Test Bank for Essentials of Corporate Finance 4th Australian Edition ...

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A business organisation that is similar to a sole proprietorship but has two or .... Which one of the following statemen...

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Test Bank for Essentials Of Corporate Finance 4th Australian Edition by Ross IF You want to Purchase This And Any Other Then:-

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1. Large Australian company stocks such as BHP and Telstra:

 A. B. C. D.

can only trade on the ASX. can trade on the stock exchange of their their choosing as long as they qualify qualify for listing. trade only in dealer markets. are sold to investors as private placement placement and are held to maturity.

2. The person responsible for managing a firm's cash flow, credits and capital expenditures is called a:

 A. B. C. D.

broker. stakeholder. chief accountant. treasurer.

3. The most important function of a financial market is:

 A. B. C. D.

to facilitate the flow of funds between lenders and borrowers. to provide a market for shares. to provide information about an issuing company's financial financial situation. to secure profits for brokers and agents.

4. A primary financial market is one that:

 A. B. C. D.

involves the sale of existing securities. offers securities with with the highest highest expected return. offers the greatest greatest choice of of shares and debentures. involves the sale of securities for the first time.

5. Secondary markets: Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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 A. B. C. D.

allow borrowers to raise long-term funds. facilitate capital-raising in the primary market. allow borrowers borrowers to raise short-term funds. facilitate all of the given answers.

6. The top financial officer in a firm is commonly referred to as the:

 A. B. C. D.

chief financial officer. president of finance. controller. finance manager.

7. The amount of debt and equity used by a firm to finance its operations is called the firm's:

 A. B. C. D.

debt ratio. working capital ratio. capital structure. financial position.

8. Short-term assets and short-term liabilities are referred to as the firm's:

 A. B. C. D.

cash flow. capital budget. capital structure. working capital.

9. The management of a firm's cash, inventory, and payables is referred to as:

 A. B. C. D.

cash-flow forecasting. asset management. capital management. working capital management.

10. A business organisation that is similar to a sole proprietorship but has two or more owners is called a:

 A. B. C. D.

limited liability company. corporation. dual company. partnership.

11. The legal papers which designate a firm's name, nature of business, and intended life are called the: Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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 A. B. C. D.

corporate by-laws. charter or constitution. partnership agreement. joint stock company forms.

12. Any situation where a conf lict may arise between the firm's owners and its managers is referred to as a(n):

 A. B. C. D.

organisational problem. personnel conflict. agency problem. control issue.

13. The primary market refers to:

 A. B. C. D.

the original sale of securities by the issuer. transactions between two institutional shareholders. the sale of securities by an individual individual shareholder. the first trade of a firm's securities securities when the financial markets open in the morning.

14. A negotiated sale of securities by an issuer to a specific buyer is called a(n):

 A. B. C. D.

public offering. secondary placement. independent placement. private placement.

15. Over-the-counter markets are __________ markets.

 A. B. C. D.

dealer  franchise private auction

16. A securities market with a physic al location that is designed to match buyers with sellers is called a(n)  ________ market:

 A. B. C. D.

dealer  private auction franchise

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17. Which one of the following statements is related to capital budgeting?

 A. A firm should monitor the ratio of debt to equity financing which it uses. B. A firm should monitor the amount of its its current assets as compared to its current liabilities. C. A firm should consider the size, size, risk, and timing of an asset's cash flows before deciding to purchase that asset. D. A firm should consider various types of loans offered by various lenders before taking out a loan.

18. Working capital management includes which of the following? I. Controlling the inventory level II. Determining when to pay suppliers III. Deciding how much long-term debt to assume IV. Controlling the amount of cash that is readily available

 A. B. C. D.

I and II only I and IV only II and III only I, II and IV only

19. A corporation:

 A. B. C. D.

can neither sue another party nor be sued. may not own property. property. may enter into contracts to borrow funds. can issue its own shares but cannot purchase shares in another entity.

20. The primary goal of financial management is to maximise the:

 A. B. C. D.

current net income. net working capital. number of shares outstanding. outstanding. market value of the existing existing stock.

