Deck 1: The Financial Manager and the Firm

Question 1

Unlimited liability means that the owner of a firm is responsible for paying all the bills of the firm in the event of a bankruptcy.

Answer 1

True

Question 2

Privately held corporations are allowed to have stockholders.

Answer 2

True

Question 3

The financial manager is responsible for making decisions that are in the best interests of the firm's owners.

Answer 3

True

Question 4

Net working capital is the dollar difference between a firm's total current assets and total liabilities.

Question 5

General partners in a business have limited liability with regard to money owed to creditors.

Question 6

The treasurer of a corporation usually reports to the CFO of the firm.

Question 7

The external auditors of the firm report their findings directly to the CFO of the firm.

Question 8

Maximizing revenue should be the goal of the firm.

Question 9

Investment decisions determine how firms raise cash to pay for their investments.

Question 10

Intangible assets generate most of a manufacturing firm's cash flows.

Question 11

Corporations hold the majority of all business assets and generate the majority of business revenues and profits in the United States.

Question 12

C-Corporations do not have their income subject to double taxation.

Question 13

A sole proprietorship is an owner's only business.

Question 14

A firm that goes bankrupt will always be liquidated

Question 15

Capital assets are generally short term in nature.

Question 16

Financing decisions determine how firms raise cash to pay for their investments.

Question 17

A good capital budgeting or investment decision is one in which the perceived benefits are worth more to the firm than the cost of the asset.

Question 18

The most fundamental way that a business can grow in size is the reinvestment of cash flows or earnings.

Question 19

The process of transferring ownership of a sole proprietorship is relatively easy compared to a public corporation.

Question 20

A patent is a productive asset for a technology-based firm.

Question 21

Capital budgeting decisions generally have the most effect on:

A) the asset portion of the balance sheet.
B) the short-term portion of the balance sheet.
C) the current liability portion of the balance sheet.
D) all of the above.

Question 22

Working capital management decisions help to determine:

A) how a firm's day-to-day financial matters should be managed.
B) how a firm should finance its assets.
C) which productive assets a firm should purchase.
D) all of the above.

Question 23

The capital budgeting decision process can be described as

A) how a firm's day-to-day financial matters should be managed.
B) how a firm should finance its assets.
C) which productive assets a firm should purchase.
D) all of the above.

Question 24

A stakeholder is:

A) someone geographically close to the firm's headquarters.
B) someone who has a claim on the cash flows of the firm.
C) some government agency.
D) all of the above.

Question 25

Financial markets in which equity and debt instruments with maturities less than one year are traded are called:

A) money markets.
B) capital markets.
C) Over the counter exchange.
D) none of the above.

Question 26

A trademark is an example of:

A) a liquid asset.
B) an intangible asset.
C) a contingent asset.
D) none of the above.

Question 27

If you have loaned capital to a firm, then you could be

A) a manager.
B) a stakeholder.
C) a partner.
D) all of the above.

Question 28

Current liabilities are liabilities that:

A) will be converted to cash within a year.
B) must be paid within a year.
C) will be converted to equity within a year.
D) none of the above.

Question 29

An agency conflict can arise when the agent of the firm is the sole owner of the firm.

Question 30

A good capital budgeting decision is:

A) one in which the perceived benefits of the project are equal to the cost of the asset.
B) one in which the perceived benefits of the project are less than the cost of the asset.
C) one in which the perceived benefits of the project are more than the cost of the asset.
D) all of the above.

Question 31

Which of the following is a stakeholder?

A) An employee
B) A lender
C) The IRS
D) All of the above

Question 32

To start a business, the owners need

A) a market where there is demand for their product.
B) a clear vision of what products or services they want to produce.
C) the know-how to successfully market their product.
D) all of the above.

Question 33

The profitability of a firm can be negatively affected by:

A) too much inventory.
B) too little inventory.
C) either A or B.
D) neither A nor B.

Question 34

The owners of a firm are unaffected by agency costs.

Question 35

The cash remaining with the firm after paying its operating expenses, making payments to creditors, and taxes is called:

A) earnings per share.
B) capital contributed in excess of par.
C) residual cash flow.
D) assets.

Question 36

Financial markets in which equity and debt instruments with maturities greater than one year are traded are called:

A) money markets.
B) capital markets.
C) Over the counter exchange.
D) none of the above.

