Fin 301 Chp 1 – Flashcards
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Capital Structure Management
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Jenna has been promoted and is now in charge of all external financing. In other words, she is in charge of:
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Capital Structure
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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:
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Working Capital Management
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Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts as referred to as:
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Sole Proprietorship
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Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts?
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General Partnership
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Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?
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Corporation
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Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?
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stakeholders
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An employee has a claim on the cash flows of Martin's Machines. This claim is defined as a claim by one of the firm's
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Agency Conflict
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The shareholders of Weil'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:
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frequently use accounting information
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When conducting a financial analysis of a firm, financial analysts:
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International Finance
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Jamie is employed as a currency trader in the Japanese yen market. Her job falls into which one of the following areas of finance?
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Investments
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If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?
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CFO
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Which one of the following occupations best fits into the corporate area of finance? Mortgage broker Treasury bill analyst Chief financial officer Insurance risk manager Local bank manager
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Capital Expenditures
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Which one of the following functions is generally a responsibility assigned to the corporate treasurer? Cost accounting Data processing Corporate taxes Financial accounting Capital expenditures
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Cash Management
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Which one of the following functions should be assigned to the corporate treasurer rather than to the controller? Data processing Cost accounting Tax management Cash management Financial accounting
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The controller reports directly to the CFO
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Which one of the following correctly defines a common chain of command within a corporation? The controller reports directly to the corporate treasurer. The treasurer reports directly to the board of directors. The chief financial officer reports directly to the board of directors. The credit manager reports directly to the controller. The controller reports directly to the chief financial officer
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Size, timing, and risk of future cash flows
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Capital budgeting includes the evaluation of which of the following? Size of future cash flows only Size and timing of future cash flows only Timing and risk of future cash flows only Risk and size of future cash flows only Size, timing, and risk of future cash flows
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Establishing the preferred debt-equity level
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Which one of the following is a capital structure decision? Determining the optimal inventory level Establishing the preferred debt-equity level Selecting new equipment to purchase Setting the terms of sale for credit sales Determining when suppliers should be paid
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Determining which customers will be granted credit
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Working capital management includes which one of the following? Deciding which new projects to accept Deciding whether to purchase a new machine or fix a currently owned machine Determining which customers will be granted credit Determining how many new shares of stock should be issued Establishing the target debt-equity ratio
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working capital
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The daily financial operations of a firm are primarily controlled by managing the: total debt level. working capital. capital structure. capital budget. long-term liabilities.
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has profits taxed as personal income
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A sole proprietorship:
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Limited Partnership
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Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners? Sole proprietorship General partnership Limited partnership Limited liability company Corporation
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I, III, and IV only
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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? I. Sell the inventory and apply the proceeds to the debt II. Sell the lighting fixtures from the building and apply the proceeds to the debt III. Withdraw funds from Maria's personal account at the bank to pay the store's debt IV. Sell any assets Maria personally owns and apply the proceeds to the store's debt
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Obtaining additional equity is dependent on the owner's personal finances
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Which one of the following statements correctly applies to a sole proprietorship? The business entity has an unlimited life. The ownership can easily be transferred to another individual. The owner enjoys limited liability for the firm's debts. Debt financing is easy to arrange in the firm's name. Obtaining additional equity is dependent on the owner's personal finances.
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Any one of the partners can be held solely liable for all of the partnership's debt.
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Which one of the following applies to a general partnership? The firm's operations must be controlled by a single partner. Any one of the partners can be held solely liable for all of the partnership's debt. The profits of the firm are taxed as a separate entity. Each partner's liability for the firm's debts is limited to each partner's investment in the firm. The profits of a general partnership are taxed the same as those of a corporation.
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the total debts of the partnership, even if he was unaware of those debts
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In a general partnership, each partner is personally liable for: only the partnership debts that he or she personally created. his or her proportionate share of all partnership debts regardless of which partner incurred that debt. the total debts of the partnership, even if he or she was unaware of those debts. the debts of the partnership up to the amount he or she invested in the firm. all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts.
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Losses limited to capital investment
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Which one of the following is an advantage of being a limited partner? Nontaxable share of any profits Control over the daily operations of the firm Losses limited to capital invested Unlimited profits without risk of incurring a loss Active market for ownership interest
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There must be at least one general partner
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Which one of the following statements about a limited partnership is correct? All partners have their losses limited to their capital investment in the partnership. All partners are treated equally. There must be at least one general partner. Equity financing is easy to obtain and unlimited. Any partner can transfer his or her ownership interest without ending the partnership.
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is a legal entity separate from it's owners
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A corporation:
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ability to raise larger sums of equity capital than other organizational forms.
