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Corporate Finance Homework 1

15 Questions
Corporate Finance Quizzes & Trivia

These are the homework questions for Chapter 1 in Corporate Finance.

Questions and Answers
  • 1. 
    Stadford, Inc. is financed with 40 percent debt and 60 percent equity. This mixture of debt and equity is referred to as the firm's:
    • A. 

      Capital structure.

    • B. 

      Capital budget.

    • C. 

      Asset allocation.

    • D. 

      Working capital.

    • E. 

      Risk structure.

  • 2. 
    The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?
    • A. 

      Agency

    • B. 

      Structure

    • C. 

      Territorial

    • D. 

      Organizational

    • E. 

      Formation

  • 3. 
    • A. 

      Give the firm's creditors a binding say on executive pay

    • B. 

      Give shareholders a nonbinding vote on executive pay

    • C. 

      Give shareholders a binding vote on executive pay

    • D. 

      Give the chairman of the board the final say on executive pay

    • E. 

      Give the firm's creditors a nonbinding say on executive pay

  • 4. 
    Which one of the following functions should be assigned to the treasurer rather than the controller?
    • A. 

      Cash management

    • B. 

      Data processing

    • C. 

      Cost accounting

    • D. 

      Financial accounting

    • E. 

      Tax management

  • 5. 
    Which one of the following is a working capital decision?
    • A. 

      What is the cost of debt financing?

    • B. 

      What debt-equity ratio is best suited to our firm?

    • C. 

      How should the firm raise additional capital to fund its expansion?

    • D. 

      Which type of debt is best suited to finance our inventory?

    • E. 

      How much cash should the firm keep in reserve?

  • 6. 
    Which one of the following is a capital structure decision?
    • A. 

      Selecting new equipment to purchase

    • B. 

      Determining the optimal inventory level

    • C. 

      Establishing the preferred debt-equity level

    • D. 

      Setting the terms of sale for credit sales

    • E. 

      Determining when suppliers should be paid

  • 7. 
    The daily financial operations of a firm are primarily controlled by managing the:
    • A. 

      Working capital.

    • B. 

      Total debt level.

    • C. 

      Long-term liabilities.

    • D. 

      Capital budget.

    • E. 

      Capital structure.

  • 8. 
    Limited liability companies are primarily designed to:
    • A. 

      Provide the benefits of the corporate structure to foreign-based entities.

    • B. 

      Allow companies to reorganize themselves through the bankruptcy process.

    • C. 

      Provide limited liability while avoiding double taxation.

    • D. 

      Allow a portion of its owners to enjoy limited liability while granting the other portion of its owners control over the entity.

    • E. 

      Spin-off a wholly-owned subsidiary.

  • 9. 
    The primary goal of financial management is to maximize which one of the following for a corporation?
    • A. 

      Revenue growth

    • B. 

      Market value of existing stock

    • C. 

      Number of shares outstanding

    • D. 

      Current profits

    • E. 

      Market share

  • 10. 
    The Sarbanes-Oxley Act of 2002 has:
    • A. 

      Decreased senior management's involvement in the corporate annual report.

    • B. 

      Decreased the number of U.S. firms going public on foreign exchanges.

    • C. 

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

    • D. 

      Reduced the annual compliance costs of all publicly traded firms in the U.S.

    • E. 

      Greatly increased the number of U.S. firms that are going public for the first time.

  • 11. 
    Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?
    • A. 

      Increase the number of firms that "go dark"

    • B. 

      Decrease the number of publicly traded firms

    • C. 

      Increase protection against corporate fraud

    • D. 

      Limit secondary issues of corporate securities

    • E. 

      Increase the costs of going public

  • 12. 
    Which one of the following situations is most apt to create an agency conflict?
    • A. 

      Giving all employees a bonus if a certain level of efficiency is maintained

    • B. 

      Selling an underproducing segment of the firm

    • C. 

      Compensating a manager based on his or her division's net income

    • D. 

      Rejecting a profitable project to protect employee jobs

    • E. 

      Hiring an independent consultant to study the operating efficiency of the firm

  • 13. 
    Which one of the following is most apt to create a situation where an agency conflict could arise?
    • A. 

      Downsizing a firm

    • B. 

      Reducing both management and non-management salaries

    • C. 

      Increasing the size of a firm's operations

    • D. 

      Separating management from ownership

    • E. 

      Decreasing employee turnover

  • 14. 
    Which one of the following transactions occurred in the primary market?
    • A. 

      Maria gave 100 shares of Alto stock to her best friend.

    • B. 

      Gene purchased 300 shares of Alto stock from Ted.

    • C. 

      South Wind Products sold 1,000 shares of newly issued stock to Mike.

    • D. 

      The president of Trecco, Inc. sold 500 shares of Trecco stock to his son.

    • E. 

      Terry sold 3,000 shares of Uno stock to his brother.

  • 15. 
    • A. 

      Over-the-counter market

    • B. 

      Tertiary market

    • C. 

      Primary market

    • D. 

      Dealer market

    • E. 

      Secondary market