Deck 1: The Financial Manager and the Company

Question 1

The demand for a potential business product, as well as the identification of what product or services is to be produced, are both contained in a business plan.

Answer 1

True

Question 2

Corporations do not have their income subject to double taxation.

Answer 2

False

Question 3

Capital assets are generally short term in nature.

Answer 3

False

Question 4

Unlimited liability means that the owner of a firm is responsible for paying all the firm's bills.

Question 5

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

Question 6

Privately held corporations are allowed to have shareholders.

Question 7

The local Republican Party is a stakeholder in a local firm that makes no political donations to either party.

Question 8

A sole proprietorship is an owner's only business.

Question 9

The process of transferring ownership of a sole proprietorship is relatively easy.

Question 10

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

Question 11

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

Question 12

General partners in a business have limited liability with regard to their firm's obligations.

Question 13

When bankruptcy occurs, the firm will always be liquidated.

Question 14

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

Question 15

Most large corporations are incorporated in New York because of its favorable tax treatment of corporate income and its statutes protecting the rights of its owners.

Question 16

The dollar difference between current assets and total liabilities is called working capital.

Question 17

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

Question 18

The financing decision determines how firms raise cash to pay for their investments.

Question 19

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

Question 20

The greatest number of businesses in the United States are corporations.

Question 21

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

Question 22

Which of the following are stakeholders?

A) a shareholder
B) a lender
C) the IRS
D) all of the above

Question 23

Capital budgeting decisions generally involve

A) the fixed 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 24

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) stock markets.
D) none of the above.

Question 25

A trademark is an example of

A) a productive asset.
B) an intangible asset.
C) a nebulous asset.
D) none of the above.

Question 26

The owners of a firm are unaffected by agency costs.

Question 27

Maximizing revenue should be the goal of the firm.

Question 28

The cash remaining after the firm has met its operating expenses, payments to creditors, and taxes is called

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

Question 29

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

Question 30

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 31

Capital budgeting involves

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

Question 32

Cash dividends are paid out of

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

Question 33

Working capital management decisions involve

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

Question 34

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

A) debt
B) equity
C) asset liquidations
D) a and b above

Question 35

A stakeholder is

A) anyone geographically close to the firm's headquarters.
B) anyone with a claim on the cash flows of the firm.
C) any governmental agency.
D) all of the above.

Question 36

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 37

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 38

A good capital budgeting decision is

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

Question 39

Corruption in business does not affect the functioning of the financial markets.

Question 40

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

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

Question 41

Which of the following organizational forms is subject to the most SEC regulations?

A) sole proprietorship
B) partnership
C) private corporation
D) public corporation

Question 42

Which organizational form accounts for 90 percent of the revenues of all firms in the United States?

A) sole proprietorship
B) partnership
C) corporation
D) a and b

Question 43

Which of the following is an appropriate goal for the firm?

A) profit maximization
B) revenue maximization
C) shareholder wealth maximization
D) tax minimization

Question 44

Which of the following is a principal within the agency relationship?

A) a company engineer
B) the CEO of the firm
C) a shareholder
D) the board of directors

Question 45

Which of the following owners is protected by limited liability?

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

Question 46

One reason for the existence of agency problems between managers and share holders is that

A) there is a separation of ownership and control of the firm.
B) managers know how to manage the firm better than shareholders.
C) shareholders have unreasonable expectations about managerial performance.
D) none of the above

Question 47

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 48

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

A) The audit committee approves hiring, firing and fees paid 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 49

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

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

Question 50

Which organizational form best enables a firm to sell its securities to the market?

A) sole proprietorship
B) partnership
C) private corporation
D) public corporation

Question 51

Which of the following reports directly to the owners of the firm (assume the firm is a public corporation)

A) CFO
B) CEO
C) board of directors
D) audit committee

Question 52

Which of the following business organizational forms subjects the owner(s) to unlimited liability?

A) sole proprietorship
B) partnership
C) corporation
D) a and b

Question 53

Which organizational form best enables the owners of the firm to monitor the actions of other owners of the same firm?

A) sole proprietorship
B) partnership
C) private corporation
D) public corporation

Question 54

Which of the following is responsible for seeing that the best possible financial analysis is presented?

A) CFO
B) CEO
C) board of directors
D) audit committee

Question 55

About 75 percent of all businesses in the United States are

A) sole proprietorships.
B) partnerships.
C) corporations.
D) limited liability partnerships.

Question 56

Which of the following business organizational forms is easiest to raise capital?

A) sole proprietorship
B) partnership
C) corporation
D) a and b

Question 57

Which of the following is considered a hybrid organizational form?

A) sole proprietorship
B) partnership
C) corporation
D) limited liability partnership

Question 58

Which of the following business organizational forms creates a tax liability on income at the personal income tax rate?

A) sole proprietorship
B) partnership
C) corporation
D) a and b

Question 59

Which of the following 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 60

Shareholders elect ______________ to represent their interest in the firm.

A) a chairman
B) CEO
C) a board of directors
D) all of the above

Question 61

Which of the following powers does the audit committee have the 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 62

With regard to information, a central idea of fairness suggests that

A) decisions should be made on an even playing field.
B) insiders should be able to trade whenever they want.
C) insiders should never be able to trade.
D) outsiders should not be allowed to trade since, by definition, they are at a disadvantage.

Question 63

Who or what is responsible for setting the agenda at meetings of the board of directors?

A) chairman of the board of directors
B) president
C) nominating committee
D) audit committee

Question 64

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

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

Question 65

If a firm establishes maximizing profits at the most important goal of the firm, which of the following would not be given proper consideration?

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

Question 66

Which of the following does maximizing shareholder wealth not usually account for?

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

Question 67

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

A) CEO
B) CFO
C) Chief Technology Officer
D) Chief Risk Officer

Question 68

_____________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 69

Which of the following is NOT one of the strategies incorporated in 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 70

Which of the following individuals is typically most responsible for managing a large corporation's financial function?

A) The CEO.
B) The Chairman of the board.
C) The CBO.
D) The CFO.

Question 71

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 72

An example of a direct agency cost is

A) a manager turning down a value-contributing project because of its risks.
B) a manager expensing a large 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 73

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

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

Question 74

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

A) management compensation
B) managerial labor markets
C) an independent board of directors
D) all of the above

Question 75

Executives that repeatedly put their own interests before that of the firm may find that they have difficulty 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 76

If a firm has had an agency problem that is reflected in 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 77

The golden rule is an example of

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

Question 78

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

A) morals.
B) ethics.
C) laws.
D) unwritten laws.

Question 79

What is the major complaint concerning the Sarbanes-Oxley Act of 2002 by firms?

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 80

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.