Financial Management Chapter 1 – Flashcards

Which one of the following terms is defined as the management of a firm's long-term investments? -Working capital management. -Financial allocation. -Agency cost analysis. -Capital budgeting. -Capital structure.

A business owned by a solitary individual who has unlimited liability for its debt is called a: -Corporation. -Sole proprietorship. -General partnership. -Limited partnership. -Limited liability company.

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a: -Corporation. -Sole proprietorship. -General partnership. -Limited partnership. -Limited liability company.

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: -General partner. -Sole proprietor. -Limited partner. -Corporate shareholder. -Zero partner.

A business created as a distinct legal entity and treated as a legal "person" is called a: -Corporation. -Sole proprietorship. -General partnership. -Limited partnership. -Unlimited liability company.

Which one of the following terms is defined as the mixture of a firm's debt and equity financing? -Working capital management. -Cash management. -Cost analysis. -Capital budgeting. -Capital structure.

Which one of the following is defined as a firm's short-term assets and its short-term liabilities? -Working capital. -Debt. -Investment capital. -Net capital. -Capital structure.

Which one of the following is a primary market transaction? -Sale of currently outstanding stock by a dealer to an individual investor. -Sale of a new share of stock to an individual investor. -Stock ownership transfer from one shareholder to another shareholder. -Gift of stock from one shareholder to another shareholder. -Gift of stock by a shareholder to a family member.

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? -Articles of incorporation. -Corporate breakdown. -Agency problem. -Bylaws. -Legal liability.

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?

Which one of the following is a capital budgeting decision? -Determining how many shares of stock to issue. -Deciding whether or not to purchase a new machine for the production line. -Deciding how to refinance a debt issue that is maturing. -Determining how much inventory to keep on hand. -Determining how much money should be kept in the checking account.

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.

Which one of the following is a capital structure decision? -Determining which one of two projects to accept. -Determining how to allocate investment funds to multiple projects. -Determining the amount of funds needed to finance customer purchases of a new product. -Determining how much debt should be assumed to fund a project. -Determining how much inventory will be needed to support a project.

Which of the following accounts are included in working capital management? I. Accounts Payable II. Accounts Receivable III. Fixed Assets IV. Inventory

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? -Increase in the amount of the quarterly dividend. -Decrease in the per unit production costs. -Increase in the number of shares outstanding. -Decrease in the net working capital. -Increase in the market value per share.

The Sarbanes-Oxley Act of 2002 is a governmental response to: -Decreasing corporate profits. -The terrorists attacks on 9/11/2001. -A weakening economy. -Deregulation of the stock exchanges. -Management greed and abuses.

A firm which opts to "go dark" in response to the Sarbanes-Oxley Act: -Must continue to provide audited financial statements to the public. -Must continue to provide a detailed list of internal control deficiencies on an annual basis. -Can provide less information to its shareholders than it did prior to "going dark". -Can continue publicly trading its stock but only on the exchange on which it was previously listed. -Ceases to exist.

Which one of the following actions by a financial manager is most apt to create an agency problem? -Refusing to borrow money when doing so will create losses for the firm. -Refusing to lower selling prices if doing so will reduce the net profits. -Refusing to expand the company if doing so will lower the value of the equity. -Agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales. -Increasing current profits when doing so lowers the value of the firm's equity.

Which one of the following is an agency cost? -Accepting an investment opportunity that will add value to the firm. -Increasing the quarterly dividend. -Investing in a new project that creates firm value. -Hiring outside accountants to audit the company's financial statements. -Closing a division of the firm that is operating at a loss.

Which of the following parties are considered stakeholders of a firm? I. Employee II. Long-term creditor III. Government IV. Common stockholder

Which one of the following statements is generally correct? -Private placements must be registered with the SEC. -All secondary markets are auction markets. -Dealer markets have a physical trading floor. -Auction markets match buy and sell orders. -Dealers arrange trades but never own the securities traded.