Survey of Finance: Chapter 1

A business created as a distinct legal entity and treated as a legal “person” is called a: Corporation
Corporate bylaws: Determine how a corporation regulates itself
Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? Increase in the market value per share
A limited partnership: …has a greater ability to raise capital than a sole proprietorship
A general partner: …is personally responsible for all the partnerships debts
Which one of the following is defined as a firm’s short-term assets and its short-term labilities? Working capital
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 functions should be the responsibility of the controller rather than the treasurer? Income tax returns
Which one of the following terms is defined as the management of a firm’s long-term investments? Capital budgeting
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
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
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
A business owned by a solitary individual who has unlimited liability for its debt is called a: Sole proprietorship
Which one of the following statements is correct? Corporations can raise large amounts of capital generally easier than partnerships can
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 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
Which one of the following is a capital structure decision? determining how much debt should be assumed to fund a project
The decision to issue additional shares of stock is an example of which one of the following? Capital structure decision
Which one of the following is a capital budgeting decision? …deciding whether or not to purchase a new machine for the production line
A limited partnership: Has a greater ability to raise capital than a sole proprietorship
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
Deciding which fixed assets should be purchased is an example of what type of decision? Capital budgeting
What is a Partnership? Business formed by two or more individuals or entities
What is a corporation? A business created as a distinct legal entity composed of one or more individuals or entities
What form of ownership is easiest to transfer? Corporation
Which of the following is the most important form of business organization in the United States? Corporation
What group of people ultimately hold control of a firm? Stockholders- they elect the board of directors, who select the managers.
Which was an unintended result of the Sarbanes-Oxley Act? Hundreds of public firms no longer traded on the major stock exchanges
Over-the-counter markets belong to Dealer markets
Which markets involve the original sale of securities by corporations? Primary Markets
Equities are issued by what entity? Corporations
When there is a possible conflict of interest between the principal and the agent, it is referred to as a(n): Agency problem
What is a proxy fight? A competitive struggle between two corporate factions for proxy votes from shareholders
What causes proxy fights? A group (of unhappy stockholders) solicits proxies in order to replace the existing board
What is another name for a corporation? Joint stock company
Secondary Markets Those in which these securities are bought and sold after original sale. One owner or creditor selling to another
Primary Markets Original sale of securities by gov. and corporations. The corporation is the seller and the transaction raises money for the corporation.
Stakeholder Someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm. (employees, customers, suppliers, government, etc.)
Double Taxation Corporate profits are taxed twice: at the corporate level and again at the personal level.
CFO Top financial manager
Treasurer Oversee cash management, credit management,…
Controller * Oversee taxes, cost accounting, financial accounting, and data processing. Manages all accounts.
Limited liability company your personal assets are separate from the business
LTV Loan to Value

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