question

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

answer

capital budgeting

question

Which one of the following terms is defined as the mixture of a firm's debt and equity financing?

answer

capital structure

question

Which one of the following is defined as a firm's short-term assets and its short-term liabilities?

answer

working capital

question

A business owned by a solitary individual who has unlimited liability for its debt is called a:

answer

sole proprietorship.

question

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

answer

general partnership

question

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

answer

limited partner.

question

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

answer

corporation

question

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?

answer

agency problem

question

A stakeholder is:

answer

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

question

Which of the following questions are addressed by financial managers? I. How should a product be marketed? II. Should customers be given 30 or 45 days to pay for their credit purchases? III. Should the firm borrow more money? IV. Should the firm acquire new equipment?

answer

II, III, and IV only

question

Which one of the following functions should be the responsibility of the controller rather than the treasurer?

answer

income tax returns

question

The controller of a corporation generally reports directly to the:

answer

vice president of finance

question

Which one of the following correctly defines the upward chain of command in a typical corporate organizational structure?

answer

The treasurer reports to the vice president of finance.

question

Which one of the following is a capital budgeting decision?

answer

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

question

Which of the following should a financial manager consider when analyzing a capital budgeting project? 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

answer

I, II, III, and IV

question

Which one of the following is a capital structure decision?

answer

determining how much debt should be assumed to fund a project

question

The decision to issue additional shares of stock is an example of which one of the following?

answer

capital structure decision

question

Which of the following accounts are included in working capital management? I. accounts payable II. accounts receivable III. fixed assets IV. inventory

answer

I, II, and IV only

question

Which one of the following is a working capital management decision?

answer

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

question

Which one of the following statements concerning a sole proprietorship is correct?

answer

The owner of a sole proprietorship is personally responsible for all of the company's debts.

question

Which of the following individuals have unlimited liability based on their ownership interest? I. general partner II. sole proprietor III. stockholder IV. limited partner

answer

I and II only

question

Which one of the following best describes the primary advantage of being a limited partner instead of a general partner?

answer

maximum loss limited to the capital invested

question

A general partner:

answer

is solely responsible for all the partnership debts.

question

A limited partnership:

answer

has a greater ability to raise capital than a sole proprietorship

question

Which of the following apply to a partnership that consists solely of general partners? I. double taxation of partnership profits II. limited partnership life III. active involvement in the firm by all the partners IV. unlimited personal liability for all partnership debts

answer

II, III, and IV only

question

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

answer

I, III, and IV only

question

Which one of the following statements is correct?

answer

Corporations can raise large amounts of capital generally easier than partnerships can.

question

Which one of the following statements is correct?

answer

Both sole proprietorship and partnership income is taxed as individual income.

question

The articles of incorporation: I. describe the purpose of the firm. II. are amended periodically. III. set forth the number of shares of stock that can be issued. IV. detail the method that will be used to elect corporate directors.

answer

I and III only

question

Corporate bylaws:

answer

determine how a corporation regulates itself.

question

Which one of the following characteristics applies to a limited liability company?

answer

taxed similar to a partnership

question

Which one of the following business types is best suited to raising large amounts of capital?

answer

corporation

question

Which type of business organization has all the respective rights and privileges of a legal person?

answer

corporation

question

Sam, Alfredo, and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt?

answer

limited partnership

question

Sally and Alicia currently are general partners in a business located in Atlanta, Georgia. They are content with their current tax situation but are both very uncomfortable with the unlimited liability to which they are each subjected. Which form of business entity should they consider to replace their general partnership assuming they wish to remain the only two owners of their business? Whichever organization they select, they wish to be treated equally.

answer

limited liability company

question

Which one of the following best states the primary goal of financial management?

answer

maximize the current value per share

question

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?

answer

increase in the market value per share

question

Why should financial managers strive to maximize the current value per share of the existing stock?

answer

because they have been hired to represent the interests of the current shareholders

question

Decisions made by financial managers should primarily focus on increasing which one of the following?

answer

market value per share of outstanding stock

question

The Sarbanes-Oxley Act of 2002 is a governmental response to:

answer

management greed and abuses.

question

Which one of the following is an unintended result of the Sarbanes-Oxley Act?

answer

corporations delisting from major exchanges

question

A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:

answer

can provide less information to its shareholders than it did prior to "going dark".

question

Which of the following are results related to the enactment of the Sarbanes-Oxley Act of 2002? I. increased foreign stock exchange listings of U.S. stocks II. decreased compliance costs III. increased privatization of public corporations

answer

I and III only

question

Which one of the following actions by a financial manager is most apt to create an agency problem?

answer

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

question

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

answer

I, II, III, and IV

question

Which form of business structure is most associated with agency problems?

answer

corporation

question

Which one of the following is an agency cost?

answer

hiring outside accountants to audit the company's financial statements

question

Which one of the following is least likely to be an agency problem?

answer

increasing the market value of the firm's shares

question

Which one of the following is a means by which shareholders can replace company management?

answer

proxy fight

question

Which one of the following grants an individual the right to vote on behalf of a shareholder?

answer

proxy

question

Which one of the following parties has ultimate control of a corporation?

answer

shareholders

question

Which of the following parties are considered stakeholders of a firm? I. employee II. long-term creditor III. government IV. common stockholder

answer

I and III only

question

Which of the following represent cash outflows from a corporation? I. issuance of securities II. payment of dividends III. new loan proceeds IV. payment of government taxes

answer

II and IV only

question

Which of the following are cash flows from a corporation into the financial markets? I. repayment of long-term debt II. payment of government taxes III. payment of loan interest IV. payment of quarterly dividend

answer

I, III, and IV only

question

Which one of the following is a primary market transaction?

answer

sale of a new share of stock to an individual investor

question

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

answer

was facilitated in the secondary market.

question

Public offerings of debt and equity must be registered with which one of the following?

answer

Securities and Exchange Commission

question

Which one of the following statements is generally correct?

answer

Auction markets match buy and sell orders.

question

Which one of the following statements concerning stock exchanges is correct?

answer

Some large companies are listed on NASDAQ.

question

Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following?

answer

secondary, auction market

question

Which one of the following statements is correct concerning the NYSE?

answer

The listing requirements for the NYSE are more stringent than those of NASDAQ.

question

Which one of the following statements concerning NASDAQ is FALSE?

answer

NASDAQ is an auction market

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