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Finance 3715 Chapter 1

Which one of the following terms is defined as the management of a
firm’s long-term investments?
capital budgeting
Which one of the following terms is defined as the mixture of a firm’s
debt and equity financing?
capital structure
Which one of the following is defined as a firm’s short-term assets and
its short-term liabilities?
working capital
A business owned by a solitary individual who has unlimited liability for
its debt is called a:
sole proprietorship
A business formed by two or more individuals who each have unlimited
liability for all of the firm’s business debts is called a:
general partnership
A business partner whose potential financial loss in the partnership will
not exceed his or her investment in that partnership is called a:
limited partner
A business created as a distinct legal entity and treated as a legal
“person” is called a:
corporation
Which one of the following terms is defined as a conflict of interest
between the corporate shareholders and the corporate managers?
agency problem
A stakeholder is:
any person or entity other than a stockholder or creditor who
potentially has a claim on the cash flows of a firm.
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?

II, III, and IV only
Which one of the following functions should be the responsibility of the
controller rather than the treasurer?
income tax returns
The controller of a corporation generally reports directly to the:
vice president of finance
Which one of the following correctly defines the upward chain of
command in a typical corporate organizational structure?
the treasurer reports to the vice president of finance
Which one of the following is a capital budgeting decision?
deciding whether or not to purchase a new machine for the
production line
Which of the following should a financial manager consider when
analyzing a capital budgeting project?

I. project start up costs
II. timing of all projected cash flows
III. dependability of future cash flows
IV. dollar amount of each projected cash flow

I, II, III, and IV
Which one of the following is a capital structure decision?
determining how much debt should be assumed to fund a
project
The decision to issue additional shares of stock is an example of which
one of the following?
capital structure decision
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 is a working capital management decision?
determining whether to pay cash for a purchase or use the
credit offered by the supplier

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