Set 1 Finance Management

Which one of the following terms is defined as the management of a firm’s long-term investments? capital budgeting
Which one of the following terms is defined as the mixture of a firm’s debt and equity financing? capital structure
Which one of the following is defined as a firm’s short-term assets and its short-term liabilities? working capital
A business owned by a solitary individual who has unlimited liability for its debt is called a: sole proprietorship
A business formed by two or more individuals who each have unlimited liability for all of the firm’s business debts is called a: general partnership
A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: limited partner
A business created as a distinct legal entity and treated as a legal “person” is called a: corporation
Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? agency problem
A stakeholder is: any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm
The controller of a corporation generally reports directly to the: vice president of finance
Which one of the following correctly defines the upward chain of command in a typical corporate organizational structure? The treasurer reports to the vice president of finance
Which one of the following is a capital budgeting decision? deciding whether or not to purchase a new machine for the production line
Which of the following should a financial manager consider when analyzing a capital budgeting project? I. project start up costsII. timing of all projected cash flowsIII. dependability of future cash flowsIV. dollar amount of each projected cash flow
Which one of the following is a capital structure decision? determining how much debt should be assumed to fund a project
Which of the following accounts are included in working capital management? I. accounts payableII. accounts receivableIV. inventory
Which one of the following is a working capital management decision? determining whether to pay cash for a purchase or use the credit offered by the supplier
Which one of the following statements concerning a sole proprietorship is correct? The owner of a sole proprietorship is personally responsible for all of the company’s debts
Which of the following individuals have unlimited liability based on their ownership interest? I. general partnerII. sole proprietor
Which one of the following best describes the primary advantage of being a limited partner instead of a general partner? maximum loss limited to the capital invested
A general partner: is personally responsible for all the partnership debts
A limited partnership: has a greater ability to raise capital than a sole proprietorship
Which of the following apply to a partnership that consists solely of general partners? II. limited partnership lifeIII. active involvement in the firm by all the partnersIV. unlimited personal liability for all partnership debts
Which of the following are advantages of the corporate form of business ownership? I. limited liability for firm debtIII. ability to raise capitalIV. unlimited firm life
Which one of the following business types is best suited to raising large amounts of capital? corporation
Which type of business organization has all the respective rights and privileges of a legal person? corporation
Which one of the following best states the primary goal of financial management? maximize the current value per share
The Sarbanes-Oxley Act of 2002 is a governmental response to: management greed and abuses
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 stockII. stock option plansIII. threat of a company takeoverIV. threat of a proxy fight
Which form of business structure is most associated with agency problems? corporation
Which one of the following is a means by which shareholders can replace company management? proxy fight
Which one of the following grants an individual the right to vote on behalf of a shareholder? proxy
Which one of the following parties has ultimate control of a corporation? shareholders
Which of the following represent cash outflows from a corporation? II. payment of dividendsIV. payment of government taxes
Which of the following are cash flows from a corporation into the financial markets? I. repayment of long-term debtIII. payment of loan interestIV. payment of quarterly dividend
Which one of the following is a primary market transaction? sale of a new share of stock to an individual investor

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