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Chap 1 hs introduction to finance
corporate finance
Chung Yuan Christian University
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Which one of the following terms is defined as the management of a firm's long-term investments? A. working capital management B. financial allocation C. agency cost analysis D. capital budgeting E. capital structure
Which one of the following terms is defined as the mixture of a firm's debt and equity financing? A. working capital management B. cash management C. cost analysis D. capital budgeting E. capital structure
Which one of the following is defined as a firm's short-term assets and its short-term liabilities?
A. working capital B. debt C. investment capital D. net capital E. capital structure
- A business owned by a solitary individual who has unlimited liability for its debt is called a: A. corporation. B. sole proprietorship. C. general partnership. D. limited partnership.
E. limited liability company.
- Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
A. articles of incorporation B. corporate breakdown C. agency problem D. bylaws E. legal liability
- Which of the following questions are addressed by financial managers?
I. How should a product be marketed? 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 only B. II and III only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV
- Which one of the following is a capital budgeting decision?
A. determining how many shares of stock to issue B. deciding whether or not to purchase a new machine for the production line C. deciding how to refinance a debt issue that is maturing D. determining how much inventory to keep on hand E. determining how much money should be kept in the checking account
- Which one of the following business types is best suited to raising large amounts of capital?
A. sole proprietorship B. limited liability company C. corporation D. general partnership E. limited partnership
- Which type of business organization has all the respective rights and privileges of a legal person?
A. sole proprietorship B. general partnership C. limited partnership D. corporation E. limited liability company
- Sam, Alfredo, and Juan want to start a small U. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt?
A. sole proprietorship
B. joint stock company C. limited partnership D. general partnership E. corporation
- Sally and Alicia currently are general partners in a business located in Atlanta, Georgia. They are content with their current tax situation but are both very uncomfortable with the unlimited liability to which they are each subjected. Which form of business entity should they consider to replace their general partnership assuming they wish to remain the only two owners of their business? Whichever organization they select, they wish to be treated equally.
A. sole proprietorship B. joint stock company C. limited partnership D. limited liability company E. 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 share C. increase cash flow and avoid financial distress D. minimize operational costs while maximizing firm efficiency E. maintain steady growth while increasing current profits
- Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?
A. increase in the amount of the quarterly dividend B. decrease in the per unit production costs C. increase in the number of shares outstanding D. decrease in the net working capital E. increase in the market value per share
- Why should financial managers strive to maximize the current value per share of the existing stock?
E. closing a division of the firm that is operating at a loss
- Which one of the following is least likely to be an agency problem?
A. increasing the size of a firm B. concentrating on maximizing current profits C. closing a division with net losses D. increasing the market value of the firm's shares E. obtaining a patent for a new product
- Which one of the following is a primary market transaction?
A. sale of currently outstanding stock by a dealer to an individual investor B. sale of a new share of stock to an individual investor C. stock ownership transfer from one shareholder to another shareholder D. gift of stock from one shareholder to another shareholder E. gift of stock by a shareholder to a family member
- Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:
A. took place in the primary market.
B. occurred in a dealer market. C. was facilitated in the secondary market. D. involved a proxy. E. was a private placement.
- Which of the following assets is tangible?
A) ExxonMobil's corporate headquarters building B) Apple Inc.'s trademark C) Hewlett-Packard's most recent printer patent D) Microsoft's technical expertise
Which of the following types of assets are intangible? A) production machinery B) factories C) trademarks D) office equipment
A firm's investment decision is also called its A) financing decision. B) liquidity decision. C) capital budgeting decision. D) leasing decision.
Which of the following is not a financial asset? A) common stock B) bank loans C) preferred stock D) buildings
Which of the following is an important function of financial markets? A) providing financing B) providing financing and liquidity C) providing financing, providing liquidity, reducing risk, and providing information D) providing information
Disadvantages of the corporate form include: A) agency costs
B) CFO decision. C) financing decision. D) investment decision. 36. Which of the following groups are referred to as stakeholders? A) employees, customers, and suppliers only B) shareholders only C) employees and customers only D) employees, customers, shareholders, and suppliers
The following are examples of real assets: A) machinery, office buildings, and warehouses only. B) machinery and office buildings only. C) common stock only. D) machinery only.
The following are examples of tangible assets except: A) machinery only. B) machinery and office buildings only. C) training courses for employees only. D) machinery, office buildings, and warehouses only.
The ultimate financial goal of a corporation is to: A) minimize stockholder risk. B) maximize profit. C) maximize the value of the corporation to the stockholders. D) increase size of the firm.
A sole proprietorship is owned by: A) one person. B) two or more persons. C) shareholders.
D) bankers. 42. Which of the following is NOT an advantage of a sole proprietorship? A) Single taxation B) Ease of setup C) Limited liability D) No separation of ownership and control 43. Which of the following are subject to double taxation? A) Corporation B) Partnership C) Sole proprietorship D) A and B 44. The person charged with running the corporation by instituting the rules and policies set by the board of directors is called: A) the chief operating officer. B) the company president. C) the chief executive officer. D) the chief financial officer. 45. The Principal-Agent Problem arises: A) because managers have little incentive to work in the interest of shareholders when this means working against their own self-interest. B) because of the separation of ownership and control in a corporation. C) Both A and B D) None of the above 46. The most senior financial manager in a corporation is usually called: A) the chief executive officer. B) the chief financial officer. C) the chief operating officer. D) the chairman of the board. 47. You overhear your manager saying that she plans to book an Ocean-view room on her upcoming trip to Miami for a meeting. You know that the interior rooms are much less
Which one of the following applies to a general partnership? A. The firm's operations must be controlled by a single partner. B. Any one of the partners can be held solely liable for all of the partnership's debt. C. The profits of the firm are taxed as a separate entity. D. Each partner's liability for the firm's debts is limited to each partner's investment in the firm. E. The profits of a general partnership are taxed the same as those of a corporation.
In a general partnership, each partner is personally liable for: A. the partnership debts that he or she created. B. his or her proportionate share of all partnership debts regardless of which partner incurred that debt. C. the total debts of the partnership, even if he or she was unaware of those debts. D. the debts of the partnership up to the amount he or she invested in the firm. E. all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts.
Which one of the following is an advantage of being a limited partner? A. Non-taxable share of any profits B. Control over the daily operations of the firm C. Losses limited to capital invested D. Unlimited profits without risk of incurring a loss E. Active market for ownership interest
Which one of the following statements about a limited partnership is correct? A. All partners have their losses limited to their capital investment in the partnership. B. All partners are treated equally. C. There must be at least one general partner. D. Equity financing is easy to obtain and unlimited. E. Any partner can transfer his or her ownership interest without ending the partnership.
Discussion
List and briefly describe the three general areas of responsibility for a financial manager.
Describe the key advantages associated with the corporate form of organization.
Why are so many businesses structured as sole proprietorships when the corporate form of business offers more advantages?
Give some examples of ways in which manager's goals can differ from those of shareholders.
Chap 1 hs introduction to finance
Course: corporate finance
University: Chung Yuan Christian University
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