21. Margie opened a used book store and is both the 100% owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts?

 A. B. C. D.

Sole proprietorship Limited partnership Corporation Joint stock company company

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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22. Will and Bill both enjoy sunshine, water and surfboards. Thus, the two friends decided to create a business together in Sydney renting surfboards, paddle boats and inflatable devices. Will and Bill will equally share in the decision making and in the profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

 A. B. C. D.

Sole proprietorship Limited partnership Joint stock company General partnership

23. Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50/50 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

 A. B. C. D.

Limited partnership Corporation Sole proprietorship General partnership

24. Which of the following individuals commonly use finance in the course of their job? I. Chief financial officers II. Accountants III. Security analysts IV. Strategic managers

 A. B. C. D.

I and II only III and IV only I, II and III only I, II III and IV

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

 A. B. C. D.

Data processing Cost accounting Tax management Cash management

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

 A. B. C. D.

How should the firm raise additional capital to fund its expansion? What is the cost of debt financing? Which type of debt is is best suited to finance our inventory? How much cash should the firm keep in reserve?

27. The daily financial operations of a firm are primarily controlled by managing the: Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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 A. B. C. D.

total debt level. working capital. capital structure. capital budget.

28. Which one of the following statements correctly applies to a sole proprietorship?

 A. B. C. D.

The business entity has an unlimited life. The ownership can easily be transferred to another individual. individual. The owner enjoys limited liability for the firm's debts. Obtaining additional equity is dependent on the owner's personal finances.

29. Which one of the following applies to a general partnership?

 A. B. C. D.

The firm's operations must be controlled by a single partner. Any one of the partners can be held solely liable for all of the the partnership's debt. The profits of the the firm are taxed as a separate entity. entity. Each partner's liability for the firm's debts is limited to each partner's investment in the firm.

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

 A. B. C. D.

Determining the optimal inventory level Establishing the the preferred debt-equity level Selecting new equipment to purchase Setting the terms of sale for credit sales

31. Working capital management includes which one of the following?

 A. B. C. D.

Deciding which new projects to accept Deciding whether to purchase a new machine or fix a current machine Determining which customers will will be granted credit Determining how many new shares of stock should be issued

32. In a general partnership, each partner is personally liable for:

 A. the partnership debts that he or she created. B. his or her proportionate share of all partnership debts regardless of which partner incurred that debt. C. the total debts of the partnership, even ifif he or she was unaware of those debts. D. the debts of the partnership up to the amount he or she invested in the firm.

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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33. A corporation:

 A. B. C. D.

is ultimately controlled by its board of directors. is a legal entity separate from its owners. is prohibited from entering into contractual agreements. has its identity defined by its by-laws.

34. Which of the following are advantages of the corporate form of organisation? I. Ability to raise large sums of equity capital II. Ease of ownership transfer III. Both profits and dividends are taxed IV. Limited liability for all owners

 A. B. C. D.

I and II only III and IV only II, III and IV only I, II and IV only

35. Which one of the following best matches the primary goal of financial management?

 A. B. C. D.

Increasing the dollar amount of each sale Increasing traffic flow within the firm's stores Transforming fixed costs into variable costs Increasing the market value of the firm

36. What is the goal of financial management for a sole proprietorship?

 A. B. C. D.

Maximise net income given the current resources of the firm Decrease long-term debt to reduce the risk to the owner  Minimise the tax impact on on the proprietor  Maximise the market value of the equity

37. Which one of the following is most likely to create a situation where an agency conflict could arise?

 A. B. C. D.

Increasing the size of a firm's operations Downsizing a firm Separating management from ownership ownership Decreasing employee turnover

38. Which one of the following is most likely to align management's priorities with shareholders' interests?

 A. Increasing employee retirement benefits Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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B. Compensating managers with shares that must be held for three years before the shares can be sold C. Allowing a manager to decorate his or her own office once he or she has been been in that office for a period of three years or more D. Increasing the number of paid holidays that long-term employees are entitled to receive

39. Which of the following are effective means of aligning management goals with shareholder interests? I. Employee share options II. Threat of a takeover III. Management bonuses tied to performance goals IV. Threat of a proxy fight

 A. B. C. D.

I and III only II and IV only I, II and III only I, II, III and IV

40. Financial institutions are:

 A. B. C. D.

institutions that primarily invest in real estate. institutions that primarily deal in financial matters. institutions that deal in second-hand equipment. institutions that engage in manufacturing.

