Finance Chapter 1: Questions

Which one of the following terms is defined as the management of a firm’s long-term investments?A. Working capital managementB. Financial allocationC. Agency cost analysisD. Capital budgetingE. Capital structure Capital budgeting
Which one of the following terms is defined as the mixture of a firm’s debt and equity financing?A. Working capital managementB. Financial allocationC. Agency cost analysisD. Capital budgetingE. Capital structure Capital structure
Which one of the following is defined as a firm’s short-term assets and its short-term liabilities?A. Working capital managementB. Financial allocationC. Agency cost analysisD. Capital budgetingE. Capital structure Working capital management (also called Short Terms Cash Flow management)
A business owned by a solitary individual who has unlimited liability for its debt is called a:A. CorporationB. Sole proprietorshipC. General partnershipD. Limited partnership Sole proprietorship
A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:A. Sole proprietorB. Limited partnerC. General partnerD. Corporate shareholder Limited partner
A business created as a distinct legal entity and treated as a legal “person” is called a:A. CorporationB. Sole proprietorshipC. General partnershipD. Limited partnership Corporation
Which one of the following is a capital budgeting decision?A. determining how many shares of stock to issuB. deciding whether or not to purchase a new machine for the production lineC. deciding how to refinance a debt issue that is maturing D. Determining how much inventory to keep on hand Deciding whether or not to purchase a new machine for the production line
Which of the following accounts are included in working capital management?I. accounts payableII. accounts receivableIII. fixed assetsIV. inventoryA. I and II onlyB. I and III onlyC. II and IV onlyD. I, II, and IV onlyE. II, III, and IV only I, II, and IV onlyAccounts payable, Accounts receivable, Inventory
Which of the following individuals have unlimited liability based on their ownership interest?I. general partnerII. sole proprietorIII. stockholderIV. limited partnerA. II onlyB. I and II onlyC. II and IV onlyD. I, II, and III onlyI, II, and IV only I and II onlyGeneral partner and sole proprietor
Which of the following are advantages of the corporate form of business ownership?I. ease of formationsII. double taxationIII. ability to raise capitalIV. unlimited firm lifeA. I and II onlyB. III and IV onlyC. I, III, and IV onlyD. II, III, and IV onlyE. I, II, III, and IV III and IV onlyAbility to raise capitalUnlimited firm life
Which one of the following statements is correct?A. A general partnership is legally the same as a corporation. B. Both sole proprietorship and partnership income is taxed as individual income.C. Partnerships are the most complicated type of business to form.D. All business organizations have bylaws. E. Only firms organized as sole proprietorships have limited lives. B. Both sole proprietorship and partnership income is taxed as individual income.
Which one of the following business types is best suited to raising large amounts of capital?A. Sole proprietorshipB. Limited liability companyC. CorporationD. General partnershipE. Limited partnership Corporation
Which one of the following best states the primary goal of financial management?A. maximize current dividends per share B. maximize the current value per shareC. increase cash flow and avoid financial distressD. minimize operational costs while maximizing firm efficiency Maximize the current value per share
The Sarbanes-Oxley Act of 2002 is a governmental response to:A. Decreasing corporate profitsB. The terrorist attacks on 9/11C. A weakening economyD. Deregulation of the stock exchagnesE. Management greed and abuses Mangement 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 fightA. I and II onlyB. III and IV onlyC. I, II, and III onlyD. I, III, and IV onlyE. I, II, III, and IV I, II, III, and IVCompensation based on the value of the stockStock option plansThreat of a company takeoverThreat of a proxy fight
Which form of business structure is most associated with agency problems?A. CorporationB. Sole proprietorshipC. General partnershipD. Limited partnership Corporation
Which one of the following is an agency cost?A. accepting an investment opportunity that will add value to the firmB. Increasing the quarterly dividendC. Investing in a new project that creates firm valueD. Hiring outside accounts to audit the company’s financial statementsE. Closing a division of the firm taht is operating at a loss Hiring outside accounts to audit the company’s financial statements
Which one of the following is a primary market transaction?A. sale of currently outstanding stock by a dealer to an individual investorB. sale of a new share of stock to an individual investor C. stock ownership transfer from one shareholder to another shareholderD. gift of stock from one shareholder to another shareholder Sale of a new share of stock to an individual investor
Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:A. Took place in the primary market.B. Occured in a dealer marketC. Was facilitated in the secondary marketD. Involved a proxyE. Was a private placement Was facilitated in the secondary market
Why is the stock price considered to be the best measure of a company’s performance?A. it incorporates all available information about the company’s financial standingB. it incorporates all available information about the company’s cash flowsC. it incorporates non-financial information that is relevant to the company’s performanceD. All of the above All of the above
Which of the following is an example of an agency problem?A. Your “friend” tries to copy your answers on a test. B. A sports agent tries to negotiate the highest possible salary for his client.C. Lucilla has always dreamed of being on the cover of Vogue, but is rejected by a modeling agency.D. You hire Frank’s Lawn Service to maintain your yard while you are out of town for two months. When you return you find that your plants are all dead. You hire Frank’s Lawn Service to maintain your yard while you are out of town for two months. When you return you find that your plants are all dead.
Of the choices below, only one is a characteristic of the corporation. Which one?A. Only one ownerB. Taxed onceC. Personal assets of owner(s) may not be seized by creditorsD. Limited life Personal assets of owner(s) may not be seized by creditors
Ownership in a corporation is evidenced byA. Owning the corporation’s bondsB. Owning the corporation’s common stockC. Owning either the corporation’s bonds or common D. Being a member of membership of the corporation Owning the corporation’s common stock
Which of the following represents a significant disadvantage to the corporate form of organization?A. Level of difficulty corporations face in obtaining large amounts if capital in financial markets.B. Difficulty in transferring ownershipC. Exposure to taxation of both corporate earnings and stockholder dividend income.D. Degree of liability to which corporate owners and managers are exposed. Exposure to taxation of both corporate earnings and stockholder dividend income.

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