Corporate Finance Chapter 1

The person generally directly responsible for overseeing the tax management, costaccounting, financial accounting, and data processing functions is the:a. treasurer.b. director.c. controller.d. chairman of the board.e. chief executive officer. Controller
The person generally directly responsible for overseeing the cash and credit functions,financial planning, and capital expenditures is the:a. treasurer.b. director.c. controller.d. chairman of the board.e. chief operations officer. Treasurer
The process of identifying projects which will produce positive cash flows is called:a. working capital management.b. financial depreciation.c. agency cost analysis.d. capital budgeting.e. capital structure Capital Budgeting
The mix of debt and equity capital for a firm is referred to as the firm’s:a. working capital management.b. cash management.c. cost analysis.d. capital budgeting.e. capital structure Capital Structure
The management of a firm’s short-term assets and liabilities is called:a. working capital management.b. debt management.c. equity management.d. capital budgeting.e. capital structure Working Capital Management
A business owned by a solitary individual is called a:a. corporation.b. sole proprietorship.c. general partnership.d. limited partnership.e. limited liability company Sole Propriertorship
A business formed by two or more individuals who each have unlimited liability for all ofthe firm’s business debts is called a:a. corporation.b. sole proprietorship.c. general partnership.d. limited partnership.e. limited liability company General Partnership
The division of profits and losses among the members of a partnership is formalized inthe:a. indemnity clause.b. indenture contract.c. statement of purpose.d. partnership agreement.e. group charter. Partnership Agreement
A business partner whose potential financial loss in the firm will not exceed his or herinvestment is called a:a. generally partner.b. sole proprietor.c. limited partner.d. corporate partner.e. zero partner Limited Partner
A business created as a distinct legal entity composed of one or more individuals orentities is called a:a. corporation.b. sole proprietorship.c. general partnership.d. limited partnership.e. unlimited liability company. Corporation
The business purpose and intended life of a corporation are set forth in the:a. indenture agreement.b. tax agreement.c. corporate bylaws.d. corporate charter.e. articles of incorporation Articles of Incorporation
The rules governing the method of electing corporate directors are called:a. indenture provisions.b. indemnity provisions.c. charter agreements.d. bylaws.e. articles of incorporation Bylaws
A business entity which taxes it owners like partners while providing those owners withlimited liability is called a:a. limited liability company.b. general partnership.c. limited proprietorship.d. sole proprietorship.e. corporation Limited Liability Company
A conflict of interest between the stockholders and company management is called:a. stockholders’ liability.b. corporate breakdown.c. the agency problem.d. corporate activism.e. legal liability The agency Problem
Agency costs refer to:a. the total dividends paid to stockholders over the lifetime of a firm.b. the costs that result from default and bankruptcy of a firm.c. corporate income subject to double taxation.d. the costs of any conflicts of interest between stockholders and management.e. the total interest paid to creditors over the lifetime of the firm The costs of any conflicts of interest between stockholders and management
A stakeholder is:a. any person or entity that owns shares of stock of a corporation.b. any person or entity that has voting rights based on stock ownership of a corporation.c. a person who initially started a firm and currently has management control over the cashflows of the firm due to his/her current ownership of company stock.d. a creditor to whom the firm currently owes money and who consequently has a claim onthe cash flows of the firm.e. any person or entity other than a stockholder or creditor who potentially has a claim onthe cash flows of the firm. any person or entity other than a stockholder or creditor who potentially has a claim on cash flows of the firm
The primary market is the market in which:a. trades occur on the floor of the NYSE only.b. shareholders who are also company officers offer their securities for sale.c. newly issued securities are offered for sale.d. all securities which are included in the Dow Jones Industrial Average (DJIA) must trade.e. a particular security tends to trade the most frequently Newly issued securities are offered for sale
The secondary market is the market in which:a. the sale proceeds of a trade flow to the issuer of the security.b. one shareholder sells securities to another shareholder.c. publicly held firms issue new shares of stock.d. only bonds or other debt securities are sold.e. trades occur on exchanges other than the New York Stock Exchange One shareholder sells securities to another stareholder
A secondary market where an individual or entity buys and sells for themselves at theirown risk is called a _____ market.a. primaryb. secondaryc. dealerd. auctione. liquidation Dealer
