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Financial Management Chapter 1

Which of the following represent cash outflows from a corporation?

I. Issuance of securities.
II. Payment of dividends.
III. New loan proceeds.
IV. Payment of government taxes.

II (Payment of Dividends)
IV (Payment of government
Which of the following are cash flows from a corporation into the financial markets?

I. Repayment of long-term debt.
II. Payment of government taxes.
III. Payment of loan interest.
IV. Payment of quarterly dividend.

I (Repayment of long-term debt
III (Payment of loan interest)
IV (Payment of quarterly dividend)
Which one of these is a working capital management decision?

-Determining the best method of producing a product.
-Determining the number of employees needed to work during a particular shift.
-Determining when to replace obsolete equipment.
-Determining if a competitor should be acquired.
-Determining the minimum level of cash to be kept in a checking account.

Determining the minimum level of cash to be kept in a checking account.
The growth of both sole proprietorships and partnerships is frequently limited by their:
-Double taxation.
-Bylaws.
-Inability to raise cash.
-Limited liability.
-Organizational articles.
Inability to raise cash
Which one of the following terms is defined as the management of a firm’s long-term investments?
-Working capital management.
-Financial allocation.
-Agency cost analysis.
-Capital budgeting.
-Capital structure.
Capital Budgeting
A business owned by a solitary individual who has unlimited liability for its debt is called a:
-Corporation.
-Sole proprietorship.
-General partnership.
-Limited partnership.
-Limited liability company.
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:
-Corporation.
-Sole proprietorship.
-General partnership.
-Limited partnership.
-Limited liability company.
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:
-General partner.
-Sole proprietor.
-Limited partner.
-Corporate shareholder.
-Zero partner.
Limited partner
A business created as a distinct legal entity and treated as a legal “person” is called a:
-Corporation.
-Sole proprietorship.
-General partnership.
-Limited partnership.
-Unlimited liability company.
Corporation
Which one of the following terms is defined as the mixture of a firm’s debt and equity financing?
-Working capital management.
-Cash management.
-Cost analysis.
-Capital budgeting.
-Capital structure.
Capital Structure
Which one of the following is defined as a firm’s short-term assets and its short-term liabilities?
-Working capital.
-Debt.
-Investment capital.
-Net capital.
-Capital structure.
Working capital
Which one of the following is a primary market transaction?
-Sale of currently outstanding stock by a dealer to an individual investor.
-Sale of a new share of stock to an individual investor.
-Stock ownership transfer from one shareholder to another shareholder.
-Gift of stock from one shareholder to another shareholder.
-Gift of stock by a shareholder to a family member.
Sale of a new share of stock to an individual investor.
Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
-Articles of incorporation.
-Corporate breakdown.
-Agency problem.
-Bylaws.
-Legal liability.
Agency Problems
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 (Should customers be given 30 or 45 days to pay for their credit purchase)
III (Should the firm borrow more money?)
IV (Should the firm acquire new equipment?)
Which one of the following is a capital budgeting decision?
-Determining how many shares of stock to issue.
-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 inventory to keep on hand.
-Determining how much money should be kept in the checking account.
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. 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.
Which one of the following is a capital structure decision?
-Determining which one of two projects to accept.
-Determining how to allocate investment funds to multiple projects.
-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 much inventory will be needed to support a project.
Determining how much debt should be assumed to fund a project.
Which of the following accounts are included in working capital management?

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

I. Accounts Payable
II. Accounts Receivable
IV. Inventory
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.
-Increase in the number of shares outstanding.
-Decrease in the net working capital.
-Increase in the market value per share.
Increase in the market value per share.
The Sarbanes-Oxley Act of 2002 is a governmental response to:
-Decreasing corporate profits.
-The terrorists attacks on 9/11/2001.
-A weakening economy.
-Deregulation of the stock exchanges.
-Management greed and abuses.
Management greed and abuses.
A firm which opts to “go dark” in response to the Sarbanes-Oxley Act:
-Must continue to provide audited financial statements to the public.
-Must continue to provide a detailed list of internal control deficiencies on an annual basis.
-Can provide less information to its shareholders than it did prior to “going dark”.
-Can continue publicly trading its stock but only on the exchange on which it was previously listed.
-Ceases to exist.
Can provide less information to its shareholders than it did prior to “going dark”.
Which one of the following actions by a financial manager is most apt to create an agency problem?
-Refusing to borrow money when doing so will create losses for the firm.
-Refusing to lower selling prices if doing so will reduce the net profits.
-Refusing to expand the company if doing so will lower the value of the equity.
-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.
Increasing current profits when doing so lowers the value of the firm’s equity.
Which one of the following is an agency cost?
-Accepting an investment opportunity that will add value to the firm.
-Increasing the quarterly dividend.
-Investing in a new project that creates firm value.
-Hiring outside accountants to audit the company’s financial statements.
-Closing a division of the firm that is operating at a loss.
Hiring outside accountants to audit the company’s financial statements.
Which of the following parties are considered stakeholders of a firm?

I. Employee
II. Long-term creditor
III. Government
IV. Common stockholder

I. Employee
III. Government
Which one of the following statements is generally correct?
-Private placements must be registered with the SEC.
-All secondary markets are auction markets.
-Dealer markets have a physical trading floor.
-Auction markets match buy and sell orders.
-Dealers arrange trades but never own the securities traded.
Auction markets match buy and sell orders

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