FIN 310 Chapter 1

________ is concerned with design and delivery of advice and financial products to individuals, businesses, and governments. Financial services
Managerial finance ________. involves tasks such as budgeting, financial forecasting, cash management, and funds procurement
Finance is ________. the art and science of managing money
Which of the following is an area of career opportunities in financial services? personal financial planning
Which of the following is an area of career opportunities in managerial finance? capital expenditures management
Which of the following is a duty of a financial manager in a business firm? raising financial resources
A ________ is responsible for evaluating and recommending proposed long-term investments. capital expenditures manager
Which of the following legal forms of organization is most expensive to organize? corporations
Which of the following legal forms of organization has the ease of dissolution? sole proprietorships
Under which of the following legal forms of organization is ownership readily transferable? corporations
Which of the following forms of organizations is the easiest to form? sole proprietorships
A major weakness of a partnership is ________. the difficulty in liquidating or transferring ownership
Which of the following is a strength of a corporation? limited liability
Which of the following legal forms of organizations is characterized by unlimited liability? sole proprietorship
Which of the following is the purest and most basic form of corporate ownership? common stock
Which of the following is true of a partnership and a corporation? In a partnership, income is taxed at the corporate level; whereas, in a corporation, income is taxed twice.
Which of the following is true of sole proprietorships and corporations? In sole proprietorships, owners have unlimited liability; whereas, in corporations, owners have limited liability
The primary goal of a financial manager is ________. maximizing wealth
Corporate owners receive return ________. by realizing gains through increases in share price and cash dividends
The wealth of the owners of a corporation is represented by ________. share value
Wealth maximization as the goal of a firm implies enhancing the wealth of ________. the firm’s stockholders
The amount earned during the accounting period on each outstanding share of common stock is called ________. earnings per share
Which of the following is the best measure of profit maximization goal? earnings per share
Profit maximization as a goal is ideal because it directly considers ________. EPS and stock price.
Profit maximization as the goal of the firm is not ideal because ________. profit maximization does not consider risk
Which of the following is a measure of profit maximization to shareholders? earnings per share
The key variables in the owner wealth maximization process are ________. cash flows and risk
Cash flows and risk are the key determinants in share price. Increased cash flow results in ________, other things remaining the same. a higher share price
Cash flows and risk are the key determinants in share price. Increased risk, other things remaining the same, results in ________. a lower share price
Financial managers evaluating decision alternatives or potential actions must consider ________. risk, return, and the impact on share price
An ethics program is expected to have ________ impact on a firm’s share price. a positive
Which of the following is true of cash flows and risk? High cash flow and low risk result in an increase in share price.
As the risk of a stock investment increases, investors’ ________. required rate of return will increase
If the CEO of a company were to pass away, what do you think would happen to price of the stock? It would decrease because of the perceived increased risk due of lack of near-term leadership.
Which of the following is true of a cash flow? Profits do not necessarily result in cash flows available to the stockholders.
Based on the wealth maximization goal, the financial manager would ________.Year Asset 1 Asset 2 Asset 3 1 $21,000 $9,000 $15,000 2 $17,000 $15,000 $15,000 3 $7,000 $21,000 $15,000 choose Asset 1
Each asset costs $35,000 and is expected to provide earnings over a three-year period as described below.Asset Year 1 Year 2 Year 3Asset 1 $21,000 $15,000 $6,000Asset 2 $9,000 $15,000 $21,000 Asset 3 $3,000 $20,000 $19,000Asset 4 $6,000 $12,000 $12,000Based on the wealth maximization goal, the financial manager would choose ________. Asset 1
Which of the following is true of stakeholders? They are groups having a direct economic link to a firm
Which of the following is an example of a firm’s stakeholder? suppliers
Which of the following is considered as a violation of business ethics? earnings management
Which of the following is one of the positive benefits of an effective ethics program? reduce potential litigation and judgment costs
The implementation of a pro-active ethics program is expected to result in ________. a positive corporate image and increased respect, a reduction in risk, and enhanced cash flow resulting in an increase in share price
An effective ethics program ________. can enhance a corporation’s value
Corporate ethics policies typically apply to ________ in dealing with ________. employee actions; all corporate constituents
An accountant’s primary function is ________. the collection and presentation of financial data
A treasurer is commonly responsible for handling ________. investing surplus funds
A controller is commonly responsible for ________. financial accounting
A ________ is responsible for a firm’s financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange. treasurer
A ________ is responsible for the firm’s accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting. controller
Which of the following is true of accrual basis accounting? Expenses are recognized when they are incurred.