Question 37

Which of the following is a basic source of funds for a firm?

A) Debt
B) Equity
C) Asset liquidations
D) Both A and B

Question 38

Fraudulent business practices do not affect the growth of the financial markets.

Question 39

Current assets are assets that:

A) will be converted to cash within a year.
B) must be paid within a year.
C) will be converted to equity within a year.
D) must be depreciated.

Question 40

Cash dividends are paid out of:

A) residual cash flows.
B) liquidated assets.
C) long-term debt.
D) all of the above.

Question 41

Among the following, who is typically responsible for managing a large corporation's financial function?

A) The CEO
B) The Chairman of the board
C) The Vice-President - Production
D) The CFO

Question 42

Which of the following is primarily responsible for managing all financial aspects of a firm?

A) CFO
B) CEO
C) Board of directors
D) Audit committee

Question 43

Which organizational form is best suited for a firm to sell its securities to the market?

A) Sole proprietorship
B) Partnership
C) Private corporation
D) Public corporation

Question 44

Which of the following type of owner is protected by limited liability?

A) A sole proprietor
B) A general partner
C) Owner of a corporation
D) None of the above

Question 45

Which of the following business organizational form(s) create(s) a tax liability on income at the personal income tax rate?

A) Sole proprietorship
B) Partnership
C) Corporation
D) Both A and B

Question 46

How is a CPA firm insulated from being pressured by management?

A) The audit committee approves hiring, firing, and paying fees to external auditors.
B) The chairman of the board approves the external auditor's fees as well as the engagement letter.
C) The IRS approves the external auditor's fees as well as the engagement letter.
D) The CPA firm is not insulated from management.

Question 47

Which organizational form best enables the owners of a firm to monitor the professional conduct of each other owners of the firm?

A) Sole proprietorship
B) Partnership
C) Private corporation
D) Public corporation

Question 48

Which of the following type of owner cannot be engaged in managing the business?

A) A sole proprietor
B) A general partner
C) A limited partner
D) None of the above

Question 49

Which of the following business organizational form(s) is/are the easiest one(s) to raise capital?

A) Sole proprietorship
B) Partnership
C) Corporation
D) Both A and B

Question 50

Which form of business organization generate(s) the majority of business revenues and profits in the United States?

A) Sole proprietorship
B) Partnership
C) Corporation
D) Both A and B

Question 51

From the owner's perspective, which of the following should be the goal of a firm? Which of the following is an appropriate goal for a firm?

A) Profit maximization
B) Revenue maximization
C) Stockholder's wealth maximization
D) Tax minimization

Question 52

Which of the following is considered a hybrid organizational form?

A) Sole proprietorship
B) Partnership
C) Corporation
D) Limited liability partnership

Question 53

Which of the following organizational forms is subject to the Securities and Exchange Commission (SEC) regulations?

A) Sole proprietorship
B) Partnership
C) Private corporation
D) Public corporation

Question 54

When analysts and investors determine the value of a firm's stock, they should consider:

A) the size of the expected cash flows associated with owning the stock.
B) the timing of the cash flows.
C) the riskiness of the cash flows.
D) all of the above.

Question 55

Which of the following usually does help a firm maximize shareholder's wealth? Which of the following helps in maximizing stockholder's wealth not usually account for?

A) Risk.
B) Government regulation.
C) The timing of cash flows.
D) Amount of cash flows.

Question 56

Which the following would not be considered by a firm that has a goal of maximizing stock price? If a firm establishes maximizing profits as the most important goal of the firm, which of the following would not be given proper consideration?

A) Sales revenues
B) Profits
C) Risk of bankruptcy
D) Cost of goods sold

Question 57

Which of the following factors or activities can be controlled by a firm's managers?

A) Capital budgeting
B) The level of economic activity
C) The level of market interest rates
D) Stock market conditions

Question 58

In a public corporation, which of the following reports directly to the owners of a firm?

A) CFO
B) CEO
C) Board of directors
D) Audit committee

Question 59

Which of the following business organizational form(s) subject(s) the owner(s) to unlimited liability?

A) Sole proprietorship
B) General partnership
C) Corporation
D) Both A and B

Question 60

Which of the following is responsible for performing an independent audit of a firm's financial statements?