41. The goal of a financial manager should be:

 A. B. C. D.

to maximise next year's profit. to minimise next year's cost. to maximise the value of the existing owners' equity. to take no no risks with with shareholders' investments.

42. Which of the following is an example of the agency problem?

 A. Managers always invest in projects that have appropriate returns and that will increase shareholder wealth. B. Managers resign when they believe they have have not always acted in the best interests of shareholders. C. Managers conduct an acquisition program purely to increase increase the size of an organisation. D. Managers look for new projects as they want to avoid business risk.

43. Which one of the following situations is most likely to create an agency conflict?

 A. Compensating a manager based on his or her division's net income B. Giving all employees a bonus if a certain level of efficiency is maintained Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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C. Hiring an independent consultant to study the operating efficiency of the firm D. Rejecting a profitable project to protect employee employee jobs

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

 A. B. C. D.

Organisational Structural Formation Agency

45. Elizabeth is employed as a loans officer for the Commonwealth Bank. Her job falls into which of the following areas of finance?

 A. B. C. D.

International finance Financial institutions Corporate finance Capital management

46. Bruce is a security analyst working for Goldman Sachs JBWere. His job falls into which of the following areas of finance?

 A. B. C. D.

International finance Financial institutions Corporate finance Investments

47. Which of the following is an example of a secondary-market transaction?

 A. B. C. D.

ANZ bank issues new shares to a large funds manager in a private placement. The government issues new long-term bonds. Mary sells 1000 Qantas shares through her broker. BHP issues new bonds that will mature in ten years.

48. Which of the following is an example of a primary-market transaction?

 A. B. C. D.

ANZ bank issues new shares to a large funds manager in a private placement. The ANZ bank sells 10-year government bonds that have five years to maturity. Mary sells 1000 Qantas shares through her broker. The underwriter sellsshares sellsshares to the public.

49. Tim works for a large manufacturing company and is now in charge of all fixed asset purchases. In other words, Tim is in charge of: Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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 A. B. C. D.

capital structure management. asset allocation. risk management. capital budgeting.

50. The Australian government has a tax claim on the cash flows of a corporation. This claim is defined as a claim by one of the firm's:

 A. B. C. D.

residual owners shareholders financiers stakeholders

51. Which one of the following correctly defines a common chain of command within a corporation?

 A. B. C. D.

The chief accountant reports directly to the corporate treasurer. The treasurer reports directly to the board of directors. The chief financial officer reports directly to the board of directors. The accountant reports directly to the chief financial financial officer.

52. A sole proprietorship:

 A. B. C. D.

provides limited liability for its owner. involves significant legal legal costs during the formation process. has an unlimited life. has its profits taxed as as personal income.

53. Maria is the sole proprietor of an antique store that she has operated at the same location for the past 16 years. The store rents the space in which it is located but does own all of the inventory and fixtures. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific loan covenants or assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed? I. Sell the inventory and use the cash raised to apply to the debt II. Sell the store fixtures and use the cash raised to apply to the debt III. Take funds from Maria‘s personal account at the bank to pay the store‘s debt IV. Sell any assets Maria personally owns and apply the proceeds to the store‘s debt

 A. B. C. D.

I only III only I and II only I, II, III, and IV

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54. Which one of the following is an advantage of being a limited partner?

 A. B. C. D.

Non-taxable share of any profits Control over the daily operations of the firm Losses limited to capital invested Unlimited profits without without risk of incurring a loss

55. Which one of the following statements about a limited partnership is correct?

 A. B. C. D.

All partners have their losses limited to their capital investment in the partnership All partners are treated equally There must be at least one general partner  partner  Equity financing is easy to obtain and unlimited

56. Marti had an unexpected surprise when she ate her Kellogg’s cereal this morning. She found a piece of metal mixed in her cereal. The potential claim that Marti has against this firm is that of a(n):

 A. B. C. D.

general creditor  debtholder  shareholder  stakeholder

57. Which one of the following statements is correct?

 A. B. C. D.

All secondary markets are dealer markets. All secondary markets are broker markets. All stock trades between between existing shareholders are secondary-market transactions. All stock transactions transactions are secondary-market secondary-market transactions.

