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FIN 3403 Ch.1 HW

Which of the following accounts are included in working capital management?

I. Accounts Payable
II. Accounts Receivable
III. Fixed Assets
IV. Inventory

I, II, and IV only
Which one of the following business types is best suited to raising large amounts of capital?

General partnership.
Corporation.
Sole proprietorship.
Limited liability company.
Limited partnership.

Corporation
Why should financial managers strive to maximize the current value per share of the existing stock?

Because managers often receive shares of stock as part of their compensation.
Doing so increases employee salaries.
Because they have been hired to represent the interests of the current shareholders.
Because this will increase the current dividends per share.
Doing so guarantees the company will grow in size at the maximum possible rate.

Because they have been hired to represent the interests of the current shareholders.
Which one of the following terms is defined as the management of a firm’s long-term investments?

Agency cost analysis.
Capital structure.
Working capital management.
Financial allocation.
Capital budgeting.

Capital budgeting.
Which one of the following actions by a financial manager is most apt to create an agency problem?

Refusing to expand the company if doing so will lower the value of the equity.
Refusing to borrow money when doing so will create losses for the firm.
Agreeing to pay bonuses based on the market value of the company stock rather than on the firm’s level of sales.
Increasing current profits when doing so lowers the value of the firm’s equity.
Refusing to lower selling prices if doing so will reduce the net profits.

Increasing current profits when doing so lowers the value of the firm’s equity.
A stakeholder is:

A person who owns shares of stock.
A creditor to whom a firm currently owes money.
Any person who has voting rights based on stock ownership of a corporation.
Any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.
A person who initially founded a firm and currently has management control over that firm.

Any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.
Which one of the following is a working capital management decision?

Determining the amount of equipment needed to complete a job.
Determining whether to pay cash for a purchase or use the credit offered by the supplier.
Determining the number of shares of stock to issue to fund an acquisition.
Determining the amount of long-term debt required to complete a project.
Determining whether or not a project should be accepted.

Determining whether to pay cash for a purchase or use the credit offered by the supplier.
A business created as a distinct legal entity and treated as a legal “person” is called a:

General partnership.
Unlimited liability company.
Corporation.
Sole proprietorship.
Limited partnership.

Corporation
The decision to issue additional shares of stock is an example of which one of the following?

Capital structure decision.
Controller’s duties.
Capital budgeting.
Net working capital decision.
Working capital management.

Capital structure decision
Which one of the following parties has ultimate control of a corporation?

Chairman of the board.
Shareholders.
Chief operating office.
Chief executive officer.
Board of directors.

Shareholders.
Decisions made by financial managers should primarily focus on increasing which one of the following?

Total sales.
Size of the firm.
Growth rate of the firm.
Market value per share of outstanding stock.
Gross profit per unit produced.

Market value per share of outstanding stock
Which type of business organization has all the respective rights and privileges of a legal person?

Sole proprietorship.
General partnership.
Corporation.
Limited liability company.
Limited partnership.

Corporation
Which one of the following best states the primary goal of financial management?

Maintain steady growth while increasing current profits.
Increase cash flow and avoid financial distress.
Minimize operational costs while maximizing firm efficiency.
Maximize current dividends per share.
Maximize the current value per share.

Maximize the current value per share.
Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?

Legal liability.
Articles of incorporation.
Corporate breakdown.
Agency problem.
Bylaws.

Agency problem.
Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?

Increase in the amount of the quarterly dividend.
Decrease in the per unit production costs.
Decrease in the net working capital.
Increase in the number of shares outstanding.
Increase in the market value per share.

Increase in the market value per share.
Which one of the following is defined as a firm’s short-term assets and its short-term liabilities?

Investment capital.
Working capital.
Debt.
Capital structure.
Net capital.

Working capital.
Which one of the following terms is defined as the mixture of a firm’s debt and equity financing?

Working capital management.
Cash management.
Capital budgeting.
Capital structure.
Cost analysis.

Capital structure.
Public offerings of debt and equity must be registered with which one of the following?

New York Board of Governors.
Market Dealers Exchange.
NYSE Registration Office.
Federal Reserve.
Securities and Exchange Commission.

Securities and Exchange Commission.
Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.

I. Compensation based on the value of the stock.
II. Stock option plans.
III. Threat of a company takeover.
IV. Threat of a proxy fight.
III and IV only.
I, II, and III only.
I, II, III, and IV.

I and II only.
I, III, and IV only.

I, II, III, and IV.
Which form of business structure is most associated with agency problems?

Limited partnership.
Sole proprietorship.
Limited liability company.
General partnership.
Corporation.

Corporation.
Which one of the following is a capital structure decision?

Determining which one of two projects to accept.
Determining the amount of funds needed to finance customer purchases of a new product.
Determining how much debt should be assumed to fund a project.
Determining how to allocate investment funds to multiple projects.
Determining how much inventory will be needed to support a project.

Determining how much debt should be assumed to fund a project.
Which one of the following is a capital budgeting decision?

Deciding whether or not to purchase a new machine for the production line.
Deciding how to refinance a debt issue that is maturing.
Determining how much money should be kept in the checking account.
Determining how many shares of stock to issue.
Determining how much inventory to keep on hand.

Deciding whether or not to purchase a new machine for the production line.
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.
III and IV only.
II, III, and IV only.
I and II only.
I, III, and IV only.
I, II, III, and IV.

I, III, and IV only.
Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

Involved a proxy.
Was a private placement.
Took place in the primary market.
Occurred in a dealer market.
Was facilitated in the secondary market.

Was facilitated in the secondary market.

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