Which of the following is true of cash basis accounting? Revenue is recognized when a customer pays cash
A financial manager is interested in the cash inflows and outflows of a firm, rather than the accounting data, in order to ________. maintain an optimum solvency level
Which of the following is the responsibility of a finance manager? analyzing the capital needs of the firm
Economic theories that a financial manager must ensure for efficient business operations, include ________. supply-and-demand analysis
The primary economic principle used in managerial finance is ________. marginal cost-benefit analysis
Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full for the merchandise during the year, it is yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are ________. $3,000 and -$7,000, respectively
A firm has just ended its calendar year making a sale in the amount of $150,000 of merchandise purchased during the year at a total cost of $112,500. Although the firm paid in full for the merchandise during the year, it is yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are ________. $37,500 and -$112,500, respectively
________ is one of the primary responsibilities of a financial manager. Analyzing budget and performance reports
By concentrating on cash flows within a firm, the financial manager should be able to ________. avoid insolvency
Marginal analysis states that financial decisions should be made and actions should be taken only when ________. added benefits exceed added costs
A firm has just ended its calendar year making a sale in the amount of $200,000 of merchandise purchased during the year at a total cost of $150,500. Although the firm paid in full for the merchandise during the year, it is yet to collect at year end from the customer. The possible problem this firm may face is ________. lack of cash flow
Which of the following line items in a balance sheet is considered the most for making a financing decision? long-term liabilities
Investment decisions generally refer to the items that appear on the ________. left-hand side of the balance sheet, and financing decisions relate to the items on the right-hand side
Which of the following is one of the key activities of a financial manager? making financing decisions
The primary activity of a financial manager is ________. making an investment decision
Which of the following activities of a finance manager determines the types of assets the firm holds? investment decisions
Making financing decisions includes ________. determining the appropriate mix of short-term and long-term financing
Making investment decisions includes ________. notes payable
Managing a firm’s assets includes ________. cash
Which of the following activities of a finance manager determines how the firm raises money to pay for the assets in which it invests? financing decisions
A financial manager’s investment decisions determine ________. both the mix and the type of assets found on the firm’s balance sheet
In planning and managing the requirements of a firm, the financial manager is concerned with ________. the mix and type of assets, the type of financing utilized, and analysis in order to monitor the financial condition
A financial manager’s financing decisions determine ________. the most appropriate mix of short-term and long-term financing
The board of directors is typically responsible for ________. approving strategic goals and plans
The Sarbanes-Oxley Act of 2002 was passed in response to ________. false disclosures in financial reporting
The Sarbanes-Oxley Act of 2002 resulted in ________. tightened audit regulations and controls
The true owner(s) of the corporation is (are) the ________. stockholders
The ________ has/have the ultimate responsibility in guiding corporate affairs and carrying out policies board of directors
The responsibility for managing day-to-day operations and carrying out corporate policies belongs to the ________. chief executive officer
In a corporation, the board of directors are elected by the ________. stockholders
Which of the following is an example of agency cost? failure of making the best investment decision
Which of the following is the best measure to ensure that management decisions are in the best interest of the stockholders? tie management compensation to the performance of the company’s common stock price
________ is one of the solution to the agency problem in publicly-held corporations. Stock options
Incentive plans usually tie management compensation to ________. share price
If managers are not owners of their company, then they are ________. agents
The conflict between the goals of a firm’s owners and the goals of its non-owner managers is ________. the agency problem
The agency problem may result from a manager’s concerns about ________. job security
Which of the following is an example of agency costs? monitoring expenditures cost

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