Ch01
Student: ___________________________________________________________________________
1. The person generally directly responsible for overseeing the tax management, cost accounting, financial
accounting, and data processing functions is the:
A. Treasurer.
B. Director.
C. Financial director.
D. Chairman of the board.
E. Chief executive officer.
2. The process of planning and managing a firm's long-term investments is called:
A. Working capital management.
B. Financial depreciation.
C. Agency cost analysis.
D. Capital budgeting.
E. Capital structure.
3. The mixture of debt and equity used by a firm to finance its operations is called:
A. Working capital management.
B. Financial depreciation.
C. Cost analysis.
D. Capital budgeting.
E. Capital structure.
4. The management of a firm's short-term assets and liabilities is called:
A. Working capital management.
B. Debt management.
C. Equity management.
D. Capital budgeting.
E. Capital structure.
5. A business owned by a single individual who has unlimited liability for its debt is called a:
A. Corporation.
B. Sole proprietorship.
C. General partnership.
D. Limited partnership.
E. Limited liability company.
6. A business formed by two or more individuals who each have unlimited liability for business debts is
called a:
A. Corporation.
B. Sole proprietorship.
C. General partnership.
D. Limited partnership.
E. Limited liability company.
7. The division of profits and losses among the members of a partnership is formalized in the:
A. Indemnity clause.
B. Indenture contract.
C. Statement of purpose.
D. Partnership agreement.
E. Group charter.
,8. A business created as a distinct legal entity composed of one or more individuals or entities is called
a:
A. Corporation.
B. Sole proprietorship.
C. General partnership.
D. Limited partnership.
E. Unlimited liability company.
9. The corporate document that sets forth the business purpose of a firm is the:
A. Indenture contract.
B. State tax agreement.
C. Corporate bylaws.
D. Articles of association.
E. Memorandum.
10. The rules by which corporations govern themselves are called:
A. Indenture provisions.
B. Indemnity provisions.
C. Charter agreements.
D. Articles of association.
E. Articles of incorporation.
11. A business entity providing a corporate personality for small business is called a:
A. Close corporation.
B. General partnership.
C. Limited proprietorship.
D. Sole proprietorship.
E. Corporation.
12. The primary goal of financial management is to:
A. Maximize current dividends per share.
B. Maximize the current value per share.
C. Avoid financial distress.
D. Minimize operational costs and maximize firm efficiency.
E. Maintain steady growth in both sales and net earnings.
13. A conflict of interest between the shareholders and management of a firm is called:
A. Shareholders' liability.
B. Corporate breakdown.
C. The agency problem.
D. Corporate activism.
E. Legal liability.
14. Agency costs refer to:
A. The total dividends paid to shareholders over the lifetime of a firm.
B. The costs that result from default and bankruptcy of a firm.
C. Corporate income subject to double taxation.
D. The costs of any conflicts of interest between shareholders and management.
E. The total interest paid to lenders over the lifetime of the firm.
15. A stakeholder is:
A. Any person or entity that owns shares of a corporation.
B. Any person or entity that has voting rights based on share ownership of a corporation.
C A person who initially started a firm and currently has management control over the cash flows of the
. firm due to his/her current ownership of company share.
D. A creditor to whom the firm currently owes money and who consequently has a claim on the cash
flows of the firm.
E. Any person or entity other than a shareholder or lender who potentially has a claim on the cash flows
of the firm.
,16. The original sale of securities by governments and corporations to the general public occurs in the:
A. Primary market.
B. Secondary market.
C. Private placement market.
D. Proprietary market.
E. Liquidation market.
17. When one shareholder sells share directly to another the transaction is said to occur in the:
A. Dealer market.
B. Primary market.
C. Secondary market.
D. OTC market.
E. Stock market.
18. Which of the following questions are addressed by financial managers?
I. How long will it take to produce a product?
II. How long should customers be given to pay for their credit purchases?
III. Should the firm borrow more money?
IV. Should the firm build a new factory?
A. I and IV only
B. II and III only
C. I, II, and III only
D. II, III, and IV only
E. I, II, III, and IV
19. The treasurer and the controller of a corporation generally report to the:
A. Board of directors.
B. Chairman of the board.
C. Chief executive officer.
D. President.
E. Financial director.
20. Which one of the following statements is correct concerning the organizational structure of a corporation?
A. The financial director reports to the chairman of the board.
B. The chief executive officer reports to the board of directors.
C. The controller reports to the president.
D. The treasurer reports to the chief executive officer.
E. The chief operations officer reports to the vice president of production.
21. Which one of the following is a capital budgeting decision?
A. Determining how much debt should be borrowed from a particular lender
B. Deciding whether or not to open a new store
C. Deciding when to repay a long-term debt
D. Determining how much inventory to keep on hand
E. Determining how much money should be kept in the checking account
22. When considering a capital budgeting project the financial manager should consider:
A. Only the size of the project.
B. Only the timing of the project cash flows.
C. Only the risk of the project cash flows.
D. Only the size and timing of the project cash flows.
E. The size, timing, and risk of the project cash flows.
, 23. Capital structure decisions include consideration of the:
I. Amount of long-term debt to assume.
II. Cost of acquiring funds.
III. Current assets and liabilities.
IV. Net working capital.
A. I and II only
B. II and III only
C. III and IV only
D. I, II, and IV only
E. I, III, and IV only
24. The decision of which lender to use and which type of long-term loan is best for a project is part of:
A. Working capital management.
B. The net working capital decision.
C. Capital budgeting.
D. A financial manager's duties.
E. The capital structure decision.
25. The decision to issue additional shares is an example of which one of the following?
A. Working capital management
B. Net working capital decision
C. Capital budgeting
D. Controller's duties
E. Capital structure decision
26. Working capital management includes decisions concerning which of the following?
I. Accounts payable
II. Long-term debt
III. Accounts receivable
IV. Inventory
A. I and II only
B. I and III only
C. II and IV only
D. I, II, and III only
E. I, III, and IV only
27. Working capital management:
A. Ensures that sufficient equipment is available to produce the amount of product desired on a daily
basis.
B. Ensures that long-term debt is acquired at the lowest possible cost.
C. Ensures that dividends are paid to all shareholders on an annual basis.
D. Balances the amount of company debt to the amount of available equity.
E. Is concerned with having sufficient funds to operate the business on a daily basis.
28. Which one of the following statements concerning a sole proprietorship is correct?
A. A sole proprietorship is the least common form of business ownership.
B. The profits of a sole proprietorship are taxed twice.
C. The owners of a sole proprietorship share profits as established by the partnership agreement.
D. The owner of a sole proprietorship may be forced to sell his/her personal assets to pay company debts.
E. A sole proprietorship is often structured as a limited liability company.
29. Which one of the following statements concerning a sole proprietorship is correct?
A. The life of the firm is limited to the life span of the owner.
B. The owner can generally raise large sums of capital quite easily.
C. The ownership of the firm is easy to transfer to another individual.
D. The company must pay separate taxes from those paid by the owner.
E. The legal costs to form a sole proprietorship are quite substantial.
Student: ___________________________________________________________________________
1. The person generally directly responsible for overseeing the tax management, cost accounting, financial
accounting, and data processing functions is the:
A. Treasurer.
B. Director.
C. Financial director.
D. Chairman of the board.
E. Chief executive officer.
2. The process of planning and managing a firm's long-term investments is called:
A. Working capital management.
B. Financial depreciation.
C. Agency cost analysis.
D. Capital budgeting.
E. Capital structure.
3. The mixture of debt and equity used by a firm to finance its operations is called:
A. Working capital management.
B. Financial depreciation.
C. Cost analysis.
D. Capital budgeting.
E. Capital structure.
4. The management of a firm's short-term assets and liabilities is called:
A. Working capital management.
B. Debt management.
C. Equity management.
D. Capital budgeting.
E. Capital structure.
5. A business owned by a single individual who has unlimited liability for its debt is called a:
A. Corporation.
B. Sole proprietorship.
C. General partnership.
D. Limited partnership.
E. Limited liability company.
6. A business formed by two or more individuals who each have unlimited liability for business debts is
called a:
A. Corporation.
B. Sole proprietorship.
C. General partnership.
D. Limited partnership.
E. Limited liability company.
7. The division of profits and losses among the members of a partnership is formalized in the:
A. Indemnity clause.
B. Indenture contract.
C. Statement of purpose.
D. Partnership agreement.
E. Group charter.
,8. A business created as a distinct legal entity composed of one or more individuals or entities is called
a:
A. Corporation.
B. Sole proprietorship.
C. General partnership.
D. Limited partnership.
E. Unlimited liability company.
9. The corporate document that sets forth the business purpose of a firm is the:
A. Indenture contract.
B. State tax agreement.
C. Corporate bylaws.
D. Articles of association.
E. Memorandum.
10. The rules by which corporations govern themselves are called:
A. Indenture provisions.
B. Indemnity provisions.
C. Charter agreements.
D. Articles of association.
E. Articles of incorporation.
11. A business entity providing a corporate personality for small business is called a:
A. Close corporation.
B. General partnership.
C. Limited proprietorship.
D. Sole proprietorship.
E. Corporation.
12. The primary goal of financial management is to:
A. Maximize current dividends per share.
B. Maximize the current value per share.
C. Avoid financial distress.
D. Minimize operational costs and maximize firm efficiency.
E. Maintain steady growth in both sales and net earnings.
13. A conflict of interest between the shareholders and management of a firm is called:
A. Shareholders' liability.
B. Corporate breakdown.
C. The agency problem.
D. Corporate activism.
E. Legal liability.
14. Agency costs refer to:
A. The total dividends paid to shareholders over the lifetime of a firm.
B. The costs that result from default and bankruptcy of a firm.
C. Corporate income subject to double taxation.
D. The costs of any conflicts of interest between shareholders and management.
E. The total interest paid to lenders over the lifetime of the firm.
15. A stakeholder is:
A. Any person or entity that owns shares of a corporation.
B. Any person or entity that has voting rights based on share ownership of a corporation.
C A person who initially started a firm and currently has management control over the cash flows of the
. firm due to his/her current ownership of company share.
D. A creditor to whom the firm currently owes money and who consequently has a claim on the cash
flows of the firm.
E. Any person or entity other than a shareholder or lender who potentially has a claim on the cash flows
of the firm.
,16. The original sale of securities by governments and corporations to the general public occurs in the:
A. Primary market.
B. Secondary market.
C. Private placement market.
D. Proprietary market.
E. Liquidation market.
17. When one shareholder sells share directly to another the transaction is said to occur in the:
A. Dealer market.
B. Primary market.
C. Secondary market.
D. OTC market.
E. Stock market.
18. Which of the following questions are addressed by financial managers?
I. How long will it take to produce a product?
II. How long should customers be given to pay for their credit purchases?
III. Should the firm borrow more money?
IV. Should the firm build a new factory?
A. I and IV only
B. II and III only
C. I, II, and III only
D. II, III, and IV only
E. I, II, III, and IV
19. The treasurer and the controller of a corporation generally report to the:
A. Board of directors.
B. Chairman of the board.
C. Chief executive officer.
D. President.
E. Financial director.
20. Which one of the following statements is correct concerning the organizational structure of a corporation?
A. The financial director reports to the chairman of the board.
B. The chief executive officer reports to the board of directors.
C. The controller reports to the president.
D. The treasurer reports to the chief executive officer.
E. The chief operations officer reports to the vice president of production.
21. Which one of the following is a capital budgeting decision?
A. Determining how much debt should be borrowed from a particular lender
B. Deciding whether or not to open a new store
C. Deciding when to repay a long-term debt
D. Determining how much inventory to keep on hand
E. Determining how much money should be kept in the checking account
22. When considering a capital budgeting project the financial manager should consider:
A. Only the size of the project.
B. Only the timing of the project cash flows.
C. Only the risk of the project cash flows.
D. Only the size and timing of the project cash flows.
E. The size, timing, and risk of the project cash flows.
, 23. Capital structure decisions include consideration of the:
I. Amount of long-term debt to assume.
II. Cost of acquiring funds.
III. Current assets and liabilities.
IV. Net working capital.
A. I and II only
B. II and III only
C. III and IV only
D. I, II, and IV only
E. I, III, and IV only
24. The decision of which lender to use and which type of long-term loan is best for a project is part of:
A. Working capital management.
B. The net working capital decision.
C. Capital budgeting.
D. A financial manager's duties.
E. The capital structure decision.
25. The decision to issue additional shares is an example of which one of the following?
A. Working capital management
B. Net working capital decision
C. Capital budgeting
D. Controller's duties
E. Capital structure decision
26. Working capital management includes decisions concerning which of the following?
I. Accounts payable
II. Long-term debt
III. Accounts receivable
IV. Inventory
A. I and II only
B. I and III only
C. II and IV only
D. I, II, and III only
E. I, III, and IV only
27. Working capital management:
A. Ensures that sufficient equipment is available to produce the amount of product desired on a daily
basis.
B. Ensures that long-term debt is acquired at the lowest possible cost.
C. Ensures that dividends are paid to all shareholders on an annual basis.
D. Balances the amount of company debt to the amount of available equity.
E. Is concerned with having sufficient funds to operate the business on a daily basis.
28. Which one of the following statements concerning a sole proprietorship is correct?
A. A sole proprietorship is the least common form of business ownership.
B. The profits of a sole proprietorship are taxed twice.
C. The owners of a sole proprietorship share profits as established by the partnership agreement.
D. The owner of a sole proprietorship may be forced to sell his/her personal assets to pay company debts.
E. A sole proprietorship is often structured as a limited liability company.
29. Which one of the following statements concerning a sole proprietorship is correct?
A. The life of the firm is limited to the life span of the owner.
B. The owner can generally raise large sums of capital quite easily.
C. The ownership of the firm is easy to transfer to another individual.
D. The company must pay separate taxes from those paid by the owner.
E. The legal costs to form a sole proprietorship are quite substantial.