A) CFO
B) CEO
C) CPA firm
D) Audit committee

Question 61

If a firm has had an agency conflict which is reflected by a poor performing stock for a long period of time, then the firm may become a target of _____

A) an SEC investigation.
B) a corporate raider.
C) an IRS investigation.
D) a bankruptcy lawyer.

Question 62

Which of the following is NOT one of the goals of the Sarbanes-Oxley Act of 2002?

A) Attain greater board independence
B) Establish compliance programs
C) Establish ethics programs
D) Dictate maximum compensation levels

Question 63

Which of the following mechanisms can help align the behavior of managers with the goals of stockholders?

A) Well-designed management compensation
B) Managerial labor market
C) An independent board of directors
D) All of the above

Question 64

One reason for the existence of agency problems between managers and stockholders is that:

A) Management is separate from and ownership.
B) managers know how to manage the firm better than stockholders.
C) stockholders have unreasonable expectations about managerial performance.
D) none of the above.

Question 65

Executives that repeatedly put their own interests before that of the firm may find that they have difficulty in finding another job after their current one. This is an example of

A) the managerial labor market disciplining managers.
B) the market for corporate control.
C) the board of directors affecting the prospects of a manager.
D) none of the above.

Question 66

What is the major complaint by firms about the Sabanes-Oxley Act of 2002?

A) The legislative maximum allowable compensation for a CEO.
B) The legal requirement to disclose project information.
C) The cost of compliance.
D) The cost of maintaining an SEC employed officer at the firm's premises.

Question 67

A society's ideas about what actions are right and wrong are termed as:

A) rules and policies.
B) ethics.
C) laws.
D) unwritten laws.

Question 68

The golden rule is an example of

A) a current law.
B) a civil law.
C) an unworkable rule in financial markets.
D) an ethical norm.

Question 69

Who among the following is responsible for setting an agenda at meetings of the board of directors?

A) Chairperson of the board of directors
B) President
C) Nominating committee
D) Manager

Question 70

Which of the following does the audit committee have unconditional authority to do?

A) Audit the personal bank account of the CEO
B) Question any person employed by the firm
C) Audit the compensation files of firms in the same industry
D) None of the above

Question 71

An example of an economy that had trouble in establishing a stock market and attracting foreign investment is

A) Russia.
B) China.
C) The Czech Republic.
D) Japan.

Question 72

Corruption in business

A) creates inefficiencies in an economy.
B) inhibits growth in an economy.
C) slows the rate of economic growth in a country.
D) all of the above

Question 73

An officer of a firm who is a majority owner in a competing firm will probably be subject to

A) an IRS audit.
B) a conflict of interest with his/her stockholders.
C) arbitrage profit returns to the SEC.
D) an FBI investigation.

Question 74

Which of the following is not an example of an agency cost?

A) a lavish dinner or trip.
B) a missed investment opportunity.
C) a cost that results from a conflict of interest between the agent and the principal.
D) the cost of a new piece of equipment.

Question 75

A director who is not an employee of the firm is called

A) an executive director.
B) an inside director.
C) an independent director.
D) an official director.

Question 76

_____ occur(s) when one party in a business transaction has information that is unavailable to the other parties in the transaction.

A) Profits
B) Information asymmetry
C) Information efficiency
D) None of the above

Question 77

_____ has (have) a legal responsibility to represent stockholders' interests.

A) A chairman
B) A CEO
C) A corporation's board of directors
D) all of the above

Question 78

An example of an agency cost is:

A) a manager turning down a value-contributing project because of its risks.
B) a manager expensing a lavish dinner on the company expense report.
C) a manager using too little debt within the firm's capital structure because of the additional risk associated with debt.
D) all of the above.

Question 79

Which corporate officer, when he or she is guilty of serious misconduct, can subject the firm to the heavy losses in financial wealth?

A) Marketing Manager
B) CFO
C) Chief Technology Officer
D) Chief Risk Officer

Question 80

What is one of the actions that is not an objective of the Sarbanes-Oxley Act of 2002?

A) reducing agency costs in corporations.
B) restoring ethical conduct within the business sector.
C) improving the integrity of accounting reporting system within firms.
D) insuring that an IRS employee is present at the firm's headquarters.