Corporate Finance 1

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:

Capital structure.

Capital budget.

Asset allocation.

Working capital.

Risk structure.

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

Cash management

Data processing

Cost accounting

Financial accounting

Tax management

3. Which one of the following is a capital structure decision?

Selecting new equipment to purchase

Determining the optimal inventory level

Establishing the preferred debt-equity level

Setting the terms of sale for credit sales

Determining when suppliers should be paid

4. The daily financial operations of a firm are primarily controlled by managing the:

Working capital.

Total debt level.

Long-term liabilities.

Capital budget.

Capital structure.

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

Increase the number of firms that "go dark"

Decrease the number of publicly traded firms

Increase protection against corporate fraud

Limit secondary issues of corporate securities

Increase the costs of going public

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

Agency

Structure

Territorial

Organizational

Formation

7. Which one of the following transactions occurred in the primary market?

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

Gene purchased 300 shares of Alto stock from Ted.

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

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

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

8. Valerie bought 200 shares of Able stock today. Able stock has been trading for some time on the NYSE. Valerie's purchase occurred in which market?

Over-the-counter market

Tertiary market

Primary market

Dealer market

Secondary market

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

Revenue growth

Market value of existing stock

Number of shares outstanding

Current profits

Market share

10. Which one of the following is a working capital decision?

What is the cost of debt financing?

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

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

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

How much cash should the firm keep in reserve?

11. Limited liability companies are primarily designed to:

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

Allow companies to reorganize themselves through the bankruptcy process.

Provide limited liability while avoiding double taxation.

Spin-off a wholly-owned subsidiary.

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

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

Selling an underproducing segment of the firm

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

Rejecting a profitable project to protect employee jobs

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?

Downsizing a firm

Reducing both management and non-management salaries

Increasing the size of a firm's operations

Separating management from ownership

Decreasing employee turnover

14. The Sarbanes-Oxley Act of 2002 has:

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

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

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

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

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

15. The "Say on Pay" bill requires corporations to do which one of the following?

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

Give shareholders a nonbinding vote on executive pay

Give shareholders a binding vote on executive pay

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

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