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finance connect chapter 1

Tim has been promoted and is now in charge of all fixed asset purchases. In other words, Tim is in charge of:
capital budgeting.
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:
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:
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?
Sole proprietorship
Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the profits or losses. Which type of business did they create if they both have full personal liability for the firm’s debts?
general partnership
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?
corporation
The potential conflict of interest between a firm’s owners and its managers is referred to as which type of conflict?
agency
The federal government has a tax claim on the cash flows of The Window Store. This claim is defined as a claim by one of the firm’s:
stakeholders
Jamie is employed as a commercial loan officer for a regional bank centered in the midwestern section of the U.S. Her job falls into which one of the following areas of finance?
financial institutions
Which one of the following occupations best fits into the international area of finance?
currency trader
Which 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

I, II, III, and IV
Which one of the following functions should be assigned to the treasurer rather than the controller?
Cash management
Which one of the following correctly defines a common chain of command within a corporation?
The controller reports directly to the chief financial officer.
Capital budgeting includes the evaluation of which of the following?
Size, timing, and risk of future cash flows
Which one of the following is a working capital decision?
How much cash should the firm keep in reserve?
Working capital management includes which one of the following?
Determining which customers will be granted credit
A sole proprietorship:
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?
Limited partnership
Which one of the following statements correctly applies to a sole proprietorship?
Obtaining additional equity is dependent on the owner’s personal finances
Which one of the following applies to a general partnership?
Any one of the partners can be held solely liable for all of the partnership’s debt
In a general partnership, each partner is personally liable for:
the total debts of the partnership, even if he or she was unaware of those debts
Which one of the following is an advantage of being a limited partner?
Losses limited to capital invested
Which one of the following statements about a limited partnership is correct?
There must be at least one general partner.
A corporation:
is a legal entity separate from its owners.
Which of the following are advantages of the corporate form of organization?

I. Ability to raise large sums of equity capital
II. Ease of ownership transfer
III. Profits taxed at the corporate level
IV. Limited liability for all owners

I, II, and IV only
The primary goal of financial management is to maximize which one of the following for a corporation?
Market value of existing stock
Which one of the following best matches the primary goal of financial management?
Increasing the market value of the firm
The goal of financial management is to increase the:
current market value per share.
What is the goal of financial management for a sole proprietorship?
Maximize the market value of the equity
he Sarbanes-Oxley Act in 2002 was prompted by which one of the following from the 1990s?
Corporate accounting and financial fraud
The Sarbanes-Oxley Act of 2002 has:
made officers of publicly traded firms personally responsible for the firm’s financial statements.
Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?
Increase protection against corporate fraud
The Sarbanes-Oxley Act
makes the officers of a public corporation personally responsible for the firm’s financial statements.
Which one of the following situations is most apt to create an agency conflict?
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?
Separating management from ownership
Which one of the following is most apt to align management’s priorities with shareholders’ interests?
Compensating managers with shares of stock that must be held for three years before the shares can be sold
Which of the following are effective means of aligning management goals with shareholder interests?

I. Employee stock options
II. Threat of a takeover
III. Management bonuses tied to performance goals
IV. Threat of a proxy fight

I, II, III, and IV
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):
stakeholder.
Which one of the following transactions occurred in the primary market?
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?
Secondary market
Which one of the following statements is correct?
All stock trades between existing shareholders are secondary market transactions.
Ted currently owns 100 shares of a publicly traded stock that he would like to sell. Which one of the following provides the most efficient means for Ted to sell his shares?
Secondary market transaction
Which one of the following parties can sell shares of ABC stock in the primary market?
ABC company

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