CH1 finance

The corporate officer generally responsible for tasks related to tax management, cost accounting,
financial accounting, and data processing is the:

Corporate Controller.

The corporate officer generally responsible for tasks related to cash and credit management, financial
planning, and capital expenditures is the:

Corporate Treasurer.

The process of planning and managing a firm’s Long-term investments is called:

Capital budgeting.

The mixture of debt and equity used by the firm to finance its operations is called:

Capital structure.

The management of the firm’s short-term assets and liabilities is called:

Working capital management

A business owned by a single individual is called a(n):

Sole proprietorship.

A business formed by two or more individuals or entities is called a(n):

Partnership.

The division of profits and losses between the members of a partnership is formalized in the:

Partnership agreement.

A business created as a distinct legal entity composed of one or more individuals or entities is called
a(n):

Corporation.

The document that legally establishes domicile for a corporation is called the:

Articles of incorporation.

The rules by which corporations govern themselves are called:

Bylaws.

The primary goal of financial management is to:

Maximize the current value per share of the existing stock.

The possibility of conflict of interest between the stockholders and management of the firm is
called:

The agency problem.

Agency costs are:

The costs of the conflict of interest between stockholders and management.

A stakeholder is:

A person or entity including a stockholder or creditor, who potentially has a claim on the cash flows of the firm.

The original sale of securities by governments and corporations occurs in the:

Primary market.

The purchase and sale of securities after the original issuance occurs in the:

Secondary market.

A market where dealers buy and sell securities for themselves, at their own risk, is called a(n):

Dealer market.

A market where trading takes place between buyers and sellers directly is called a(n):

Auction market.

The secondary market is:

The market in which securities are bought and sold after original sale.

The Chief Financial Officer of a corporation is the:

Vice President of Finance.

Deciding whether or not to open a new store is part of the process known as:

Capital budgeting.

Capital structure refers to:

The mixture of debt and equity

Working capital management refers to:

The levels of cash and inventory held.

A business that is a distinct legal entity is a:

Corporation.

The primary goal of financial management is to maximize the:

Current value of each share of outstanding stock.

A proxy fight is:

A method used by stockholders to replace corporate management.

Suppliers, customers, and employees of a corporation are called:

Stakeholders.

A proprietorship is:

A business owned by an individual who has unlimited personal liability.

Conflicts that arise between the interests of managers and stockholders are referred to as:

Agency problems.

The primary market includes:

The sale of new securities by a corporation on an exchange.

Stocks that trade on an exchange are referred to as:

Listed stocks.

An individual who buys and sells stocks for his/her own account is a:

Dealer.

Tasks related to tax management, cost accounting, financial accounting, and data processing are the
responsibility of which corporate officer?

The Corporate Controller.

The controller can be defined as the person who is generally responsible for overseeing the _____ of a
firm.

Accounting functions

The treasurer can be defined as the person who is generally responsible for overseeing the _____ of a
firm.

Financial planning

Capital budgeting is defined as the:

Management of a firm’s long-term investments.

A firm’s capital structure is defined:

As the combination of debt and equity used to finance the firm’s operations

Working capital management refers specifically to:

The oversight of a firm’s current accounts

A sole proprietorship is best defined as a business owned by:

A single individual who has unlimited liability for the firm’s debts.

A general partnership is best defined as a business owned by:

One or more individuals who are each totally responsible for the debts of the entity

An entity wherein one or more owners may elect to actively manage the firm while other owners
choose limited liability instead of management responsibility is called a:

Limited partnership.

Bylaws are:

The rules by which corporations govern themselves.

The agency problem is best defined as a conflict of interest between a firm’s:

Stockholders and the firm’s managers.

The primary goal of financial management is defined as the:

Maximization of the current value per share of the outstanding stock.

An agency problem is said to exist when there is a conflict of interest between _____ and _____.

A principal; his or her agent

The primary market is defined as the market

Wherein the original sale of securities by the issuer to the general public occurs.

The secondary market is the market wherein:

Shareholders buy from and sell to other shareholders.

A dealer is a person who:

Buys and sells for themselves, at their own risk.

The person generally directly responsible for overseeing the tax management, cost accounting,
financial accounting, and data processing functions is the:

Controller.

