Finance and Business Organization: Key Concepts and Structures

Nishaa has been promoted and is now in charge of planning and managing her firm's long-term investments. In other words, she is in charge of:

capital budgeting.

Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm's:

capital structure.

Raleigh BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as:

working capital management.

Vera opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Vera own if she is personally liable for all the store's debts?

Sole proprietorship

Deandre and Mason both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Deandre and Mason will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

General partnership

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

Agency

The shareholders of Qiang's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of:

an agency conflict.

When conducting a financial analysis of a firm, financial analysts:

frequently use accounting information.

If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?

Investments

Which one of the following functions is generally a responsibility assigned to the corporate treasurer?

Capital expenditures

Which one of the following functions should be assigned to the corporate treasurer rather than to the controller?

Cash management

Capital budgeting includes the evaluation of which of the following?

Size, timing, and risk of future cash flows

Which one of the following is a working capital decision?

How much cash should the firm keep in reserve?

Which one of the following is a capital structure decision?

Establishing the preferred debt-equity level

Working capital management includes which one of the following?

Determining which customers will be granted credit

The daily financial operations of a firm are primarily controlled by managing the:

working capital.

A sole proprietorship:

has its profits taxed as personal income.

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

Limited partnership

Which one of the following statements correctly applies to a sole proprietorship?

Obtaining additional equity is dependent on the owner's personal finances.

In a general partnership, each partner is personally liable for:

the total debts of the partnership, even if he or she was unaware of those debts.

Which one of the following is an advantage of being a limited partner?

Losses limited to capital invested

A corporation:

is a legal entity separate from its owners.

Which one of the following is contained in the corporate bylaws?

Procedures for electing corporate directors

One advantage of the corporate form of organization is the:

ability to raise larger sums of equity capital than other organizational forms.

Corporate shareholders:

have the ability to change the corporation's bylaws.

A limited liability company (LLC):

prefers its profits be taxed as personal income to its owners.

Limited liability companies are primarily designed to:

provide limited liability while avoiding double taxation.

The primary goal of financial management is to maximize:

the market value of existing stock.

The primary goal of financial management is most associated with increasing the:

market value of the firm.

The goal of financial management is to increase the:

current market value per share.

What is the primary goal of financial management for a sole proprietorship?

Maximize the market value of the equity

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?

Corporate accounting and financial fraud

The Sarbanes-Oxley Act of 2002 has:

essentially made officers of publicly traded firms personally responsible for the firm's financial statements.

Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?

Increase the protections against corporate fraud

Which one of the following situations is most apt to create an agency conflict?

Basing management bonuses on the length of employment

Which one of the following is most apt to align management's priorities with shareholders' interests?

Compensating managers with shares of stock that must be held for a minimum of three years

Probably the least effective means of aligning management goals with shareholder interests is:

automatically increasing management salaries on an annual basis.

Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n):

stakeholder.

One example of a primary market transaction would be the:

sale of 1,000 shares of newly issued stock by Alt Company to Miquel.

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the:

secondary market.

Which one of the following statements is correct?

All over-the-counter sales occur in dealer markets.

The issuer of a security must be involved in all __________ transactions involving that security.

primary market

Security dealers:

buy and sell from their own inventory.

An auction market:

has a physical trading floor.

A private placement is most apt to involve:

a life-insurance company.

Which one of the following statements is correct?

The primary purpose of the NYSE is to match buyers with sellers.

Which of the following is not a basic area of finance as described by the text?

Accounting

Which of the following statements regarding buy now, pay later (BNPL) is most accurate?

BNPL companies can work with retailers to fund purchases made by customers.

Which of the following is a list of records that are used to record transactions and, by design, is resistant to alteration and thus provides an accurate record of transactions?

Blockchain

What is the term for a new form of business organization that is for-profit, but has three additional legal attributes: accountability, transparency, and purpose?

B Corporation

Which one of the following is an intangible fixed asset?

Copyright

Production equipment is classified as:

a tangible fixed asset.

Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital:

had to decrease.

Shareholders' equity is best defined as:

the residual value of a firm.

Net working capital decreases when:

a dividend is paid to current shareholders.

A negative cash flow to stockholders indicates a firm:

received more from selling stock than it paid out to shareholders.

An increase in which one of the following will increase operating cash flow for a profitable, tax-paying firm?

Depreciation

Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend. The cash flow statement for last year must have which one of the following assuming that no new shares were issued?

Positive cash flow to stockholders

Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period?

Positive cash flow from assets

Cash flow to creditors increases when:

long-term debt is repaid.