FIN301 practice ch.1 – Flashcards
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capital budgeting
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The process of planning and managing a firm's long-term investments is called
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capital structure
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The mixture of debt and equity used by a firm to finance its operations is called
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working capital management
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The management of a firm's short-term assets and liabilities is called
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sole proprietorship
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A business owned by a single individual is called a
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general partnership
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A business formed by two or more individuals who each have unlimited liability for business debts is called a
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corporation
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A business created as a distinct legal entity composed of one or more individuals or entities is called a
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maximize the current value per share of the existing stock
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The primary goal of financial management is to
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the agency problem
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A conflict of interest between the stockholders and management of a firm is called
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the costs of any conflicts of interest between stockholders and management
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Agency costs refer to
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any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of the firm
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A stakeholder is
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deciding whether or not to open a new store
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Which one of the following is a capital budgeting decision?
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I and II only
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Capital structure decisions include consideration of the: I. amount of long-term debt to assume. II. cost of acquiring funds. III. current assets and liabilities. IV. net working capital.
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the capital structure decision
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The decision of which lender to use and which type of long-term loan is best for a project is part of
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I, III, and IV only
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Working capital management includes decisions concerning which of the following? I. accounts payable II. long-term debt III. accounts receivable IV. inventory
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is concerned with the upper portion of the balance sheet
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Working capital management
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The owner of a sole proprietorship may be forced to sell his/her personal assets to pay company debts
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Which one of the following statements concerning a sole proprietorship is correct?
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The life of the firm is limited to the life span of the owner
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Which one of the following statements concerning a sole proprietorship is correct?
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terminates at the death of any general partner
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A partnership
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I, II, and IV only
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Which of the following are disadvantages of a partnership? I. limited life of the firm II. personal liability for firm debt III. greater ability to raise capital than a sole proprietorship IV. lack of ability to transfer partnership interest
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I, III, and IV only
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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
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The largest firms are usually corporations
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Which one of the following statements is correct concerning corporations?
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Both sole proprietorships and partnerships are taxed in a similar fashion
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Which one of the following statements is correct?
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corporation
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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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the current stockholders are the owners of the corporation
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Financial managers should strive to maximize the current value per share of the existing stock because
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market value of the existing owners' equity.
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The decisions made by financial managers should all be ones which increase the
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agreeing to expand the company at the expense of stockholders' value
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Which one of the following actions by a financial manager creates an agency problem?
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I, II and III only
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Which of the following help convince managers to work in the best interest of the stockholders? I. compensation based on the value of the stock II. stock option plans III. threat of a proxy fight IV. threat of conversion to a partnership
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corporation
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Which form of business structure faces the greatest agency problems?
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preferred stockholder
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Which one of the following parties is considered a stakeholder of a firm?
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they are easily and cheaply setup. the proprietorship life is limited to the business owner's life. all business taxes are paid as individual tax.
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Sole proprietorships are predominantly started because
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shareholder election of a board of directors who select management. the threat of a takeover by another firm. compensation contracts that tie compensation to corporate success.
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Managers are encouraged to act in shareholders' interests by