A market where brokers and agents match buyers with sellers is called a(n):a. primary market.b. OTC market.c. dealer market.d. auction market.e. liquidation market Auction Market
Which of the following questions are addressed by financial managers?I. How long will it take to produce a product?II. Should customers be given 30 or 45 days to pay for their credit purchases?III. Should the firm borrow more money?IV. Should the firm acquire new equipment?a. I and IV onlyb. II and III onlyc. I, II, and III onlyd. II, III, and IV onlye. I, II, III, and IV II,III,IV
The treasurer of a corporation generally reports to the:a. controller.b. chairman of the board.c. chief executive officer.d. president.e. vice president of finance. Vice President of Finance
Which one of the following correctly defines the chain of command in a typicalcorporate organizational structure?a. The vice president of finance reports to the chairman of the board.b. The chief executive officer reports to the board of directors.c. The controller reports to the president.d. The treasurer reports to the chief executive officer.e. The chief operations officer reports to the vice president of production. The chief executive officer reports to the board of directors
Which one of the following is a capital budgeting decision?a. determining how much debt should be borrowed from a particular lenderb. deciding whether or not to open a new storec. deciding when to repay a long-term debtd. determining how much inventory to keep on hande. determining how much money should be kept in the checking account Deciding whether or not to open a store
When considering a capital budgeting project the financial manager should consider the:I. size of the project.II. timing of the project’s cash flows.III. risk associated with the project’s cash flows.a. I onlyb. II onlyc. I and III onlyd. II and III onlye. I, II, and III I,II,III
Capital structure decisions include which of the following?a. determining the number of shares of stock to issueb. determining whether the firm should purchase or lease some equipmentc. allocating funds to the various divisions within the firmd. evaluating the size of inventory to be kept on hande. evaluating the customer credit policy Determing the number of shares of stock to issue
The decision to issue debt rather than additional shares of stock is an example of:a. working capital management.b. a net working capital decision.c. capital budgeting.d. a controller’s duties.e. the capital structure decision The capital structure decision
Working capital management includes decisions concerning which of the following?I. accounts payableII. long-term debtIII. accounts receivableIV. inventorya. I and II onlyb. I and III onlyc. II and IV onlyd. I, II, and III onlyE. I, III, and IV onl I,III,IV
Working capital management:a. ensures that sufficient equipment is available to produce the amount of product desired ona daily basis.b. ensures that long-term debt is acquired at the lowest possible cost.c. ensures that dividends are paid to all stockholders on an annual basis.d. balances the amount of company debt to the amount of available equity.e. is concerned with having sufficient funds to operate the business on a daily basis Is concerned with having sufficient funds to operate the business on a daily basis
Which one of the following statements concerning a sole proprietorship is correct?a. A sole proprietorship is designed to protect the personal assets of the owner.b. The profits of a sole proprietorship are taxed twice.c. The owners of a sole proprietorship share profits as established by the partnershipagreement.d. The owner of a sole proprietorship may be forced to sell his or her personal assets to paycompany debts.e. A sole proprietorship is often structured as a limited liability company The owner of the sole proprietorship may be forced to sell his or her personal assets to pay company debts
Which one of the following statements concerning a sole proprietorship is correct?a. The life of a sole proprietorship is limited to the life span of the owner.b. A sole proprietor can generally raise large sums of capital quite easily.c. The ownership of a sole proprietorship is easy to transfer to another individual.d. A sole proprietorship must pay taxes separate from the taxes paid by the owner.e. The legal costs to form a sole proprietorship are quite substantial The life of a sole propriertorship is limited to the life span of the owner
Which one of the following best describes the primary advantage of being a limitedpartner rather than a general partner?a. entitlement to a larger portion of the partnership’s incomeb. ability to manage the day-to-day affairs of the businessc. no potential financial lossd. greater management responsibilitye. liability for firm debts is limited to the capital invested Liability for firm debts is limited to the capital invested
A general partner:a. has less legal liability than a limited partner.b. has more management responsibility than a limited partner.c. faces double taxation whereas a limited partner does not.d. cannot lose more than the amount he or she invested in the entity.e. is the term applied strictly to corporations which invest in partnerships Has more management responsibility than a limited partner
