Question

1. What are the two basic sources of funds for all businesses?

• Debt
• Equity
• Both debt and equity
• None of the above
• True or False

2. Working capital management is the management of current assets, such as inventory, and current liabilities, such as money owed to suppliers.

• True
• False

3. What are the forms of business organization discussed in this chapter?

• Sole Proprietorship
• Partnership
• Corporation
• All of the above

4. What is meant by stockholders' limited liability?

• That the stockholder's legal liability extends to all personal assets as well.
• That the stockholder's legal liability extends only to the debt owed.
• That the stockholder's legal liability extends only to the capital contributed or the amount invested.
• None of the above

5. What is double taxation?

• The employees of a corporation are subject to double taxation--first when they get their paychecks and then when they pay state and federal income tax.
• The owners of a corporation are subject to double taxation-first at the corporate level and then again at a personal level when they are given dividends.
• The suppliers of a corporation are subject to double taxation-first when the corporation pays their invoices and then again when they have to pay federal taxes.
• None of the above

6. What are some of the regulations pertaining to boards of directors that were put in place to reduce agency conflicts?

• The majority of board members must be outsiders.
• A separation of the CEO and chairman of the board positions is recommended.
• The CEO and CFO must certify all financial statements.
• All of the above

7. Which one of the following mechanisms helps to align management interests with those of its shareholders?

• A well designed management compensation package
• An efficient managerial labor market
• The Sarbanes-Oxley Act of 2002
• All of the above

8. One of the best ways to reduce agency conflict is by

• designing an effective compensation package
• instituting severe penalties for bad decisions
• hiring outside monitors to keep track of the manage's decisions
• having managers report to the board of directors

9. Which of the following factors or activities can be controlled by the management of the firm?

• The level of economic activity
• Stock market conditions
• Capital budgeting
• The level of interest rates

10. Current Liabilities are liabilities that will be converted to cash within a year

• True
• False