58. Which one of the following statements related to securities dealers is correct?

 A. B. C. D.

Dealers match buyers with sellers. Dealers buy and sell from their own inventory. Dealers operate exclusively in auction markets. Dealers are limited to trading non-listed stocks.

59. Which one of the following parties can sell shares of ABC stock in the primary market?

 A. B. C. D.

ABC company Any corporation, other than the ABC company Institutional shareholder  Private individual shareholder

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60. An auction market:

 A. B. C. D.

handles primary market transactions exclusively. has a physical trading floor. is also referred to as an OTC market. is dealer-based market.

61. Which one of the following is a general characteristic of a securities broker?

 A. B. C. D.

Trades from his or her own inventory Trades only foreign securities Trades listed securities in an auction market Is the principal trader of debt securities

62. Which one of the f ollowing transactions occurred in the primary market?

 A. B. C. D.

Maria gave 100 shares of Telstra stock to her best friend. Gene purchased 300 shares of Telstra stock from from Ted. Telstra Inc. sold 1000 shares of newly newly issued stock to Mike. Terry sold 3000 shares of Uno stock to his brother.

63. Valerie bought 200 shares of BHP Billiton stock today. BHP Billiton stock has been trading for some time on the ASX. Valerie's purchase occurred in which market?

 A. B. C. D.

Dealer market Over-the-counter market Secondary market Primary market

64. Which one of the following is contained in a corporate constitution?

 A. B. C. D.

Procedures for electing corporate directors Number of authorised shares Business purpose of the corporation All of the options given here are correct

65. Who of the following are the actual owners of firms?

 A. B. C. D.

All the shareholders. The bondholders. The largest shareholders. The senior management team.

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Chapter 01 - Test Bank - Static Key 1. Large Australian company stocks such as BHP and Telstra:

 A. can only trade on the ASX. B. can trade on the stock exchange of their their choosing as long as they qualify qualify for listing. C. trade only in dealer markets. D. are sold to investors as private placement and are held to maturity.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Hard   Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Financial markets and the corporation

2. The person responsible for managing a firm's cash flow, credits and capital expenditures is called a:

 A. broker. B. stakeholder. C. chief accountant. D.  treasurer.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement dec isions and the role of the financial manag er. Topic: Business finance and the financial manager 

3. The most important function of a financial market is: A. to facilitate the flow of funds between lenders and borrowers. B. to provide a market for shares. C. to provide information about an issuing company's financial financial situation. D. to secure profits for brokers and agents.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Hard   Learning Objective: 1. 3 Compare the financial implications of the different forms of bus iness organis ation. Topic: Financial markets and the corporation

4. A primary financial market is one that:

 A. involves the sale of existing securities. B. offers securities with with the highest highest expected return. C. offers the greatest greatest choice of of shares and debentures. D. involves the sale of securities for the the first time.

 AACSB: Analytical Thinking 

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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 Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Financial markets and the corporation

5. Secondary markets:

 A. allow borrowers to raise long-term funds. B. facilitate capital-raising in the primary market. C. allow borrowers borrowers to raise short-term funds. D. facilitate all of the given answers.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Hard   Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of bu siness organ isation. Topic: Financial markets and the corporation

6. The top financial officer in a firm is commonly referred to as the: A. chief financial officer. B. president of finance. C. controller. D. finance manager.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial manager. Topic: Business finance and the financial manager 

7. The amount of debt and equity used by a firm to finance its operations is called the firm's:

 A. debt ratio. B. working capital ratio. C. capital structure. D. financial position.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial manager. Topic: Business finance and the financial manager 

8. Short-term assets and short-term liabilities are referred to as the firm's:

 A. cash flow. B. capital budget. C. capital structure. D. working capital.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial manager. Topic: Business finance and the financial manager 

9. The management of a firm's cash, inventory, and payables is referred to as: Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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 A. cash-flow forecasting. B. asset management. C. capital management. D. working capital management.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial manager. Topic: Business finance and the financial manager 

10. A business organisation that is similar to a sole proprietorship but has two or more owners is called a:

 A. limited liability company. B. corporation. C. dual company. D.  partnership.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Forms of business organisation

