Chapter 1, 2, 3, 4 Flashcards
Which one of the following is a capital budgeting decision?
Deciding whether or not to open a new store
Determining how much inventory to keep on hand
Determining how much debt should be borrowed from a particular lender
Deciding if stock shares should be repurchased
Determining how much cash to keep on hand
Deciding whether or not to open a new store
Which position is generally directly responsible for financial planning and capital expenditures?
Treasurer
A business entity formed by two or more individuals who each have unlimited liability for business debts is called a:
general partnership.
Which one of the following statements is correct concerning corporations?
The shareholders of a corporation select the top managers of that corporation.
A corporation is a distinct legal entity.
The stockholders are usually the managers of a corporation.
The ability of a corporation to raise capital is quite limited.
The income of a corporation is taxed as personal income of the stockholders.
A corporation is a distinct legal entity.
_____ refers to the difference between a firm’s current assets and its current liabilities.
Net working capital
When you are making a financial decision, the most relevant tax rate is the _____ rate.
marginal
Which one of these measures a firm's long-run ability to meet its obligations? Cash ratio Total asset turnover Quick ratio Return on equity Equity multiplier
Equity multiplier
Ratios that measure how efficiently a firm uses its assets to generate sales are known as _____ ratios.
utilization
Which of the following will increase the effective annual rate (EAR) of a loan?
Decreasing the frequency of the interest rate compounding
Applying only simple interest
Decreasing the annual percentage rate (APR)
Increasing either the annual percentage rate (APR) or the compounding frequency
Changing from continuous compounding to daily compounding of interest
Increasing either the annual percentage rate (APR) or the compounding frequency
A perpetuity differs from an annuity because:
perpetuity payments never cease.
Agency costs refer to:
the costs of any conflicts of interest between stockholders and management.
The decisions made by financial managers should all be ones which increase the:
market value of the existing owners’ equity.
Capital structure refers to:
decisions related to long-term debt and equity financing.
Net working capital is best defined as:
current assets minus current liabilities.
Which type of business is the easiest to form?
Sole proprietorship
The process of planning and managing a firm’s long-term investments is referred to as:
capital budgeting.
A business entity formed by two or more individuals who each have unlimited liability for business debts is called a:
general partnership.
Which form(s) of business is a treated as a distinct legal entity separate from its owners?
Corporation
In a limited partnership:
each limited partner’s liability is limited to the amount he/she invested.
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 issuance of new equity shares is a cash flow from:
the financial markets to a firm.
Which one of these terms refers to a conflict of interest between the stockholders and managers of a corporation?
Agency problem
A stakeholder is best described as:
any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.
The primary purpose of the Sarbanes Oxley Act of 2002 was to:
protect investors from corporate abuses.
Which of the following help convince managers to work in the best interest of the stockholders?
I. Compensation based on the value of the stock
II. Stock option plans
III. Threat of a proxy fight
IV. Threat of conversion to a partnership
I, II, and III only
A proxy fight occurs when:
a group solicits votes to replace the board of directors.
Which one of the following parties is considered a stakeholder of a firm?
Employee
Insider trading is:
illegal.
Which one of the following is least apt to encourage managers to act in the best interest of shareholders?
Compensating managers with fixed salaries
The Securities Act of 1933 focuses on:
the issuance of new securities.
The basic regulatory framework for public trading of securities within the United States is provided by:
the Securities Act of 1933 and the Securities Exchange Act of 1934.
