CLC.C1.CF1

Financial managers create firm value primarily by:

• lowering the earnings per share

• maximizing current sales

• maximizing the firm’s market share

• investing in assets that generate cash in excess of their cost

The ultimate control level of a corporation belongs to:

• board of directors

• chairman of the board

• stockholders

• stakeholders

A business formed by two or more than two having unlimited personal liability for all of the firm’s debts is called a

• sole proprietorship

• general partnership

• corporation

A business which is seperated from its owners is called:

• sole proprietorship

• limited partnership

• unlimited liability company

• corporation

A conflict of interest between the stockholders and management of a firm is referred to as the

• corporate breakdown

• bankruptcy

• principal-agent problem

define the meaning of capital budgeting?

• deciding how much credit to grant to a particular customer

• determining how much debt should be borrowed from a particular lender

• deciding should a project or a production facility should be carried out

• deciding when to repay a long-term debt

Which one of the following statements concerning a sole proprietorship is correct?

• The life of the firm is limited to the life span of the owner

• The owner can generally raise large sums of capital quite easily

• The company must pay separate taxes from those paid by the owner

• The legal costs to form a sole proprietorship are quite substantial

One advantage of a partnership is the:

• limited life of the entity

• personal liability for all firm debts

• relatively low formation cost

• division of management control between general and limited partners

Which one of the following statements is correct?

• Partnerships are the most complicated type of business to form

• All types of business formations have limited lives

• Sole proprietorships and partnerships are taxed in a similar fashion

• Both partnerships and corporations have limited liability for general partners and shareholders

Which one of the following actions by a financial manager creates an agency problem?

• agreeing to pay bonuses based on the market value of the company’s stock

• refusing to lower selling prices if doing so will reduce the net profits

• refusing to borrow money when doing so will create losses for the firm

• agreeing to expand the company at the expense of stockholders' value