11. The legal papers which designate a firm's name, nature of business, and intended life are called the:

 A. corporate by-laws. B. charter or constitution. C. partnership agreement. D. joint stock company forms.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Forms of business organisation

12. Any situation where a conf lict may arise between the firm's owners and its managers is referred to as a(n):

 A. organisational problem. B. personnel conflict. C. agency problem. D. control issue.

 AACSB: Ethics  Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 4 Describe the conflicts of interest that ca n arise between man agers and owners. Topic: The agency problem and control of the corporation

13. The primary market refers to: A.

the original sale of securities by the issuer. B. transactions between two institutional shareholders. C. the sale of securities by an individual individual shareholder. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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D. the first trade of a firm's securities securities when the financial markets open in the morning.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the different forms of bus iness organisa tion. Topic: Financial markets and the corporation

14. A negotiated sale of securities by an issuer to a specific buyer is called a(n):

 A. public offering. B. secondary placement. C. independent placement. D. private placement.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Financial markets and the corporation

15. Over-the-counter markets are __________ markets. A.  dealer  B. franchise C. private D. auction

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the different forms of bus iness organisa tion. Topic: Financial markets and the corporation

16. A securities market with a physical location that is designed to match buyers with sellers is called a(n)  ________ market:

 A. dealer  B. private C.  auction D. franchise

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Financial markets and the corporation

17. Which one of the following statements is related to capital budgeting?

 A. A firm should monitor the ratio of debt to equity financing which it uses. B. A firm should monitor the amount of its its current assets as compared to its current liabilities. liabilities. C. A firm should consider the size, risk, and timing of an asset's cash flows flows before deciding to purchase that asset. D. A firm should consider various types of loans offered by various lenders before taking out a loan.

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial manager. Topic: Business finance and the financial manager 

18. Working capital management includes which of the following? I. Controlling the inventory level II. Determining when to pay suppliers III. Deciding how much long-term debt to assume IV. Controlling the amount of cash that is readily available

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

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial mana ger. Topic: Business finance and the financial manager 

19. A corporation:

 A. can neither sue another party nor be sued. B. may not own property. property. C. may enter into contracts to borrow funds. D. can issue its own shares but cannot purchase shares in another entity.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Forms of business organisation

20. The primary goal of financial management is to maximise the:

 A. current net income. B. net working capital. C. number of shares outstanding. outstanding. D. market value of the existing stock.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1.2 Identify the goal of financ ial management. Topic: The goal of financial management 

21. Margie opened a used book store and is both the 100% owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts? A.

Sole proprietorship B. Limited partnership C. Corporation Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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D. Joint stock company company

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Forms of business organisation

22. Will and Bill both enjoy sunshine, water and surfboards. Thus, the two friends decided to create a business together in Sydney renting surfboards, paddle boats and inflatable devices. Will and Bill will equally share in the decision making and in the profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

 A. Sole proprietorship B. Limited partnership C. Joint stock company D. General partnership

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the different forms of bus iness organis ation. Topic: Forms of business organisation

23. Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50/50 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

 A. Limited partnership B.  Corporation C. Sole proprietorship D. General partnership

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Forms of business organisation

24. Which of the following individuals commonly use finance in the course of their job? I. Chief financial officers II. Accountants III. Security analysts IV. Strategic managers

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

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 1 Discuss the basic types of financial man agement decisions and the role of the financial manager. Topic: Finance: a quick look 

25. Which one of the following functions should be assigned to the treasurer rather than the controller? Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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 A. Data processing B. Cost accounting C. Tax management D. Cash management

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial man ager.  Learning Objective: 1.2 Identify the goal of financ ial management. Topic: Business finance and the financial manager 

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

 A. How should the firm raise additional capital to fund its expansion? B. What is the cost of debt financing? C. Which type of debt is is best suited to finance our inventory? D. How much cash should should the firm keep in reserve?

