1. ensures that sufficient equipment is available to produce the amount of product desired on a daily basis.

2. ensures that long-term debt is acquired at the lowest possible cost.

3. ensures that dividends are paid to all stockholders on an annual basis.

4. balances the amount of company debt to the amount of available equity.

5. is concerned with managing net working capital.

2. The process of planning and managing a firm's long-term investments is referred to as:

A. capital budgeting. B. agency cost analysis. C. financial depreciation. D. working capital management. E. capitalstructure.

3. Capital structure refers to:

A. the determination of the ideal mix of current versus long-term assets. B. the methods by which fixed assets are used to produce a tangible product. C. the mix of current assets and current liabilities. D. the acquisition or disposition of a building or other long-term asset. E. decisions related to long-term debt and equity financing.

4. Net working capital is best defined as:

A. excess cash on hand. B. a firm's current assets. C. current assets minus current liabilities. D. total assets minus total liabilities. E. cash and near-cash assets.

5. The treasurer and the controller of a corporation generally report to the:

A. president. B. board of directors. C. chief executive officer. D. chief financial officer. E. chairman of the board.

6. Which one of these best describes the key difference between the duties of the controller and those of the treasurer?

A. Separation of duties related to assets versus those related to debt and equity B. Separation of authority over tax records versus accounting records C. Separation of internal versus external responsibilities D. Separation of duties related to production versus marketing

E. Separation of cash control from accounting records

7. Which position is generally directly responsible for financial planning and capital expenditures?

A. Controller B. Treasurer C. Director D. Chairman of the board E. Chief operations officer

8. The division of profits and losses among the members of a partnership is formalized in the:

A. indemnity clause. B. partnership agreement. C. statement of purpose. D. indenture contract. E. group charter.

9. Sole proprietorships:

A. are expensive to setup. B. are limited to the business owner's life. C. are faced with double taxation of profits. D. can have multiple owners. E. provide limited liability to owners.

10. Which one of the following best describes the primary advantage of being a limited partner rather than a general partner?

A. No potential financial loss B. Entitlement to a larger portion of the partnership's income C. Liability for firm debts limited to the capital invested D. Greater management responsibility E. Ability to manage the day-to-day affairs of the business 11. Which of the following are disadvantages of a general partnership?

I. Limited life of the firm II. Personal liability for firm debt III. Greater ability to raise capital than a sole proprietorship IV. Lack of ability to transfer partnership interest

A. IandIIonly B. III and IV only C. II and III only D. I, II, and IV only E. I, III, and IV only

12. Art purchased 2,500 shares of Delta stock. His purchase represents ten percent ownership in the firm. His shares have increased in value from the $12 a share he originally paid to today's market value of $23 share. Assume Delta goes bankrupt and owes $450,000 more in debts than the firm can pay after liquidating all of its assets. What is the maximum loss per share Art will incur on this investment?

A. $0 a share B. $12 a share C. $17.50 a share, computed as ($12 + 23)/2

D. $23 a share E. $18 share, computed as (10% $450,000)/2,500 shares

13. The articles of incorporation:

A. establish the rights of the shareholders. B. are rules which apply only to limited liability companies. C. address only those issues related to a corporation's managers and directors. D. establish the compensation to be granted to senior managers. E. include only the name, purpose, and intended life of the corporation.

14. Which type of business organization has all the respective rights and privileges of a legal person?

A. Sole proprietorship B. Corporation C. General partnership D. Limited partnership E. Limited liability company

15. A business entity operated and taxed like a partnership, but with limited liability for the owners, is called a:

A. limited liability company. B. general partnership. C. limited proprietorship. D. sole proprietorship.

E. corporation. 16. The issuance of new equity shares is a cash flow from:

A. long-term creditors to a firm. B. a firm to its shareholders. C. a firm's suppliers to the firm. D. the financial markets to a firm. E. any one of a firm's stakeholders to the firm.

17. Agency costs refer to:

A. corporate income subject to double taxation. B. the total dividends paid to stockholders over the lifetime of a firm. C. the costs of any conflicts of interest between stockholders and management. D. the costs that result from default and bankruptcy of a firm. E. the total interest paid to creditors over the lifetime of the firm.

18. Which of the following are key requirements of the Sarbanes-Oxley Act?

I. Officers of the corporation must now own more than 5 percent of the firm's stock. II. Officers of the corporation must review and sign annual reports. III. Annual reports must list deficiencies in internal controls. IV. Annual reports must be filed with the SEC within 30 days of year end.

A. I only B. II only C. I and III only D. II and III only E. II and IV only

19. The decisions made by financial managers should all be ones which increase the:

A. size of the firm. B. growth rate of the firm. C. market value of the existing owners' equity. D. marketability of the managers. E. financial distress of the firm.

20. Which one of the following actions by a financial manager least meets the goal of financial management?

A. Increasing current costs in order to increase the market value of the stockholders' equity B. Agreeing to expand the company at the expense of stockholders' value C. Refusing to lower selling prices if doing so will reduce the net profits D. Agreeing to pay bonuses based on the market value of the company stock

E. Refusing to borrow money when doing so will create losses for the firm