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One advantage of the corporate form of organization is the:
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have the ability to change the corporation's law
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Corporate shareholders: are proportionately liable for the firm's debts. are protected from all financial losses. have the ability to change the corporation's bylaws. receive tax-free distributions since all profits are taxed at the corporate level. have basically no control over the actual corporation.
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prefers it's profits to be taxed as personal income to it's owners
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A limited liability company (LLC): is a hybrid between a sole proprietorship and a partnership. prefers its profits be taxed as personal income to its owners. that meets the IRS criteria to be an LLC will be taxed like a corporation. provides limited liability for some, but not all, of its owners. cannot be created for professional service firms, such as accountants and attorneys.
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provide limited liability while avoiding double taxation
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Limited liability companies are primarily designed to: allow a portion of their owners to enjoy limited liability while granting the other portion of their owners control over the entity. provide the benefits of the corporate structure only to foreign-based entities. spin off a wholly owned subsidiary. allow companies to reorganize themselves through the bankruptcy process. provide limited liability while avoiding double taxation.
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market value of the firm
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The primary goal of financial management is most associated with increasing the
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Corporate accounting and financial fraud
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The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?
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essentially made officers of publicily traded firms personally responsible for the firm's financial statements
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The Sarbanes-Oxley Act of 2002 has: 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. decreased the number of U.S. firms going public on foreign exchanges. essentially made officers of publicly traded firms personally responsible for the firm's financial statements.
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Increase the protections against corporate fraud
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Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002? Decrease the number of corporations that can be publicly traded Increase the protections against corporate fraud Limit secondary issues of corporate securities Increase the dividends paid to shareholders Increase the number of firms that "go dark"
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Basing management bonuses on the length of employment
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Which one of the following situations is most apt to create an agency conflict? Compensating a manager based on his or her division's net income Giving all employees a bonus if a certain level of efficiency is maintained Hiring an independent consultant to study the operating efficiency of the firm Basing management bonuses on the length of employment Laying off employees during a slack period
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the control of a firm is separated from the firm's ownership
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An agency issue is most apt to develop when: a firm encounters a period of stagnant growth. a firm downsizes. the control of a firm is separated from the firm's ownership. the firm's owner is also its key manager. a firm is structured as a general partnership.
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compensating managers with shares of stock that must be held for a minimum of 3 years
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Which one of the following is most apt to align management's priorities with shareholders' interests? Holding corporate and shareholder meetings at high-end resort-type locations preferred by managers Compensating managers with shares of stock that must be held for a minimum of three years 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 Allowing employees to retire early with full retirement benefits
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automaticially increasing management salaries on an annual basis
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Probably the least effective means of aligning management goals with shareholder interests is: the potential for a proxy fight by an unhappy segment of shareholders. basing all management bonuses on performance goals. holding management salaries steady while increasing stock option grants. the threat of a takeover of the firm. automatically increasing management salaries on an annual basis.
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stakeholder
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Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n):
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sale of 1000 shares of newly issued stock by Alt Company to Miquel
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One example of a primary market transaction would be the: sale of 100 shares of stock by Maria to her best friend. purchase by Theo of 5,000 shares of stock from his father. sale of 1,000 shares of newly issued stock by Alt Company to Miquel. sale by Terry of 50,000 shares of stock to his brother. sale of 5,000 shares of stock owned by a corporate CEO to his son.
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Secondary market
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You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the:
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primary market
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The issuer of a security must be involved in all _____ transactions involving that security.
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ABC company
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Which one of the following parties can sell shares of ABC stock in the primary market? ABC company Any corporation, other than the ABC company Any institutional shareholder Any private individual shareholder Only officers and directors of ABC company
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buy and sell from their own inventory
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Security dealers: match buyers with sellers. buy and sell from their own inventory. operate on a physical trading floor. operate exclusively in auction markets. are limited to trading non-listed stocks.
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has a physical trading floor
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An auction market: is an electronic means of exchanging securities. has a physical trading floor. handles primary market transactions exclusively. is also referred to as an OTC market. is dealer-based.
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NASDAQ has more listed stocks than does the NYSE
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Which one of the following statements is correct? NASDAQ has more listed stocks than does the NYSE. The NYSE is a dealer market. NASDAQ is an auction market. NASDAQ has the most stringent listing requirements of any U.S. exchange. The trading floor for NASDAQ is located in Chicago.
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a life-insurance company
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A private placement is most apt to involve: a large number of private investors. only foreign investors. a life-insurance company. several private securities dealers. the U.S. Treasury department.
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The primary purpose of the NYSE is to match buyers with sellers
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Which one of the following statements is correct? All of the major stock exchanges are U.S. based. The NYSE was created by the National Association of Securities Dealers in the early 1930s. The Chicago Stock Exchange is a dealer market. OTC markets have a physical trading floor generally located in either New York City or Chicago. The primary purpose of the NYSE is to match buyers with sellers.