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1 .1 Discuss the basic types of financial management decisions and the role o f the financial manager. Topic: Business finance and the financial manager 

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

 A. total debt level. B. working capital. C. capital structure. D. capital budget.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial manager. Topic: Business finance and the financial manager 

28. Which one of the following statements correctly applies to a sole proprietorship?

 A. The business entity has an unlimited life. B. The ownership can easily be transferred to another individual. C. The owner enjoys limited liability for the firm's debts. D. Obtaining additional equity is dependent on the owner's personal finances.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Forms of business organisation

29. Which one of the following applies to a general partnership?

 A. The firm's operations must be controlled by a single partner. B. Any one of the partners can be held solely liable for all of the partnership's debt. C. The profits of the firm are taxed as a separate entity.

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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D. Each partner's liability for the firm's debts is limited to each partner's investment in the firm.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Hard   Learning Objective: 1. 3 Compare the financial implications of the different forms of bu siness organ isation. Topic: Forms of business organisation

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

 A. Determining the optimal inventory level B. Establishing the preferred debt-equity level level C. Selecting new equipment to purchase D. Setting the terms of sale for credit sales

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial man ager. Topic: Business finance and the financial manager 

31. Working capital management includes which one of the following?

 A. Deciding which new projects to accept B. Deciding whether to purchase a new machine or fix a current machine C. Determining which customers will will be granted credit D. Determining how many new shares of stock should be issued

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial manager. Topic: Business finance and the financial manager 

32. In a general partnership, each partner is personally liable for:

 A. the partnership debts that he or she created. B. his or her proportionate share of all partnership debts regardless of which partner incurred that debt. C. the total debts of the partnership, even if he or she was unaware of those debts. D. the debts of the partnership up to the amount he or she invested in the firm.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Forms of business organisation

33. A corporation:

 A. is ultimately controlled by its board of directors. B. is a legal entity separate from its owners. C. is prohibited from entering into contractual agreements. D. has its identity defined by its by-laws.

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Forms of business organisation

34. Which of the following are advantages of the corporate form of organisation? I. Ability to raise large sums of equity capital II. Ease of ownership transfer III. Both profits and dividends are taxed IV. Limited liability for all owners

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

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Forms of business organisation

35. Which one of the following best matches the primary goal of financial management?

 A. Increasing the dollar amount of each sale B. Increasing traffic flow within the firm's stores C. Transforming fixed costs into variable costs D. Increasing the market value of the firm

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1.2 Identify the goal of financ ial management. Topic: The goal of financial management 

36. What is the goal of financial management for a sole proprietorship?

 A. Maximise net income given the current resources of the firm B. Decrease long-term debt to reduce the risk to the owner  C. Minimise the tax impact on on the proprietor  D. Maximise the market value of the equity

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1.2 Identify the goal of financ ial management. Topic: The goal of financial management 

37. Which one of the following is most likely to create a situation where an agency conflict could arise?

 A. Increasing the size of a firm's operations B. Downsizing a firm C. Separating management from ownership ownership D. Decreasing employee turnover

 AACSB: Ethics

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 Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 4 Describe the conflicts of interest that ca n arise between man agers and owners. Topic: The agency problem and control of the corporation

38. Which one of the following is most likely to align management's priorities with shareholders' interests?

 A. Increasing employee retirement benefits B. Compensating managers with shares that must be held for three years before the shares can be sold C. Allowing a manager to decorate his or her own office once he or she has been been in that office for a period of three years or more D. Increasing the number of paid holidays that long-term employees are entitled to receive

 AACSB: Ethics  Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 4 Describe the conflicts of interest that ca n arise between man agers and owners. Topic: The agency problem and control of the corporation

39. Which of the following are effective means of aligning management goals with shareholder interests? I. Employee share options II. Threat of a takeover III. Management bonuses tied to performance goals IV. Threat of a proxy fight

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

 AACSB: Ethics  Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 4 Describe the conflicts of interest that ca n arise between man agers and owners. Topic: The agency problem and control of the corporation

40. Financial institutions are:

 A. institutions that primarily invest in real estate. B. institutions that primarily deal in financial matters. C. institutions that deal in second-hand equipment. D. institutions that engage in manufacturing.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial manager. Topic: Finance: a quick look 

41. The goal of a financial manager should be:

 A. to maximise next year's profit. B. to minimise next year's cost. C. to maximise the value value of the existing existing owners' equity.