The person generally directly responsible for overseeing the cash and credit functions, financial
planning, and capital expenditures is the:

Treasurer.

The process of planning and managing a firm’s long-term investments is called:

Capital budgeting

The mixture of debt and equity used by a firm to finance its operations is called:

Capital structure

The management of a firm’s short-term assets and liabilities is called:

Working capital management.

Which one of the following correctly defines the chain of command in a typical corporate
organizational structure?

The chief executive officer reports to the board of directors.

A business formed by two or more individuals who each have unlimited liability for business debts is
called a

General partnership

The division of profits and losses among the members of a partnership is formalized in the:

Partnership agreement.

A business created as a distinct legal entity composed of one or more individuals or entities is called
a:

Corporation.

The corporate document that sets forth the business purpose of a firm is the:

Articles of incorporation

Capital structure decisions include which of the following?

Determining the number of shares of stock to issue

The decision to issue debt rather than additional shares of stock is an example of:

The capital structure decision

A conflict of interest between the stockholders and management of a firm is called:

The agency problem

A stakeholder is:

Any person or entity who potentially has a claim on the cash flows of the firm.

The original sale of securities by governments and corporations to the general public occurs in
the:

Primary market.

When one shareholder sells stock directly to another the transaction is said to occur in the:

Secondary market.

A market where dealers buy and sell securities for themselves, at their own risk, is called a(n):

Dealer market.

A market where trading takes place directly between buyers and sellers is called a(n):

Auction market

This of the following is an answer to "What are the duties of a financial manager?"
I. Deciding how much interest to pay the holders of the corporation’s bonds.
II. Deciding the mix of long-term debt and equity.
III. Deciding which projects a firm should undertake.
IV. Deciding how much short-term debt to use.

II, III, and IV only

A financial manager is responsible for deciding whether or not new manufacturing equipment should
be purchased to replace existing equipment. The new equipment would reduce labour expenses and
would allow the firm to reduce its investment in inventory. Which of the financial management areas
would be involved in the decision process?
I. Capital budgeting.
II. Capital structure management.
III. Working capital management.

I and III only

According to the statement of financial position model of the firm, corporate finance may be thought
of as the analysis of three primary subject areas. Which of the following correctly lists these areas?

Capital budgeting, capital structure, net working capital.

Which of the following is NOT considered one of the basic questions of corporate finance?

At what rate of interest should a firm borrow?

In the evaluation of cash flow in a capital budgeting decision, which of the following must be
considered?
I. The size of the cash flow.
II. The timing of the cash flow.
III. The risk of the cash flow.

I, II, III

Which of the following combinations of attributes would make a capital expenditure project desirable
to a financial manager?
I. The project is worth more to the firm than the cost to acquire it.
II. The value of the cash flow generated by the project exceeds the project’s cost.
III. The project’s cash flows have acceptable levels of risk and size, but not timing.

I and II only

The term capital structure describes:

The mixture of debt and equity a firm uses to finance its operations.

A financial manager is responsible for determining the firm’s appropriate level of inventory. Which of
the financial management areas addresses this decision?
I. Capital budgeting.
II. Capital structure management.
III. Working capital management.

III only

Which of the following statements is/are false concerning partnerships?
I. Limited partners are responsible for all debts of the partnership.
II. Limited partners generally do not manage the partnership.
III. In a limited partnership, all partners share equally in the gains or losses.

I only

Which of the following is an advantage of ownership of a corporation compared to that of a sole
proprietorship?

The corporation has an unlimited life.

Which of the following is a true statement concerning corporations?

The life of the corporation is unlimited.

Sue Folker wants to start a new business decommissioning nuclear warheads and reactors. The work
will involve significant hazards, and Sue is concerned about protecting her personal wealth from any
losses the business might incur. If she is to be the majority owner of the business how should she
structure it?

As a corporation

Limited liability may be a characteristic of each of the following form(s) of organization EXCEPT a
________________.

Sole proprietorship

Which of the following is a true statement concerning a general partnership?
I. Partners are not responsible for the debts of the partnership.
II. Partners generally do not manage the partnership.
III. The income of a partnership is taxed at the partners’ income tax rate.

III only