A partnership:a. is taxed the same as a corporation.b. agreement defines whether the business income will be taxed like a partnership or acorporation.c. terminates at the death of any general partner.d. has less of an ability to raise capital than a sole proprietorship.e. can consist solely of limited partners. A partnership terminates at the death of any general partner
Which of the following are disadvantages of a partnership?I. limited life of the firmII. personal liability for firm debtIII. greater ability to raise capital than a sole proprietorshipIV. lack of ability to transfer partnership interesta. I and II onlyb. III and IV onlyc. II and III onlyd. I, II, and IV onlye. I, III, and IV only I,II,IV
Which of the following are advantages of the corporate form of business ownership?I. limited liability for firm debtII. double taxationIII. ability to raise capitalIV. unlimited firm lifea. I and II onlyb. III and IV onlyc. I, II, and III onlyd. II, III, and IV onlye. I, III, and IV only I,III,IV
Which one of the following statements is correct concerning corporations?a. The largest firms are usually corporations.b. The majority of firms are corporations.c. The stockholders are usually the managers of a corporation.d. The ability of a corporation to raise capital is quite limited.e. The income of a corporation is taxed as personal income of the stockholders The largest firms are usually corps
Which one of the following statements is correct?a. Both partnerships and corporations incur double taxation.b. Both sole proprietorships and partnerships are taxed in a similar fashion.c. Partnerships are the most complicated type of business to form.d. Both partnerships and corporations have bylaws.e. All types of business formations have limited lives Both sole proprietorships and partnerships are taxed in the same way
The articles of incorporation:a. can be used to remove company management.b. are amended annually by the company stockholders.c. set forth the number of shares of stock that can be issued.d. set forth the rules by which a corporation regulates its existence.e. set forth which parties will be general and which will be limited partners. Set forth the number of shares of stock that can be issued
The bylaws:a. establish the name of a corporation.b. are rules which apply only to limited liability companies.c. set forth the purpose of a firm.d. mandate the procedure for electing corporate directors.e. set forth the procedure by which the stockholders elect the senior managers of a firm. Mandate the procedure for electing corporate directors
The owners of a limited liability company prefer:a. being taxed like a corporation.b. having liability exposure similar to that of a sole proprietor.c. being taxed personally on all business income.d. having liability exposure similar to that of a general partner.e. being taxed like a corporation with liability like a partnership Being taxed personally on all business income
Which one of the following business types is best suited to raising large amounts ofcapital?a. sole proprietorshipb. limited liability companyc. corporationd. general partnershipe. limited partnership Corporation
Which type of business organization has all the respective rights and privileges of a legalperson?a. sole proprietorshipb. general partnershipc. limited partnershipd. corporatione. limited liability company Corporation
The primary goal of financial management is to:a. maximize current dividends per share of the existing stock.b. maximize the current value per share of the existing stock.c. avoid financial distress.d. minimize operational costs and maximize firm efficiency.e. maintain steady growth in both sales and net earnings Maximize the current VAlue per share of the existing stock
Financial managers should strive to maximize the current value per share of theexisting stock because:a. doing so guarantees the company will grow in size at the maximum possible rate.b. doing so increases the salaries of all the employees.c. they have been hired for the purpose of representing the interest of the currentshareholders.d. doing so means the firm is growing in size faster than its competitors.e. the managers often receive shares of stock as part of their compensation They have been hired for the purpose of representing the interest of the current shareholder
The decisions made by financial managers should all be ones which increase the:a. size of the firm.b. growth rate of the firm.c. marketability of the managers.d. market value of the existing owners’ equity.e. financial distress of the firm. Market value of the existing owner’s equity
The Sarbanes-Oxley Act of 2002 is a governmental response to:a. increased federal taxes.b. the terrorists attacks on 9/11/2001.c. decreasing corporate dividend payments.d. new stock trading regulations by the stock exchanges.e. corporate scandals Corporate Scandals
The Sarbanes-Oxley Act of 2002:a. imposed insignificant compliance costs on smaller corporations.b. caused some firms to “go dark”.c. increases the ability of corporate officers to borrow money from their employer.d. required that the smaller firms on the NYSE be delisted.e. protects the management of a firm from the firm’s shareholders. Caused some firms to go dark
