1. Introduction to Corporate Finance

Question 1

A business created as a "distinct legal entity" is called a
A. sole proprietorship.
B. corporation.
C. general partnership.
D. limited partnership.
E. unlimited liability company.

Answer 1

corporation

Question 2

The process of "planning and managing a firm's long-term assets" is called
A. financial depreciation.
B. working capital management.
C. capital budgeting.
D. capital structure.
E. agency cost analysis.

Answer 2

capital budgeting

Question 3

Which one of these is a correct definition?
A. Current liabilities are debts that must be repaid in 18 months or less.
B. Net working capital equals current assets plus current liabilities.
C. Long-term debt is defined as a residual (còn dư) claim on a firm’s assets.
D. Tangible assets are fixed assets such as patents (bằng sáng chế).
E. Current assets are assets with short lives, such as
inventory.

Answer 3

Current assets are assets with short lives, such as
inventory.
A. -> “12 months”
B. -> NWC = CA - CL
D. -> fixed assets -> tangible and intangible (patents)

Question 4

Which one of these best fits the description of an agency cost?
A. increasing the dividend payments per share
B. the payment of corporate income taxes
C. the payment required for an outside audit of the firm
D. the payment of interest on a firm’s debts
E. the benefits received from reducing production costs per unit

Answer 4

the payment required for an outside audit of the firm

Question 5

A conflict of interest between the stockholders and management of a firm is referred to as the:
A. stockholders' liability.
B. corporate breakdown.
C. agency problem.
D. legal liability.
E. corporate activism.

Answer 5

agency problem

Question 6

The primary goal of financial management is to:
A. minimize operational costs and maximize firm efficiency.
B. maximize the current value per share of the existing stock.
C. maintain steady growth in both sales and net earnings.
D. avoid financial distress.
E. maximize current dividends per share of the existing stock.

Answer 6

maximize the current value per share of the existing stock

Question 7

The ultimate control of a corporation lies in the hands of the corporate:
A. stockholders.
B. president.
C. board of directors.
D. chief executive officer.
E. chairman of the board.

Answer 7

stockholders

Question 8

A firm’s capital structure refers to the firm’s:
A. combination of accounts appearing on the left side of its balance sheet.
B. mixture of various types of production equipment.
C. combination of cash and cash equivalents.
D. proportions of financing from current and long-term debt and equity.
E. investment selections for its excess cash reserves.

Answer 8

proportions of financing from current and long-term debt and equity

Question 9

For a firm to create value it must:
A. create more cash flow than it uses.
B. have a greater cash inflow from its stockholders than its outflow to them.
C. avoid the issuance of debt securities.
D. reduce its investment in fixed assets since fixed assets require the use of cash.
E. avoid payments to the government so dividends can be increased.

Answer 9

create more cash flow than it uses

Question 10

Financial managers primarily create firm value by:
A. increasing the firm’s market share.
B. lowering the earnings per share.
C. maximizing current dividends.
D. maximizing current sales.
E. investing in assets that generate cash in excess of their cost.

Answer 10

investing in assets that generate cash in excess of their cost