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FIN 331, CHAP 1

1. Tim has been promoted and is now in charge of all fixed asset purchases. In other words, Tim is in charge of:

A. capital structure management
B. asset allocation
C. risk management
D. capital budgeting
E. working capital management

D, capital budgeting
2. Stadford Inc. is financed with 40 percent debt and 60 percent equity. This mixture of debt and equity is referred to as the firm’s:

A. capital structure
B. capital budget
C. asset allocation
D. working capital
E. risk structure

A, capital structure
Lester’s BBQ has $121,000 in current assets and $109,000 in current liabilities. These values as referred to as the firm’s:

A. capital structure
B. cash equivalents
C. working capital
D. net assets
E. fixed accounts

C, working capital
Margie opened a used bookstore and is both the 100 percent owner and the store’s manager. Which type of business entity does Margie own if she is personally liable for all the store’s debts?

A. sole proprietorship
B. limited partnership
C. corporation
D. joint stock company
E. general partnership

A, sole proprietorship
Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50-50 basis. Which type of entity did they create if they have no personal liability for the firm’s debts?

A. limited partnership
B. corporation
C. sole proprietorship
D. general partnership
E. public company

B, corporation
The potential conflict of interest between a firm’s owner and its managers is referred to as which type of conflict?

A. organizational
B. structural
C. formation
D. agency
E. territorial

D, agency
The federal government has a tax claim on the cash flows of the The Window Store. This claim is defined as a claim by one of the firm’s:

A. residual owners
B. shareholders
C. financiers
D. provisional partners
E. stakeholders

E, stakeholders
Which one of the following occupations best fits into the international area of finance?

A. bank teller
B. treasury bill analyst
C. currency trader
D. insurance risk manager
E. local bank manager

C, currency trader
Which one of the following individuals commonly use finance in the course of their job?
I. chief financial officers
II. accountants
III. security analysts
IV. strategic managers

A. I and II only
B. III and IV only
C. I and III only
D. I, II, and III only
E. I, II, III, and IV

E; I, II, III and IV
Which one of the following is a working capital decision?

A. How should the firm raise additional capital to fund its expansion?
B. What debt-equity ratio is best suited to the firm?
C. What is the cost of debt financing?
D. Which type of debt is best suited to finance the inventory?
E. How much cash should the firm keep in reserve?

E, How much cash should the firm keep in reserve?
Which one of the following is a capital structure decision?

A. determining the optimal inventory level
B. establishing the preferred debt-equity level
C. selecting new equipment to purchase
D. settling the terms of sale for credit sales
E. determining when suppliers should be paid

B, establishing the preferred debt-equity level
Working capital management includes which one of the following?

A. deciding which new projects to accept
B. deciding whether to purchase a new machine or fix a current machine
C. determining which customers will be granted credit
D. determining how many new shares of stock should be issued
E. establishing the target debt-equity ratio

C, determining which customers will be granted credit
The daily financial operations of a firm are primarily controlled by managing the:

A. total debt level
B. working capital
C. capital structure
D. capital budget
E. long-term liabilities

B, working capital
A sole proprietorship:

A. provides limited liability for its owner
B. involves significant legal costs during the formation process
C. has an unlimited life
D. has its profits taxed as personal income
E. can general raise significant capital from non owner sources.

D, has its profits taxed as personal income
Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

A. sole proprietorship
B. general partnership
C. limited partnership
D. limited liability company
E. corporation

D, limited liability company
The primary goal of financial management is to maximize which one of the following for a corporation?

A. current profits
B. market share
C. number of shares outstanding
D. market value of existing stock
E. revenue growth

D, market value of existing stock
Which one of the following best match the primary goal of financial management?

A. increasing the dollar amount of each sale
B. increasing traffic flow within the firm’s stores
C. transforming fixed costs into variable costs
D. increasing the firm’s liquidity
E. increasing the market value of the firm

E, increasing the market value of the firm
The goal of financial management is to increase the:

A. future value of the firm’s total equity
B. book value of equity
C. dividends paid per share
D. current market value per share
E. number of shares outstanding

D, current market value per share
What is the goal of financial management for a sole proprietorship?

A. maximize net income given the current resources of the firm
B. decrease long-term debt to reduce the risk to the owner
C. minimize the tax impact on the proprietor
D. maximize the market value of the equity
E. minimize the reliance on fixed costs

D, maximize the market value of the equity
Which one of the following situations is most apt to create an agency conflict?

A. compensating a manger based on his or her division’s net income
B. giving all employees a bonus if a certain level of efficiency is maintained
C. hiring an independent consultant to study the operating efficiency of the firm
D. rejecting a profitable project to protect employee jobs
E. selling an underproducing segment of the firm

D, rejecting a profitable project to protect employee jobs
Which one of the following is most apt to create a situation where an agency conflict could arise?

A. increasing the size of a firm’s operations
B. downsizing a firm
C. separating management from ownership
D. decreasing employee turnover
E. reducing both management and non-management salaries

C, separating management from ownership
Which one of the following is most apt to align management’s priorities with shareholders’ interests?

A. increasing employee retirement benefits
B. compensating managers with shares of stock that must be held for 3 years before the shares can be sold
C. allowing a manager to decorate his or her own office once he or she has been in that office for a period of 3 years or more
D. increasing the number of paid holidays that long-term employees are entitled to receive
E. allowing employees to retire early with full retirement benefits

B, compensating manger with shares of stock that must be held for 3 years before the shares can be sold
Marti had an unexpected surprise when she ate her Lotsa Good cereal this morning. She found a piece of metal mixed in her cereal. The potential claim that Marti has against this firm is that of a(n):

A. general creditor
B. debtholder
C. shareholder
D. stakeholder
E. agent

D, stakeholder
Which one of the following transactions occurred in the primary market?

A. Maria gave 100 shares of Alto stock to her best friend
B. Gene purchased 300 shares of Alto stock from Ted
C. South Wind Products sold 1,000 shares of newly issued stock to Mike
D. Terry sold 3,000 shares of Uno stock to his brother
E. The president of Trecco Inc. sold 500 shares of Trecco stock to his son

C, South Wind Products sold 1,000 shares of newly issued stock to Mike
Valerie bought 200 shares of Able stock today. Able stock has been trading for some time on the NYSE. Valerie’s purchase occurred in which market?

A. dealer market
B. over-the-counter market
C. secondary market
D. primary market
E. tertiary market

C, secondary market

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