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Ch. 1 Homework

Which one of the following terms is defined as the management of the firm’s long-term investments:
A. Working capital management
B. Financial allocation
C. Agency cost analysis
D. Capital Budgeting
E. Capital Structure
D. Capital Budgeting
Which one of the following terms is best 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
E. Capital Structure
Which 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. Working capital
A business created as a distinct legal entity and treated as a legal “person” is:
A. Corporation
B. Sole proprietorship
C. General partnership
D. Limited partnership
E. Unlimited liability company
A. Corporation
Which of the following terms is defined as a conflict of interest between the corporate shareholders and corporate managers?
A. Articles of incorporation
B. Corporate breakdown
C. Agency problems
D. Bylaws
C. Agency Problems
A stakeholder is:
A. a person who owns shares of stock
B. Any person who has voting rights based on stock ownership of a corporation
C. A person who initially founded a firm and currently has management control over that firm
D. A creditor to whom a form current owes money
E. Any person or entity other than a stockholder or creditor who potentially has a claim on the firm
E.
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
D. Determining how much inventory to keep on hand
E. Determining how much money should be kept in the checking account
B.
Which of the following is a capital structure decision?
A. Determining which one of two projects to accept
B. Determining how to allocate investment funds to multiple projects
C. Determining the amount of funds needed to finance customer purchases of a new product
D. Determining how much debt should be assumed to fund a project
E. Determining how much inventory will be needed to support a project
D.
The decision to issue additional shares of stock is an example of which of the following:
A. Working capital management
B. Net working capital decision
C. Capital budgeting
D. Controller’s duties
E. Capital structure decision
E.
Which of the following accounts are included in working capital management?
I. Accounts Receivable
II. Account Payable
III. Fixed Assets
IV. Inventory
I, II, and IV only
Which of the following is a working capital management decision?
A. Determining the amount of equipment needed to complete a job
B. Determining whether to pay cash for a purchase or use the credit offered by the supplier
C. Determining the amount of long-term debt required to complete a project
D. Determining the number of shares of stock to issue to fund an acquisition
E. Determining whether or not a project should be accepted
B.
Which of the following are advantages of the corporate form of business ownership?
I. Limited liability for firm debt
II. Double taxation
III. Ability to raise capital
IV. Unlimited firm life
I, III, and IV
Which 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
C.
Which type of business organization has all the respective rights and privileges of a legal person?
Corporation
Which 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
B.
Which 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 market value per share
E.
Why should financial managers strive to maximize the current value per share of existing stock?
A. Doing so guarantees the company will grow in size at the maximum possible rate
B. Doing so increases employee salaries
C. Because they have been hired to represent the interest of the current shareholders
D. Because this will increase the current dividends per share
E. Because managers often receive shares of stock as part of their compensation
C.
Decisions made by financial managers should primarily focus on increasing which of the following:
A. Size of the firm
B. Growth rate of the firm
C. Gross profit per unit produced
D. Market value per share of outstanding stock
E. Total salaries
D.
Which of the following actions by a financial manager is most apt to create an agency problem?
A. Refusing to borrow money when doing so will create losses for the firm
B. Refusing to lower selling prices if doing so will reduce net profits
C. Refusing to expand the company if doing so will lower the value of the equity
D. Agreeing to pay bonuses based on the market value of the company stock rather than on firm’s level of salary
E. Increasing curent profits when doing so lowers the value of the firms equity
E.
Which of the following help convince managers to work in the best interest of the stockholders? Assumer there are no golden parachutes:
I. compensation based on the value of stock
II. stock option plans
III. threat of company takeover
IV. threat of a proxy fight
I, II, III, and IV
Which form of business structure is most associated with agency problems?
A. Sole proprietorship
B. General partnership
C. Limited partnership
D. Corporation
E. Limited liability company
D.
Which of the following parties has ultimate control of a corporation?
A. Chairman of the board
B. Board of directors
C. Chief executive officer
D. Chief operating officer
E. Shareholders
E.
Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:
A. Took place in a primary market
B. Occurred in a dealer market
C. Was facilitated in the secondary market
D. Involved a proxy
C.
Public offerings of debt and equity must be registered with which of the following:
A. New York Board of Governors
B. Federal Reserve
C. NYSE Registration Office
D. Securities and Exchange Commission
E. Market Dealers Exchange
D.

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