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Chapter 1 – The Financial Manager and the Firm – Homework

Which of the following are stakeholders?
the IRS

****all of these

a shareholder

a lender

The cash remaining after the firm has met its operating expenses, payments to creditors, and taxes is called
residual cash.
Current liabilities are liabilities that
must be paid within a year
Capital budgeting involves
which productive assets the firm should employ
Working capital management decisions involve
how a firm’s day-to-day financial matters should be managed
Financial markets in which equity and debt instruments with maturities greater than one year are traded are called
capital markets
About 75 percent of all businesses in the United States are
sole proprietorships
Which of the following business organizational forms creates a tax liability on income at the personal income tax rate?
a) sole proprietorship

b) partnership

c) corporation

*****d) a and b

Which of the following business organizational forms is easiest to raise capital?
corporation
Which organizational form best enables the owners of the firm to monitor the actions of other owners of the same firm?
partnership
Which of the following is considered a hybrid organizational form?
limited liability partnership
One reason for the existence of agency problems between managers and share holders is that
there is a separation of ownership and control of the firm
An example of a direct agency cost is
a manager expensing a large dinner on the company expense report
Which of the following can help align the behavior of managers with the goals of shareholders?
managerial labor markets

****all of these

management compensation

an independent board of directors

Executives that repeatedly put their own interests before that of the firm may find that they have difficulty finding another job after their current one. This is an example of
the managerial labor market disciplining managers.
What is the major complaint concerning the Sarbanes-Oxley Act of 2002 by firms?
the cost of compliance
_____________occur(s) when one party in a business transaction has information that is unavailable to the other parties in the transaction.
Information asymmetry
If a firm establishes maximizing profits at the most important goal of the firm, which of the following would not be given proper consideration?
Risk
Which of the following factors or activities can be controlled by the management of the firm?
Capital budgeting
The legal system and market forces impose substantial costs on individuals and institutions that engage in unethical behavior. Which of the following would not be an example of the above?
Agency conflicts.

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