Corporate Finance 1
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These are the homework questions for Chapter 1 in Corporate Finance.
- 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.The "Say on Pay" bill requires corporations to do which one of the following?
- 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.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?
- A.
Over-the-counter market
- B.
Tertiary market
- C.
Primary market
- D.
Dealer market
- E.
Secondary market
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