FM Ch. 1

Which one of the following questions involves a capital budgeting decision?

• How many shares of stock should the firm issue?

• Should the firm purchase a new machine for the production line?

• Should the firm borrow money to acquire new equipment?

• How much inventory should the firm keep on hand?

Which one of the following questions involves a capital structure decision?

• Which one of two project proposals should the firm implement?

• • How should the firm allocate its limited available funds among acceptable projects?

• How much funding should be allocated to financing customer purchases of a new product?

• How much debt should the firm incur to fund a project?

Which one of the following questions is a working capital management decision?

• When should the company issue new shares of stock to the public?

• When should the company replace its fleet of delivery vehicles?

• Should we offer credit terms to all customers or only certain customers?

• from which lender should the firm borrow money to pay for a new building?

A firm owned by a single person who has unlimited liability for the firm's debts is called a:

• corporation

• sole proprietorship

• general partnership

• limited partnership

Which one of the following statements is correct?

• A general partnership is a legal person

• Taxable income earned by a partnership is treated as individual income by the partners.

• Partnerships are the most complicated type of business to form

• All partnerships are required to have at least one limited partner

Which form of business would be the best choice if it were necessary to raise large amounts of capital?

• Sole proprietorship

• Limited liability company

• Corporation

• General partnership

Corporate dividends represent:

• aftertax income from the corporation which becomes taxable income for the recipient

• taxable income for both the corporation and the shareholder, whether or not dividends are paid to shareholders

• taxable income for both the corporation and the shareholder, whether or not dividends are paid to shareholders

• taxable income for both the corporation and the shareholder, whether or not dividends are paid to shareholders

Financial managers should primarily focus on the interests of:

• shareholders

• themselves

• VP of finance

• immediate suprevisor

Decisions made by financial managers should primarily focus on increasing the:

• size of firm

• growth rate of firm

• market value per share of outstanding stock

• gross profit per unit produced.

Agency problems are most likely to be associated with:

• • sole proprietorships

• corporations

• general partnerships

• limited partnerships