Which one of the following terms is defined as the management of a firm's long-term investments?

1. Which one of the following terms is defined as the management of a firm's long-term investments?
A. working capital management
B. financial allocation
C. agency cost analysis
D. capital budgeting
E. capital structure

Refer to section 1.1

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Capital budgeting
 

2. Which one of the following terms is defined as the mixture of a firm's debt and equity financing?
A. working capital management
B. cash management
C. cost analysis
D. capital budgeting
E. capital structure

Refer to section 1.1

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Capital structure
 

3. Which one of the following is defined as a firm's short-term assets and its short-term liabilities?
A. working capital
B. debt
C. investment capital
D. net capital
E. capital structure

Refer to section 1.1

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Working capital
 

4. A business owned by a solitary 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.

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Sole proprietorship
 

5. A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. limited liability company.

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: General partnership
 

6. A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:
A. generally partner.
B. sole proprietor.
C. limited partner.
D. corporate shareholder.
E. zero partner.

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Limited partner
 

7. A business created as a distinct legal entity and treated as a legal "person" is called a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. unlimited liability company.

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Corporation
 

8. Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
A. articles of incorporation
B. corporate breakdown
C. agency problem
D. bylaws
E. legal liability

Refer to section 1.4

AACSB: Ethics
Difficulty: Basic
Learning Objective: 1-4
Section: 1.4
Topic: Agency problem
 

9. A stakeholder is:
A. a person who owns shares of stock.
B. any person who has voting rights based on stock ownership of a corporation.
C. a person who initially founded a firm and currently has management control over that firm.
D. a creditor to whom a firm currently owes money.
E. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.

Refer to section 1.4

AACSB: Ethics
Difficulty: Basic
Learning Objective: 1-4
Section: 1.4
Topic: Stakeholder
 

10. Which of the following questions are addressed by financial managers?
I. How should a product be marketed?
II. Should customers be given 30 or 45 days to pay for their credit purchases?
III. Should the firm borrow more money?
IV. Should the firm acquire new equipment?
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

Refer to section 1.1

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Financial management
 

11. Which one of the following functions should be the responsibility of the controller rather than the treasurer?
A. daily cash deposit
B. income tax returns
C. equipment purchase analysis
D. customer credit approval
E. payment to a vendor

Refer to section 1.1

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Financial management
 

12. The controller of a corporation generally reports directly to the:
A. board of directors.
B. chairman of the board.
C. chief executive officer.
D. president.
E. vice president of finance.

Refer to section 1.1

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Corporate structure
 

13. Which one of the following correctly defines the upward chain of command in a typical corporate organizational structure?
A. The vice president of finance reports to the chairman of the board.
B. The chief executive officer reports to president.
C. The controller reports to the president.
D. The treasurer reports to the vice president of finance.
E. The chief operations officer reports to the vice president of production.

Refer to section 1.1

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Corporate structure
 

14. Which one of the following is a capital budgeting decision?
A. determining how many shares of stock to issue
B. deciding whether or not to purchase a new machine for the production line
C. deciding how to refinance a debt issue that is maturing
D. determining how much inventory to keep on hand
E. determining how much money should be kept in the checking account

Refer to section 1.1

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Capital budgeting
 

15. Which of the following should a financial manager consider when analyzing a capital budgeting project?
I. project start up costs
II. timing of all projected cash flows
III. dependability of future cash flows
IV. dollar amount of each projected cash flow
A. I and IV only
B. I, II, and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, II, III, and IV

Refer to section 1.1

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Capital budgeting
 

16. Which one of the following is a capital structure decision?
A. determining which one of two projects to accept
B. determining how to allocate investment funds to multiple projects
C. determining the amount of funds needed to finance customer purchases of a new product
D. determining how much debt should be assumed to fund a project
E. determining how much inventory will be needed to support a project

Refer to section 1.1

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Capital structure
 

17. The decision to issue additional shares of stock 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

Refer to section 1.1

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Capital structure
 

18. Which of the following accounts are included in working capital management?
I. accounts payable
II. accounts receivable
III. fixed assets
IV. inventory
A. I and II only
B. I and III only
C. II and IV only
D. I, II, and IV only
E. II, III, and IV only

Refer to section 1.1

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Working capital management
 

19. Which one of the following is a working capital management decision?
A. determining the amount of equipment needed to complete a job
B. determining whether to pay cash for a purchase or use the credit offered by the supplier
C. determining the amount of long-term debt required to complete a project
D. determining the number of shares of stock to issue to fund an acquisition
E. determining whether or not a project should be accepted

Refer to section 1.1

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Working capital management
 

20. Which one of the following statements concerning a sole proprietorship is correct?
A. A sole proprietorship is designed to protect the personal assets of the owner.
B. The profits of a sole proprietorship are subject to double taxation.
C. The owner of a sole proprietorship is personally responsible for all of the company's debts.
D. There are very few sole proprietorships remaining in the U.S. today.
E. A sole proprietorship is structured the same as a limited liability company.

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Sole proprietorship