Chapter 1 Finance

Not all cash a company generates will be returned to the investors. Which of the following will not reduce the amount of capital returned to the investors? A. retained earnings B. taxesC. dividendsD. none of these will reduce the amount of capital returned to the investors. C. dividends
the sub area of finance involves methods and techniques to make appropriate decisions about what kinds of securities to own, which firms securities to buy, and how to be paid back in the form that the investor wishes. A. real marketsB. investments C. financial management D. non of these B. investments
This sub-area of finance looks at firm decisions in acquiring and utilizing cash received from investors or from retained earnings. A. investments B. financial management C. treasury management D. none of these B. financial management
financial management involves decisions about which of the following: A. which projects to fund B. how to minimize taxation C. what type of capital should be raised D. all of theseE. only A and C above D. all of these
This sub-area of finance helps facilitate the capital flows between investors and companies. A. investmentsB. financial management C. treasury management D. financial instituations and markets D. financial institutions and markets
this sub-area of finance is important for adapting the global economy. A. investments B. financial management C. international finance D. financial institutions and markets c. international finance
A potential future negative impact to value and/or cash flows. This is often discussed in terms of probability of loss and the expected magnitude of the loss. A. options B. standard diviation C. coefficient of variation D. risk D. risk
this is a general term for securities like stock, bonds, and other assets that represent ownership in a cash flowA. investmentB. financial asset C. real asset D. financial market B. financial asset
Which of the following is the firm’s highest-level financial manager? A. Chief Executive OfficerB. Chief Financial OfficerC. Board of DirectorsD. Corporate Governance b
Which of the following managers would NOT use finance? A. Operational managersB. Marketing managersC. Human resource managersD. All of these would use finance. D
Which of the following personal decisions is NOT impacted by finance? A. Borrowing money to purchase cars or homesB. Making credit card paymentsC. Making retirement decisionsD. All of these are impacted by finance. D
When determining a form of business organization, all of the following are considered EXCEPT: A. Who owns the firm.B. What are the owners’ risks.C. What are the tax ramifications.D. The physical location of the business D
This is by far the most common type of business in the United States. A. Sole proprietorshipB. PartnershipC. CorporationD. Hybrid organizations A
This type of business organization is relatively easy to start, and they’re subject to much lighter regulatory and paperwork burden than other business forms. A. Sole proprietorshipB. PartnershipC. CorporationD. Hybrid organizations A
This type of business organization features multiple individual owners who must report recent profits of the business on their personal income tax returns. A. Sole proprietorshipB. PartnershipC. CorporationD. Hybrid organizations B
This type of business organization is legally independent entirely from its owners. A. Sole proprietorshipB. PartnershipC. Public CorporationsD. Hybrid organizations C
Which of the following is NOT considered a hybrid organization? A. S CorporationB. Limited Liability PartnershipC. Limited Liability CompanyD. Limited PartnershipE. All of these are considered hybrid organizations. E
Which of the following exchange capital for ownership in a business? A. AuditorsB. Agency investorsC. Angel investorsD. None of these exchange capital for ownership in a business. c
The practice generally known as double taxation is due to A. shareholders’ dividends being taxed at both the federal and state levels.B. corporate income being taxed at both the federal and state levels.C. both A and B above.D. corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends. D
As individual legal entities, corporations assume liability for their own debts, so the shareholders hold A. only limited liability.B. unlimited liability.C. shared liability.D. joint liability. a
For corporations, maximizing the value of owner’s equity can also be stated as A. maximizing retained earnings.B. maximizing earnings per share.C. maximizing net income.D. maximizing the stock price. d
A metaphor used to illustrate how an individual pursuing his own interests also tends to promote the good of the community. A. agency theoryB. angel investorC. invisible handD. perks/prequisites c
This should be the primary objective of a firm as it may actually be the most beneficial for society in the long run. A. Minimizing lay offsB. Maximizing market shareC. Minimizing costsD. Maximizing shareholder value d
The definition of agency problem is A. the difficulties that arise in professional baseball when players become free agents.B. the difficulties that arise when a principle hires an agency to represent their company.C. the difficulties that arise when a principle hires an agent and cannot fully monitor the agent’s actions.D. when a principle hires an agent and must monitor every move they make because they have found the agent to be unethical. c
Non-wage compensation which might actually enhance owner value, in that such items may boost managers’ productivity. A. agency theoryB. angel investorC. invisible handD. perks/prequisites d
Which of these are NOT basic approaches to minimizing the agency problem? A. Just ignore the conflict of interest.B. Monitor managers’ actions.C. Align managers’ personal interest with those of the owners by making the managers owners.D. All of these are basic approaches to minimizing the agency problem. d
Which of the following is an example of aligning managers’ personal interests with those of the owners? A. Allow the managers to have as many perks as they request.B. Pay the managers high salaries.C. Offer the managers an equity stake in the firm.D. Trust the managers’ actions as they will always act in the owners’ best interest. c
This is the set of laws, policies, incentives, and monitors designed to handle the issues arising from the separation of ownership and control. A. agency theoryB. corporate governanceC. defined benefit planD. invisible hand b
This is the group who elected by stockholders to oversee management in a corporation. A. Chief CounselorsB. Chief ExecutivesC. Board of DirectorsD. Auditors c
These individuals examine the firm’s accounting systems and comment on whether financial statements fairly represent the firm’s financial position. A. accounting departmentsB. Chief Financial OfficersC. Board of DirectorsD. Auditors d
These individuals follow a firm, conduct their own evaluations of the company’s business activities, and report to the investment community. A. AuditorsB. Investment analystsC. Investment bankersD. Credit analysts b
These individuals help firms access capital markets and advise managers about how to interact with those capital markets. A. AuditorsB. Investment analystsC. Investment bankersD. Credit analysts c
These individuals examine a firm’s financial strength for its debt holders. A. AuditorsB. Investment analystsC. Investment bankersD. Credit analysts d
A legal duty between two parties where one party must act in the interest of the other party. A. Agency theoryB. Angel InvestorC. FiduciaryD. Investment banker c
Between corporate managers and stockholders, this can create ethical dilemmas. A. Agency relationshipB. AuditorsC. Boards of DirectorsD. Venture capitalist a

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