Question 1

Market value added can be written as: the market value of stock plus the market value of debt minus the book value of stock minus the book value of debt.

Accepted Answer

This formula correctly represents market value added (MVA). It takes into account the market values of both stock and debt, subtracted by their respective book values. MVA is a measure of how much value a company has created for its shareholders and creditors.

Question 2

The balance sheet equation or accounting identity can be written as: assets equal liabilities minus owners' equity.

Accepted Answer

The balance sheet equation or accounting identity can be written as: assets equal liabilities plus owners' equity.

Question 3

Computation of a firm's market value added (MVA) includes all of the components EXCEPT:

Accepted Answer

The answer of Computation of a firm's market value added...

Question 4

Two basic tools that can be used to reduce the consequences of managers making self-serving decisions include offering managers stock options and offering managers restricted stock.

Accepted Answer

Both stock options and restricted stock can align the interests of the manager with those of the shareholders, reducing the potential for self-serving decisions. Stock options give managers the opportunity to purchase company stock at a predetermined price, providing an incentive for the stock price to increase. Restricted stock gives managers actual shares of stock that cannot be sold for a set period of time, ensuring that their financial success is tied to the long-term performance of the company.

Question 5

Of the following forms of business organization, which have the advantage of limited liability but no stockholders?

Accepted Answer

Limited partnerships have the advantage of limited liability for the limited partners, meaning they are only liable for the amount of their investment in the partnership. However, there are no stockholders in a limited partnership as ownership is divided between general partners (who have unlimited liability) and limited partners.

Question 6

The actual disbursement of cash is recorded in which of the following financial statements?

Accepted Answer

The disbursement of cash is recorded in the statement of cash flows, which shows the cash inflows and outflows of a business during a given period of time. The income statement shows revenues and expenses, while the balance sheet shows assets, liabilities, and equity. The treasurer's report is an internal document used by the treasurer of a company to report on financial matters to management or the board of directors.

Question 7

Of the following forms of organization, which businesses are the greatest in numbers?

Accepted Answer

Proprietorships are the most common form of organization because they are the simplest to set up and require only one owner. As a result, there are more proprietorships than any other form of organization.

Question 8

The goal of the firm is the maximization of profits and market share.

Accepted Answer

The primary goal of a firm is the maximization of shareholder wealth, typically measured by the market value of the firm's shares. While profit maximization and increasing market share are important, they are means to the end of maximizing shareholder wealth, not ends in themselves.

Question 9

Market value added can be written as: the market value of stock minus the market value of debt plus the book value of stock minus the book value of debt.

Accepted Answer

Market value added is the difference between the market value of a company's assets and the market value of its liabilities, not the book value. Therefore, the formula should be: Market value of stock - Market value of debt.

Question 10

Which one of the following is not a basic function of financial management?

Accepted Answer

Acquiring other business firms is a strategic decision that may fall under financial management's scope but is not a basic function. The basic functions are financial planning and analysis, asset management, and raising of funds.

Question 11

The Sarbanes-Oxley Act of 2002 was passed by the U.S.Congress in response several political ethical scandals.

Accepted Answer

The Sarbanes-Oxley Act of 2002 was passed in response to major corporate and accounting scandals, such as those involving Enron and WorldCom, not political ethical scandals.

Question 12

Which of the following are considered to be major financial management functions?

Accepted Answer

All three options - financial planning and analysis, asset management, and raising funds - are considered to be major financial management functions. Financial planning and analysis involves setting financial goals, creating budgets, and analyzing financial data to make informed decisions. Asset management involves managing investments and making decisions about buying, selling, and holding assets. Raising funds involves identifying and acquiring sources of funding to support the organization's financial goals.

Question 13

The current liabilities of a business may include:

Accepted Answer

Notes payable are a common type of current liability, representing funds that a business owes to creditors or borrowing institutions. Accounts receivable, on the other hand, are an asset (not a liability) that represent funds that a business expects to receive from customers who have not yet paid their bills. Prepaid expenses also represent assets, and reflect payments made in advance for goods or services that will be received later. Depreciation reserves are not liabilities, but rather a form of accounting that allocates the cost of fixed assets over their useful life.

