and treated as a legal "person" is called a:
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corporation
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Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
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agency problem
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A stakeholder is:
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any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm
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The controller of a corporation generally reports directly to the:
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vice president of finance
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Which one of the following correctly defines the upward chain of command in a typical corporate organizational structure?
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The treasurer reports to the vice president of finance
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Which one of the following is a capital budgeting decision?
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deciding whether or not to purchase a new machine for the production line
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Which of the following should a financial manager consider when analyzing a capital budgeting project?
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I. project start up costs
II. timing of all projected cash flows
III. dependability of future cash flows
IV. dollar amount of each projected cash flow
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Which one of the following is a capital structure decision?
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determining how much debt should be assumed to fund a project
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Which of the following accounts are included in working capital management?
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I. accounts payable
II. accounts receivable
IV. inventory
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Which one of the following is a working capital management decision?
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determining whether to pay cash for a purchase or use the credit offered by the supplier
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Which one of the following statements concerning a sole proprietorship is correct?
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The owner of a sole proprietorship is personally responsible for all of the company's debts
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Which of the following individuals have unlimited liability based on their ownership interest?
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I. general partner
II. sole proprietor
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Which one of the following best describes the primary advantage of being a limited partner instead of a general partner?
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maximum loss limited to the capital invested
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A general partner:
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is personally responsible for all the partnership debts
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A limited partnership:
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has a greater ability to raise capital than a sole proprietorship
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Which of the following apply to a partnership that consists solely of general partners?
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II. limited partnership life
III. active involvement in the firm by all the partners
IV. unlimited personal liability for all partnership debts
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Which of the following are advantages of the corporate form of business ownership?
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I. limited liability for firm debt
III. ability to raise capital
IV. unlimited firm life
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Which one of the following business types is best suited to raising large amounts of capital?
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corporation
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Which type of business organization has all the respective rights and privileges of a legal person?
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corporation
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Which one of the following best states the primary goal of financial management?
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maximize the current value per share
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The Sarbanes-Oxley Act of 2002 is a governmental response to:
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management greed and abuses
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Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.
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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
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Which form of business structure is most associated with agency problems?
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corporation
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Which one of the following is a means by which shareholders can replace company management?
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proxy fight
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Which one of the following grants an individual the right to vote on behalf of a shareholder?
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proxy
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Which one of the following parties has ultimate control of a corporation?
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shareholders
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Which of the following represent cash outflows from a corporation?
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II. payment of dividends
IV. payment of government taxes
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Which of the following are cash flows from a corporation into the financial markets?
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I. repayment of long-term debt
III. payment of loan interest
IV. payment of quarterly dividend
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Which one of the following is a primary market transaction?
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sale of a new share of stock to an individual investor