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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D. to take no no risks with with shareholders' investments.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1.2 Identify the goal of financ ial management. Topic: The goal of financial management 

42. Which of the following is an example of the agency problem?

 A. Managers always invest in projects that have appropriate returns and that will increase shareholder wealth. B. Managers resign when they believe they have have not always acted in the best best interests of shareholders. C. Managers conduct an acquisition program purely to increase the the size of an organisation. D. Managers look for new projects as they want to avoid business risk.

 AACSB: Ethics  Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 4 Describe the conflicts of interest that ca n arise between man agers and owners. Topic: The agency problem and control of the corporation

43. Which one of the following situations is most likely to create an agency conflict?

 A. Compensating a manager based on his or her division's net income B. Giving all employees a bonus if a certain level of efficiency is maintained C. Hiring an independent consultant to study the operating efficiency of the firm D. Rejecting a profitable project project to protect employee jobs

 AACSB: Ethics  Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 4 Describe the conflicts of interest that c an arise between man agers and owners. Topic: The agency problem and control of the corporation

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

 A. Organisational B. Structural C. Formation D.  Agency

 AACSB: Ethics  Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 4 Describe the conflicts of interest that ca n arise between man agers and owners. Topic: The agency problem and control of the corporation

45. Elizabeth is employed as a loans officer for the Commonwealth Bank. Her job falls into which of the following areas of finance?

 A. International finance B. Financial institutions C. Corporate finance Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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D. Capital management

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial manager. Topic: Finance: a quick look 

46. Bruce is a security analyst working for Goldman Sachs JBWere. His job falls into which of the following areas of finance?

 A. International finance B. Financial institutions C. Corporate finance D.  Investments

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial manager. Topic: Finance: a quick look 

47. Which of the following is an example of a secondary-market transaction?

 A. ANZ bank issues new shares to a large funds manager in a private placement. B. The government issues new long-term bonds. C. Mary sells 1000 Qantas shares through her broker. D. BHP issues new bonds that will mature in ten years.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Financial markets and the corporation

48. Which of the following is an example of a primary-market transaction? A.

ANZ bank issues new shares to a large funds manager in a private placement. B. The ANZ bank sells 10-year government bonds that have five years to maturity. C. Mary sells 1000 Qantas shares through her broker. D. The underwriter sellsshares sellsshares to the public.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of bu siness organ isation. Topic: Financial markets and the corporation

49. Tim works for a large manufacturing company and is now in charge of all fixed asset purchases. In other words, Tim is in charge of:

 A. capital structure management. B. asset allocation. C. risk management. D. capital budgeting.

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial man ager. Topic: Business finance and the financial manager 

50. The Australian government has a tax claim on the cash flows of a corporation. This claim is defined as a claim by one of the firm's:

 A. residual owners B. shareholders C. financiers D.  stakeholders

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 4 Describe the conflicts of interest that ca n arise between man agers and owners. Topic: The agency problem and control of the corporation

51. Which one of the following correctly defines a common chain of command within a corporation?

 A. The chief accountant reports directly to the corporate treasurer. B. The treasurer reports directly to the board of directors. C. The chief financial officer reports directly to the board of directors. D. The accountant reports directly to the chief financial financial officer.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 1 Discuss the basic types of financial ma nagement decisions and the role of the financial manager. Topic: Business finance and the financial manager 

52. A sole proprietorship:

 A. provides limited liability for its owner. B. involves significant legal legal costs during the formation process. C. has an unlimited life. D. has its profits taxed as as personal income.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the different forms of bu siness organ isation. Topic: Forms of business organisation

53. Maria is the sole proprietor of an antique store that she has operated at the same location for the past 16 years. The store rents the space in which it is located but does own all of the inventory and fixtures. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific loan covenants or assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed? I. Sell the inventory and use the cash raised to apply to the debt II. Sell the store fixtures and use the cash raised to apply to the debt III. Take funds from Maria‘s personal account at the bank to pay the store‘s debt IV. Sell any assets Maria personally owns and apply the proceeds to the store‘s debt

 A. I only Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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B. III only C. I and II only D. I, II, III, and IV

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Medium  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Forms of business organisation

54. Which one of the following is an advantage of being a limited partner?

 A. Non-taxable share of any profits B. Control over the daily operations of the firm C. Losses limited to capital invested D. Unlimited profits without risk of incurring a loss

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Forms of business organisation