Question 14

The Sarbanes-Oxley Act of 2002 was passed by the U.S.Congress in response several accounting scandals.

Accepted Answer

The Sarbanes-Oxley Act of 2002 was passed in response to accounting scandals such as Enron and WorldCom.

Question 15

Agency costs are the tangible and intangible expenses borne by shareholders because of the actual or potential self-serving actions of managers; and agency costs can include explicit, out-of-pocket expenses.

Accepted Answer

This statement correctly defines the concept of agency costs and states that they can include explicit, out-of-pocket expenses.

Question 16

The balance sheet equation or accounting identity can be written as: assets equal liabilities plus owners' equity.

Accepted Answer

This is the fundamental equation of accounting and is true by definition.

Question 17

For a given accounting period, which of the following is likely to represent primarily variable costs?

Accepted Answer

Cost of goods sold is the cost directly associated with the production of goods or services, and typically includes variable costs such as materials, labor, and overhead. General and administrative expenses, depreciation expense, and interest expense are typically fixed costs that do not vary with the level of production.

Question 18

The most desirable form of business organization in terms of ease of start-up is a corporation.

Accepted Answer

The most desirable form of business organization in terms of ease of start-up is a sole proprietorship or partnership, not a corporation. Corporations require more legal and financial steps to start and maintain.

Question 19

Of the following forms of business organization, which have stockholders with limited liability?

Accepted Answer

Corporations issue stock which can be bought and sold, and stockholders have limited liability for the debts and actions of the corporation. Proprietorships and partnerships do not have stockholders and provide unlimited liability for their owners. Limited partnerships have a mix of general and limited partners, with only the limited partners having limited liability.

Question 20

Agency costs are the tangible and intangible revenues expenses borne by shareholders because of the actual or potential self-serving actions of managersgenerated by shareholders because of the actual or potential selfless actions of managers; and agency coststhey include only imexplicit , out-of-pocket (no cash is spent explicitly) expenses.

Accepted Answer

The statement is incorrect. Agency costs include both explicit (out-of-pocket) and implicit (not directly measurable) expenses incurred by shareholders due to the actions or potential actions of managers, whether self-serving or selfless.

Quiz 13: Business Organization and Financial Data

Market value added can be written as: the market value of stock plus the market value of debt minus the book value of stock minus the book value of debt.

The balance sheet equation or accounting identity can be written as: assets equal liabilities minus owners' equity.

Computation of a firm's market value added (MVA) includes all of the components EXCEPT:

Two basic tools that can be used to reduce the consequences of managers making self-serving decisions include offering managers stock options and offering managers restricted stock.

Of the following forms of business organization, which have the advantage of limited liability but no stockholders?

The actual disbursement of cash is recorded in which of the following financial statements?

Of the following forms of organization, which businesses are the greatest in numbers?

The goal of the firm is the maximization of profits and market share.

Market value added can be written as: the market value of stock minus the market value of debt plus the book value of stock minus the book value of debt.

Which one of the following is not a basic function of financial management?

The Sarbanes-Oxley Act of 2002 was passed by the U.S.Congress in response several political ethical scandals.

Which of the following are considered to be major financial management functions?

The current liabilities of a business may include:

The Sarbanes-Oxley Act of 2002 was passed by the U.S.Congress in response several accounting scandals.

Agency costs are the tangible and intangible expenses borne by shareholders because of the actual or potential self-serving actions of managers; and agency costs can include explicit, out-of-pocket expenses.

The balance sheet equation or accounting identity can be written as: assets equal liabilities plus owners' equity.

For a given accounting period, which of the following is likely to represent primarily variable costs?

The most desirable form of business organization in terms of ease of start-up is a corporation.

Of the following forms of business organization, which have stockholders with limited liability?