A firm which opts to “go dark” in response to the Sarbanes-Oxley Act:a. must continue to provide audited financial statements which have been signed by thecorporate officers.b. must continue to provide a detailed list of internal control deficiencies on an annual basis.c. can, and mostly likely will, provide less information to its shareholders than it did priorto the act.d. can continue trading their stock on the stock exchanges.e. will rarely experience any resulting change in the price of their stock Can and most likely will provide less infor to its shareholder than it did before
Which one of the following actions by a financial manager creates an agency problem?a. refusing to borrow money when doing so will create losses for the firmb. refusing to lower selling prices if doing so will reduce the net profitsc. agreeing to expand the company at the expense of stockholders’ valued. agreeing to pay bonuses based on the market value of the company stocke. increasing current costs in order to increase the market value of the stockholders’ equity Agreeing to expand the company at the expense of the stockholder’s value
Which of the following help convince managers to work in the best interest of thestockholders?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,IV
Which of the following are agency costs?I. forgoing an investment opportunity which would add to the market value of theowner’s equityII. paying a dividend to each of the existing shareholdersIII. purchasing new equipment which increases the value of each share of stockIV. hiring outside auditors to verify the accuracy of the company financial statementsa. II and III onlyb. I and III onlyC. I and IV onlyd. II and IV onlye. I, II, and IV only I,IV
Which of the following represent cash outflows from a firm?I. issuance of securitiesII. payment of dividendsIII. new loan proceedsIV. payment of government taxesa. I and III onlyB. II and IV onlyc. I and IV onlyd. I, II, and IV onlye. II, III, and IV only II,IV
Which one of the following parties is considered a stakeholder of a firm?a. employeeb. short-term creditorc. long-term creditord. preferred stockholdere. common stockholder Employee
Which of the following represent means by which cash flows from a corporation backinto the financial markets?I. repayment of long-term debtII. payment of government taxesIII. payment of loan interestIV. sale of corporate stocka. I and II onlyB. I and III onlyc. II and IV onlyd. I, III, and IV onlye. I, II, and III only I,III
Which one of the following is a primary market transaction?a. a dealer selling shares of stock to an individual investorb. a dealer buying newly issued shares of stock from a corporationc. an individual investor selling shares of stock to another individuald. a bank selling shares of a medical firm to an individuale. a sole proprietor buying shares of stock from an individual investor A dealer buying newly issued shares of stock from a corporation
he transfer of ownership of outstanding shares of a NYSE listed stock:a. takes place in the primary market.b. occurs in a dealer market.c. is facilitated in the secondary markets.d. creates an immediate tax liability for both the seller and the buyer.e. is referred to as a private placement. Is facilitated in the secondary market
Which of the following statements concerning auction markets is (are) correct?I. NASDAQ is an auction market.II. The NYSE is an auction market.III. All trades involve a dealer in an auction market.IV. An auction market is called an over-the-counter market.a. I onlyB. II onlyc. I and III onlyd. II and III onlye. II and IV only II
Which one of the following statements concerning stock exchanges is correct?a. The NYSE has more listed stocks than NASDAQ.b. The NYSE is a dealer market.c. The exchange with the strictest listing requirements is NASDAQ.d. Some large companies are listed on NASDAQ.e. Most debt securities are traded on the NYSE Some companies are listed on NASDAQ
Dealer markets:a. are reserved strictly for trading debt securities.b. only exist outside of the United States.c. are called over-the-counter markets.d. include the American and the Pacific Stock Exchanges.e. list only the securities of the largest firms Are called over the counter markets
Which one of the following statements is correct concerning the NYSE?a. A firm is expected to have a market value for its publicly held shares of at least $100million to be listed on the NYSE.b. The NYSE is the largest dealer market for listed securities in the United States.c. The NYSE accounts for only 50 percent of the shares traded in the auction markets.d. Any corporation desiring to be listed on the NYSE can do so.e. The NYSE is an over-the-counter exchange functioning as both a primary and asecondary market A first is expected to have a market value for its publicly held shares of at least 100 mil to be listed on the NYSE
Which of the following statements concerning NASDAQ are correct?I. Most smaller firms are listed on NASDAQ rather than on the NYSE.II. NASDAQ is an electronic market.III. NASDAQ is an auction market.IV. NASDAQ is an OTC market.a. I and II onlyb. I and III onlyc. II and IV onlyD. I, II, and IV onlye. I, II, III, and IV I,II,IV

Leave a Reply

Your email address will not be published. Required fields are marked *