Quiz 1

A business owned by a solitary individual who has unlimited liability for its debt is called a:
rev: 09_05_2012
corporation.
sole proprietorship.
general partnership.
limited partnership.
limited liability company.
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
A stakeholder is:
a person who owns shares of stock.
any person who has voting rights based on stock ownership of a corporation.
a person who initially founded a firm and currently has management control over that firm.
a creditor to whom a firm currently owes money.
any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.
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?
I and IV only
II and III only
I, II, and III only
II, III, and IV only
I, II, III, and IV
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
Which of the following accounts are included in working capital management?
I. accounts payable
II. accounts receivable
III. fixed assets
IV. inventory
I and II only
I and III only
II and IV only
I, II, and IV only
II, III, and IV only
Which one of the following is a working capital management decision?
determining the amount of equipment needed to complete a job
determining whether to pay cash for a purchase or use the credit offered by the supplier
determining the amount of long-term debt required to complete a project
determining the number of shares of stock to issue to fund an acquisition
determining whether or not a project should be accepted
Which one of the following business types is best suited to raising large amounts of capital?
sole proprietorship
limited liability company
corporation
general partnership
limited partnership
Which one of the following best states the primary goal of financial management?
maximize current dividends per share
maximize the current value per share
increase cash flow and avoid financial distress
minimize operational costs while maximizing firm efficiency

maintain steady growth while increasing current profits
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.
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
Which form of business structure is most associated with agency problems?
sole proprietorship
general partnership
limited partnership
corporation
limited liability company
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
Why should financial managers strive to maximize the current value per share of the existing stock?
doing so guarantees the company will grow in size at the maximum possible rate
doing so increases employee salaries
because they have been hired to represent the interests of the current shareholders
because this will increase the current dividends per share
because managers often receive shares of stock as part of their compensation
Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:
took place in the primary market.
occurred in a dealer market.
was facilitated in the secondary market.
involved a proxy.
was a private placement

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A business owned by a solitary individual who has unlimited liability for its debt is called a:

determining how to allocate investment funds to multiple projects

minimize operational costs while maximizing firm efficiency

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