55. Which one of the following statements about a limited partnership is correct?

 A. All partners have their losses limited to their capital investment in the partnership B. All partners are treated equally C. There must be at least one general partner  partner  D. Equity financing is easy to obtain and unlimited

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of bu siness organ isation. Topic: Forms of business organisation

56. Marti had an unexpected surprise when she ate her Kellogg’s cereal this morning. She found a piece of metal mixed in her cereal. The potential claim that Marti has against this firm is that of a(n):

 A. general creditor  B. debtholder  C. shareholder  D.  stakeholder

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 4 Describe the conflicts of interest that ca n arise bet ween managers and owners. Topic: The agency problem and control of the corporation

57. Which one of the following statements is correct?

 A. All secondary markets are dealer markets. B. All secondary markets are broker markets. secondary-market transactions. C. All stock trades between existing shareholders are secondary-market

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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D. All stock transactions transactions are secondary-market secondary-market transactions.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the different forms of bus iness organis ation. Topic: Financial markets and the corporation

58. Which one of the following statements related to securities dealers is correct?

 A. Dealers match buyers with sellers. B. Dealers buy and sell from their own inventory. inventory. C. Dealers operate exclusively in auction markets. D. Dealers are limited to trading non-listed stocks.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1 .3 Compare the financial implications of the different forms of bus iness organisa tion. Topic: Financial markets and the corporation

59. Which one of the following parties can sell shares of ABC stock in the primary market? A. ABC company B. Any corporation, other than the ABC company C. Institutional shareholder  D. Private individual shareholder

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the different forms of bu siness organ isation. Topic: Financial markets and the corporation

60. An auction market:

 A. handles primary market transactions exclusively. B. has a physical trading floor. C. is also referred to as an OTC market. D. is dealer-based market.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Financial markets and the corporation

61. Which one of the following is a general characteristic of a securities broker?

 A. Trades from his or her own inventory B. Trades only foreign securities C. Trades listed securities securities in an auction market D. Is the principal trader of debt securities

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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 Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Financial markets and the corporation

62. Which one of the f ollowing transactions occurred in the primary market?

 A. Maria gave 100 shares of Telstra stock to her best friend. B. Gene purchased 300 shares of Telstra stock from from Ted. C. Telstra Inc. sold 1000 shares of newly issued stock to Mike. D. Terry sold 3000 shares of Uno stock to his brother.

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Financial markets and the corporation

63. Valerie bought 200 shares of BHP Billiton stock today. BHP Billiton stock has been trading for some time on the ASX. Valerie's purchase occurred in which market?

 A. Dealer market B. Over-the-counter market C. Secondary market D. Primary market

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Financial markets and the corporation

64. Which one of the following is contained in a corporate constitution?

 A. Procedures for electing corporate directors B. Number of authorised shares C. Business purpose of the corporation D. All of the options given here are correct

 AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 3 Compare the financial implications of the d ifferent forms of busine ss organisation. Topic: Forms of business organisation

65. Who of the following are the actual owners of firms? A. All the shareholders. B. The bondholders. C. The largest shareholders. D. The senior management team.  AACSB: Analytical Thinking   Accessibility: Keyboar d Navigation  Difficulty: Easy  Learning Objective: 1. 4 Describe the conflicts of interest that ca n arise between man agers and owners. Topic: The agency problem and control of the corporation

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Chapter 01 - Test Bank - Static Summary Category

# of Questio ns

AACSB: Ethics

7

AACSB: Analytical Thinking

58

Accessibility: Keyboard Navigation

65

Difficulty: Easy

44

Difficulty: Hard

4

Difficulty: Medium

17

Learning Objective: 1.1 Discuss the basic types of financial management decisions and the role of the financia l manager.

18

Learning Objective: 1.2 Identify the goal of financial management.

5

Learning Objective: 1.3 Compare the financial implications of the different forms of business organisation.

33

Learning Objective: 1.4 Describe the conflicts of interest that can arise between managers and owners.

10

Topic: Business finance and the financial manager 

14

Topic: Finance: a quick look 

4

Topic: Financial markets and the corporation

17

Topic: Forms of business organisation

16

Topic: The agency problem and control of the corporation

10

Topic: The goal of financial management

4

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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