Missouri Southern State University

ECON 350

Financial Management

Chapter 1 Quiz

1)All of the following are key strengths of a corporation EXCEPT

1. 1. access to capital markets.
   2. limited liability.

C) low organization costs.

D) readily transferable ownership.

2. Which of the following legal forms of organization is most expensive to organize?
   1. sole proprietorships
   2. partnerships

C) corporations

D) limited partnerships

3. The true owners of the corporation is/are the
   1. board of directors.
   2. chief executive officer.

C) stockholders.

D) creditors.

4. A major weakness of a partnership is
   1. limited liability.

B) difficulty liquidating or transferring ownership.

3. access to capital markets.
4. low organizational costs.

5. Managerial finance

A) involves tasks such as budgeting, financial forecasting, cash management, and funds procurement.

2. involves the design and delivery of advice and financial products.
3. recognizes funds on an accrual basis.
4. devotes the majority of its attention to the collection and presentation of financial data.

6. The financial manager recognizes revenues and expenses utilizing
   1. the accrual method.

B) the actual inflows and outflows of cash.

3. standardized, generally accepted, accounting principles.
4. the revenue method.

7. Making financing decisions includes all of the following EXCEPT
   1. determining the appropriate mix of short-term and long-term financing.
   2. deciding which individual short-term sources are best at a given point in time.

C) analyzing quarterly budget and performance reports.

D) deciding which individual long-term sources are best at a given point in time.

8. The amount earned during the accounting period on each outstanding share of common stock is called
   1. a common stock dividend.

B) earnings per share.

3. net profits after taxes.
4. net income.

9. Profit maximization does NOT take into consideration

A) risk and cash flow.

2. cash flow and stock price.
3. risk and eps.
4. eps and stock price.

10. Return and risk are the key determinants in share price. Increased return results in                                   , other things remaining the same.

A) a lower share price.

B) a higher share price.

3. an unchanged share price.
4. an undetermined share price.

11. A firm has just ended its calendar year making a sale in the amount of $150,000 of merchandise purchased during the year at a total cost of $112,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are

1. $0 and $150,000 respectively.
2. $37,500 and -$150,000 respectively.

C) $37,500 and -$112,500 respectively.

D) $150,000 and $112,500 respectively.

12. The conflict between the goals of a firm's owners and the goals of its nonowner managers is

A) the agency problem.

2. incompatibility.
3. serious only when profits decline.
4. of little importance in most large U.S. firms.

13. Most businesses raise money by selling their securities in

A) a public offering.

2. a private placement.
3. a direct placement.
4. a stock exchange.

14. The                              is created by a number of institutions and arrangements that allow the suppliers and demanders of long-term funds to make transactions.

A) financial market

B) capital market

3. money market
4. credit market

15. The tax liability of a corporation with ordinary income of $105,000 is       . A) $42,000

B) $35,700

C) $23,950

D) $24,200