Deck 10: Finance Within the Firm

Question 1

Name the three general areas in which financial decisions arise.

Answer 1

Capital budgeting, working capital management and capital structure.

Question 2

Why is finance a strategic discipline?

Answer 2

Because finance determines the value of the different strategic options from which the firm's management must decide.

Question 3

Define the intrinsic value of the firm's stock.

Answer 3

The intrinsic value is the true value, based on all available information. This includes information known only by the firm's managers (i.e., insider information) and includes any impacts the decisions have on any and all of the firm's stakeholders: customers, suppliers, employees, the community and the firm's investors.

Question 4

What is the main point of the Enron example used in this chapter?

Question 5

Why is finance important to a business?

Question 6

Which of the following is a working capital management decision:

A) How many shares of stock to issue.
B) Whether or not to purchase a new machine for the production line.
C) How much of a common dividend to pay.
D) How much inventory to keep on hand.
E) Whether or not to offer a discounted price to boost sales.

Question 7

Which of the following is a capital structure decision:

A) How many shares of stock to issue.
B) Whether or not to purchase a new machine for the production line.
C) How much of a common dividend to pay.
D) How much inventory to keep on hand.
E) Whether or not to offer a discounted price to boost sales.

Question 8

A business owned by two or more individuals, all having equal liability in the firm's debt, is called a:

A) Corporation.
B) S Corporation.
C) General partnership.
D) Limited partnership.
E) Sole proprietorship.

Question 9

A business owned by two or more individuals, with some owners having different amounts of liability in the firm's debt, is called a:

A) Corporation.
B) S Corporation.
C) General partnership.
D) Limited partnership.
E) Sole proprietorship.

Question 10

Which of the following statements is correct?

A) A limited partnership is legally the same as a corporation.
B) Partnerships are the most complex type of organization to form.
C) Earnings from sole proprietorships and partnerships are taxed at the individual level.
D) Only sole proprietorships have limited lives.
E) Limited partnerships are required to restate the liability to each partner annually when they file their financial reports with the SEC.